Mistake Flashcards
Under what circumstances is “mistake” a means to avoid a contract?
It depends whether the mistake is “mutual” (i.e., by both parties) or “unilateral” (i.e., by one party).
Mutual mistake of fact: It’s grounds to avoid a contract UNLESS the parties assumed the risk of a mistake (e.g., the transaction involved sale of a gemstone with neither party knowing what it is; they assumed the risk it’s a diamond and worth far more than the sale price).
Unilateral mistake: Avoidance GENERALLY allowed if both of these conditions are satisfied: enforcing the contract against the mistaken party would be oppressive or grossly unfair and avoidance would impose no substantial hardship on the other party (normally this means that the contract has to be entirely executory—that is, it’s yet to be performed.
Otherwise, it’s tough not to hurt the other party). Note also that the mistake has to be substantial to allow relief for a unilateral mistake; it won’t be allowed where the mistake is small or so large that the other party should have realized it.
CP §§9.27 at 368; 9.27 at 369-370.
N.B.: The mistake in question must be a mistake of fact; if instead the mistake has to do with something that’s expected to happen in the future, relief (if it’s available at all) is covered by the doctrines of impracticability and frustration (these are discussed under P&D/DSC).
CP §9.26 at 361.
Rock Racer wants to cover his exercise room ceiling with mirrors so he can watch himself workout from all angles. He receives bids on the project of $250, $300, and $400. The $250 bid was from Seamy Sometime Renovators, but it intended to bid $350; the bid was incorrectly transmitted by the telegraph company. Does a contract exist between them for $250?
Yes. Because Seamy chose the intermediary—the telegraph company—it is bound to honor the bid they transmitted ($250). Note that because the $250 bid wasn’t that much different than the other two, there are no grounds for believing Rock should have realized there was a mistake. (If the price had been so low that Rock SHOULD have realized there was a mistake, the bid wouldn’t be enforceable.)
NOTE: Seamy can sue the telegraph company for damages.
H. G. Wells plans to build himself a time machine that will cost about $2,000. He goes to the No-Valu Hardware Store to order the materials for the machine. The No-Valu manager calculates Wells’s bill as $2,500. Wells agrees to pay, and the manager orders the materials from various manufacturers. The manager subsequently checks over the bill, and finds he had made an error of $150 in Wells’s favor. There is no reason Wells should have known about the mistake. Is there a contract for $2,650?
No, there’s a contract for $2,500 according to many courts. Note that there wasn’t a mistake in the offer—No-Valu intended to offer $2,500—there was only an error in the underlying calculation.
N.B.: Many cases hold that the mistaken party in this type of situation may cancel the contract in equity, as long as the other party has not relied on the contract. Also, if the mistake is so egregious as to outweigh the other party’s expectations under the agreement, the agreement may be canceled.
CP §9.27 at 368-371.
