Slides · Class 18

By the end of 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.

Today

Floor. ~40 min: R2d § 153 + DePrince. The doctrine the next class assumes you have covered.

Target. ~75 min: Floor + R2d § 152 + Sherwood + Wood + § 154 synthesis.

R2d § 151: Mistake Defined

A mistake is a belief that is not in accord with the facts.

Mutual vs. unilateral — and value vs. fact

Two cuts organize the entire doctrine.

Who was wrong?

Mutual mistake (§ 152). Both parties held the same false belief. Easier to rescind.

Unilateral mistake (§ 153). One party was wrong. Harder — the mistaken party must also show enforcement would be unconscionable or the other party knew or caused the error.

What kind of error?

A mistake about a present fact (the cow is barren; the stone is glass) can support relief.

A mistake about value or a prediction cannot. Selling a diamond cheaply because you misjudged its worth is a bad bargain, not a legal mistake.

R2d § 152: When Mistake of Both Parties Makes a Contract Voidable

(1) Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in § 154.

(2) In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise.

R2d § 153: When Mistake of One Party Makes a Contract Voidable

Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in § 154, and

(a) the effect of the mistake is such that enforcement of the contract would be unconscionable, or

(b) the other party had reason to know of the mistake or his fault caused the mistake.

R2d § 154: When a Party Bears the Risk of a Mistake

A party bears the risk of a mistake when

(a) the risk is allocated to him by agreement of the parties, or

(b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or

Voidability matrix

Four defense subgraphs — mistake (mutual and unilateral), misrepresentation (fraudulent and innocent), duress (physical and economic), and undue influence — each showing elements and void or voidable outcome; physical compulsion is the only void result. — Mistake occupies the top-left subgraph; mutual and unilateral mistake share the same matrix but differ in the element of fault allocation.

DePrince v. Starboard Cruise Services, Inc.

271 So. 3d 11 (Fla. Dist. Ct. App. 2018) (en banc)
District Court of Appeal of Florida, Third District

Rule. 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)
Supreme Court of Michigan

Rule. 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)
Supreme Court of Wisconsin

Rule. 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.

Mistranscription: when the writing is wrong (reformation)

A different kind of mistake: the parties agreed correctly, but the writing misstates the deal — a scrivener's error.

The remedy is reformation, not rescission (R2d § 155): the court rewrites the document to match the agreement the parties actually made.

Mistake of fact (§ 152): the contract accurately records a deal built on a false belief → rescission.
Mistake of expression (§ 155): the deal is sound, but the paper got it wrong → reformation.

OneBeacon v. Travelers: an insurance policy's text covered more lessees than the parties intended. Reformation available — if clear evidence shows the true shared intent.

Worked example: the mispriced painting

A collector buys a painting at a yard sale for $50, believing it to be a print. Both buyer and seller had this belief. The painting turns out to be a genuine Pollock worth $5 million. Seller learns of the discovery and sues for rescission.

Q. Under R2d § 152, does the seller get rescission? Walk the four elements.

Stretch: second hypothetical

Vary one fact. In Sherwood v. Walker, the buyer discovers the cow's pregnancy at the exact moment of delivery rather than later. Does R2d § 152's 'basic assumption' analysis turn on what the parties believed at contracting, or on what they knew at any point before performance?

Stretch: practice problem

Stretch problems from the chapter.

Problem 11.1. A Mistaken Dream. See casebook Chapter 11.

Problem 11.2. A Foundational Mistake. See casebook Chapter 11.

Walk through the analysis on the board. Hit the rule, the elements, the line of authority, the answer.

Class summary

Rules. R2d § 152, R2d § 153, R2d § 154.

Cases. DePrince v. Starboard Cruise Services · Sherwood v. Walker · Wood v. Boynton.

Open question. Mistake is about what both parties BELIEVED. What if one party knew the truth and stayed silent? That is misrepresentation by nondisclosure. Class 19 picks up with Hill v. Jones.

Next time

Next class: Improper Bargaining

_Defenses_ · Nov 3

Read Barrer v. Women's National Bank and Quebodeaux v. Quebodeaux with R2d §§ 159, 164, 175. Mistake asked what both parties BELIEVED. Misrepresentation and duress ask what one party DID. When does silence become a lie, and when does pressure become coercion? Come ready to answer. You may be called.

Class 18: Mistake