Mistakes of law are mistakes which are made because someone incorrectly interpreted the law. These are the biggest mistakes that can be made in contract law, because they almost always result in a finding against the person who wrote the contract, or who hired the lawyer who wrote the contract. A mistake of law can as simple as specifying in the contract what court will have jurisdiction over the matter and incorrectly choosing a state court over a federal court or vice versa.
Or, a mistake f law can be on a grandiose scale, such as incorrectly interpreting the impact that an environmental statute will have on a proposal to build a new landfill. A mistake of law in a contract can be no big deal if the contract is never disputed. Problems arising from mistakes made in the contract only become an issue when the contract is disputed.
If both parties execute the contract in the manner anticipated and the contract is never disputed, the question of mistakes becomes moot. However, since no entities, no matter how closely tied, can rely on contracts being handled without dispute, it is imperative that the party drawing up the contract be certain that they have a complete understanding of how the law applies in the situation and that the knowledge is reflect in the wording of the contract.
One common mistake of law in contracts is the inclusion of a penalty for contract termination While including specific language regarding contract termination is a very good idea, penalties must clearly reflect actual damages caused by the breach of contract; punitive damages clauses are not permissible in contract law (Davis 2007).
When dealing with very large contracts, this issue can be very complex. A company may claim losses due to efforts put into a failed contract and may try to recoup some of those losses through pre-arrangement with a damages clause in the contract, but it cannot seek to punish its failed contractual partner with the damages clause.