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When Does a Mistake Preclude Formation of a Real Estate Contract?

Updated on August 15, 2017

As very active real estate attorneys in Los Angeles, we frequently find ourselves litigating purchase and sale contracts. These disputes necessarily involve an element of contract interpretation –even when the parties use the standard form California Association of Realtors contract.

Contract interpretation is always dependent upon the particular case. Sometimes we are asked to litigate the meaning of a particular clause or a particular sentence while other times we are brought in to enforce the entire contract (generally through claims for specific performance) or to negate the contract (by defending a specific performance claim).

The role of a mistake plays in contract formation depends on whether the mistake is unilateral (one-sided) or bilateral (two sided). Generally, a unilateral mistake does not prevent the formation of a contract. That means that a party is bound by the contract and its terms even though the party did not read it or misunderstood its terms. The reason for not having this type of mistake defeat the formation of a contract is obvious from a policy perspective – if a party were able to defeat the terms of a contract by simply arguing they misunderstood it then the certainty and reliability that comes from creating a contract would be defeated.

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However, where there is a mutual misunderstanding regarding the subject matter of the contract and either party is at fault for creating the misunderstanding or neither party is at fault, then there is no meeting of the minds as to the contract and the parties have not formed a binding contract. In this scenario, the bilateral mistake can defeat the formation of the contract and can be a valid basis for avoinding the contract terms.

Sometimes the distinction between a unilateral and a mutual mistake can be slight but the distinction is nevertheless important.

At Schorr Law, our real estate attorneys have extensive experience with contract interpretation and with litigating purchase and sale disputes. To inquire about a free consultation, contact us today at (310) 954-1877, [email protected] or by filling out our contact form.