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Mutual Misunderstanding in Contract

Benjamin Alarie

University of Toronto - Faculty of Law


American Business Law Journal, Vol. 46, No. 4, pp. 531-572, 2009

It is accepted throughout the common law that agreements founded on a mutual misunderstanding are void ab initio. It follows from this that unenforcement is necessary and inevitable; indeed, there is simply no contract to enforce. Curiously, however, in cases involving mutual misunderstanding the parties themselves usually believe and behave as if they have settled upon a knowable and enforceable agreement from the outset. It is typically only sometime later that the mutual misunderstanding between the parties comes to light. In this article I question the wisdom of the widely accepted common law rule surrounding mutual misunderstanding. I present and defend an alternative legal rule that significantly improves upon the efficiency of the results in cases involving mutual misunderstanding. The rule I propose would allow each party to an agreement founded on mutual misunderstanding to have the option to enforce his or her reasonable understanding of the agreement vis-a-vis the other party. This rule can be shown to preserve the reasonable expectations of the parties, promote reliance on promises, and provide implicit insurance against the risk that a mutual misunderstanding will interfere with the realization of expected contractual surplus.

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Date posted: June 11, 2008 ; Last revised: December 7, 2009

Suggested Citation

Alarie, Benjamin, Mutual Misunderstanding in Contract (2009). American Business Law Journal, Vol. 46, No. 4, pp. 531-572, 2009. Available at SSRN: https://ssrn.com/abstract=1142941

Contact Information

Benjamin Alarie (Contact Author)
University of Toronto - Faculty of Law ( email )
Jackman Law Building
78 Queen's Park
Toronto, Ontario M5S 2C5
416-946-8205 (Phone)
416-978-7899 (Fax)
HOME PAGE: http://www.law.utoronto.ca/faculty-staff/full-time-faculty/benjamin-alarie
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