Also known as: materially affects · materially affected · materially affecting · material effect · material impact
Written by attorneys · grounded in primary & secondary sources — see below
An effect on the agreed exchange of performances that is sufficiently substantial to render a contract voidable by the adversely affected party when both parties or one party labored under a mistake about a basic assumption at the time of contracting.
Marcus Mitchell and Musa Mensah signed a contract to exchange two parcels of land based on their shared belief that both parcels contained valuable timber. After execution they discovered the timber on Mitchell's parcel had been destroyed by fire months earlier. The destruction substantially changed the value each party expected to receive, so Mitchell may avoid the contract.
Monica Morgan agreed to sell equipment to Miles Montgomery at a price calculated on the assumption that a key patent remained in force. Montgomery knew the patent had expired. The expiration drastically reduced the equipment's market value and produced a severe loss for Morgan. Because enforcement would be unconscionable, Morgan may avoid the contract.
Select any source to read its text and confirm it supports the definition.
Mariam Mansour and Michelle Murphy contracted for the sale of a building under the shared belief that the structure could support a third story. After signing they learned the foundation would not bear the added weight. A court may order restitution of the down payment rather than rescission because the relief reduces the material effect on the exchange.
A coal company challenged a state subsidence statute that required it to leave small pillars of coal in place to protect surface structures. The company showed that only a minor percentage of its coal was affected and that its overall investment-backed expectations remained intact. The court held the duty did not produce a material effect on the value of the support estate.
A court examines whether the mistake concerns a basic assumption that substantially alters the value or performance each party expected. Reformation, restitution, or other relief may reduce the effect and prevent avoidance.
Enforcement is unconscionable when the mistake produces severe, unanticipated losses that shock the conscience and the mistaken party does not bear the risk. The other party's knowledge of the mistake supplies an independent ground for avoidance.
Yes. A party bears the risk when it knows its knowledge is limited yet treats the assumption as sufficient. Conscious reliance on preliminary data prevents avoidance even if the mistake materially affects the exchange.
…profitably mined in any event, and there is no showing that petitioners’ reasonable “investment-backed expectations” have been materially affected by the additional duty to retain the small percentage that must be used to support the structures protected by § 4. The Support Estate Pennsylvania property law is apparently unique…