Reading
Chapter 11 (full). Restatement (Second) §§ 152, 153, 154.
Time budget
- Floor
- ~40 min — R2d § 152 + DePrince. The doctrine the next class assumes you have covered.
- Target
- ~75 min — Floor + Sherwood + R2d § 153 + synthesis.
- Ceiling
- ~110 min — Target + Practice problems on Wood v. Boynton.
By the end of this class, you can
- Apply R2d § 152's mutual-mistake elements (basic assumption, material effect, no risk allocation) to a Sherwood v. Walker style fact pattern.
- Apply R2d § 154 to determine when a party bears the risk of mistake under the contract or by allocation of the court.
- Distinguish mutual mistake from unilateral mistake and from a one-sided value mistake (the rough diamond) on a short hypothetical.
Mistake is the first defense that turns on what the parties believed rather than what either party did. A mistake is “a belief that is not in accord with the facts” (R2d § 151), but not every error excuses performance. The doctrine balances contractual stability against fairness, and the decisive question is usually not whose belief was wrong but who agreed — expressly or by proceeding in the face of uncertainty — to bear the risk that it might be.
Mutual mistake
R2d § 152. A contract is voidable for mutual mistake where (1) both parties were mistaken (2) about a basic assumption on which the contract was made, (3) the mistake has a material effect on the agreed exchange, and (4) the adversely affected party does not bear the risk under § 154. A mistake about identity or existence of the subject matter typically qualifies; a mistake about mere value typically does not.
Risk allocation
R2d § 154. A party bears the risk of a mistake when (a) the contract allocates the risk to him, (b) he proceeds with conscious ignorance — knowing he has only limited knowledge but treating it as sufficient — or (c) the court reasonably allocates the risk to him. This is the element that most often decides the case, and it is what separates Sherwood from Wood.
Unilateral mistake
R2d § 153. Where only one party is mistaken, the burden is higher. In addition to the § 152 elements, the mistaken party must show either that enforcement would be unconscionable, or that the other party had reason to know of the mistake or caused it. Contract stability explains the heightened bar: courts are reluctant to undo a deal for one side’s unshared error.
Cases
DePrince v. Starboard Cruise Services applies the unilateral-mistake test to a mispriced diamond: the buyer who knew or should have known the quoted price was a gross error cannot hold the seller to it. Sherwood v. Walker granted rescission where both parties believed a cow was barren and she was not, reasoning that the mistake went to the substance of the thing rather than its quality. Wood v. Boynton denied rescission where a seller parted with a rough stone for $1 that proved to be a $700 diamond — a mistake as to value, with the seller having assumed the risk by selling without investigating. The two cases together show why the modern frame asks about risk allocation under § 154 rather than the older “substance versus quality” metaphysics.
What you should be able to do
Apply the four § 152 elements to a Sherwood-style fact pattern, use § 154 to decide when a party bears the risk by contract or conscious ignorance, and distinguish mutual mistake from unilateral mistake and from a non-actionable mistake of value. Next class moves from what parties believed to what one party did — misrepresentation, duress, and undue influence.
Slide deck
Spacebar / arrow keys to advance. Press F for fullscreen. Click Print / PDF for handouts. PPTX export is professor-only.
Rules
Cases
- DePrince v. Starboard Cruise Services, Inc. 271 So. 3d 11 (Fla. Dist. Ct. App. 2018) (en banc) Unilateral mistake supports rescission where (1) the mistake goes to a material term, (2) enforcement would be unconscionable, (3) the mistake did not result from inexcusable lack of care, and (4) the other party can be returned to status quo. A buyer's knowledge or silence in the face of an obvious error can defeat enforcement.
- Sherwood v. Walker 66 Mich. 568, 33 N.W. 919 (1887) A mutual mistake going to the substance of the thing bargained for, not merely to its quality, renders the contract voidable. Where both parties believed a cow to be barren and she proved fertile, the mistake went to the very nature of the bargained-for animal.
- Wood v. Boynton 64 Wis. 265, 25 N.W. 42 (1885) Mutual mistake as to the value, but not the identity, of the subject matter does not justify rescission. A sale stands when both parties were ignorant of the true nature of the thing and neither bore a duty to investigate.
Notes
Sherwood v. Walker; Wood v. Boynton.