Mutual Mistake.

When both parties make the same mistake of fact, the agreement is void. Thus, the contract is void if both parties mistakenly believe that the contract can be performed, when in fact, it is impossible to perform it. As­sume that A meets B downtown and makes a contract to sell to B an auto­mobile,which both believe is in A's garage. Actually the automobile was destroyed by fire an hour before the agreement was made. Since this fact is unknown to both parties, there is a mutual mistake as to the possibility of performing the contract, and the agreement is void.

When a sale was made of a business and both the seller and buyer believed that it was operating at a profit, there was a mutual mistake of fact when the business was actually running at a loss, and the agreement was therefore not binding.'

(a) Mistake as to Expectations. A bilateral mistake with respect to expectations ordinarily has no effect on the contract unless the realization of those expectations is made an express condition of rhe contract. This means that the mistake has no effect unless the contract says that it shall be void if the matter is not as believed.

(b) Mistake of Law. When the mutual or bilateral mistake is one of law, the contract generally is binding. Thus, even if both parries to a lease mistakenly believe that the leased premises can be used for boarding animals because they are unaware of a zoning regulation that prohibits such a use of the property, the tenant does not have a right to rescind the lease for mutual mistake of law. In the eyes of the law the parties should have known what the zoning regulations allowed. A few courts have refused to follow this rule, and in several states statutes provide that a mutual mistake of law shall have the same effect as a mutual mistake of fact.

(c) Collateral Matters. When a mutual mistake occurs as to a collat­eral matter, it has no effect on the contract thereafter executed. For example, where the plaintiff asks the fire insurer to issue a policy and both the insured and the insurance company wrongly believed that there was no other policy, the policy which was then issued to the insured was nor void because of rhe mutual mistake that there was no other policy. That mistake was as to a col­lateral matter.

FACTS:

Couri Pontiac made a contract wiер Interstate Industrial Uniform Rental, Inc. by which the latter agreed to supply Couri with clean uniforms for its personnel. At the time, Couri was already under a contract with Stan­dard Uniform Rental, Inc. Both Couri and Inter­state knew this but both believed that Couri could terminate the contract with Standard whenever it chose to do so. This was a mistake. The contract with Standard obligated Couri to take its service on a year to year basis, with the contract continuing to exist each year unless timely notice was given to terminate the agree­ment. Couri refused to go through with its con­tract with Interstate. Interstate sued Couri for breach of contract. Couri claimed that there was no contract because the parties had made a mutual mistake as to the existence of a binding contract with Standard.

DECISION:

Judgment for Interstate. No mistake had been made with respect to Interstate's con­tract with the customer. The mistake that was made was whether the customer had another contract with a third person. That mistake was not related to Interstate's contract with the customer but was outside or collateral to it. Therefore the fact that that mistake had been made did not alter the fact that Interstate and the customer had made an agreement, and that agreement was therefore binding. [Interstate Industrial Uniform Rental, Inc. v Couri Pontiac, Inc. (Me) 355 A2d 913 (1976)]