Something that would unsettle the agreement completely if untrue / fundamental in character
“Materially affecting the agreed performance”
One party is much worse off and one party is much better off
Mutual Mistake (R § 152)
(1) BOTH parties are mistaken
(2) Under R § 152, the mutual mistake has to relate to a basic assumption of the contract AND it must have a material effect on the performances
§ 152(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 Restatement § 154
(3) Under R § 154, the party seeking to avoid the obligation can NOT be a party who has assumed the risk, such as…
(1) Where the risk is allocated by the agreement itself
(2) When a person is aware that he has limited knowledge and acts regardless
(3) The risk gets allocated by the court by deciding who was in the best position to avoid a mistake or ensure against it
Unilateral Mistake (R § 153)
(1) ONE party is mistaken
(2) Under R § 153, the unilateral mistake is about something that is a basic assumption of the contract AND must have a material effect on the performances
R § 153 (1) 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 performance 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 Section § 154
(3) Under R §§ 153(1)(a) & (b), a party who wants to show a unilateral mistake has to show:
The result was unconscionable OR
(a) the effect of the mistake is such that enforcement of the contract would be unconscionable
(b) That the other party had reason to know of the mistake or his fault caused the mistake
Under unilateral mistake, a party seeking to avoid the obligation must show that enforcement would be UNCONSCIONABLE or that the other party KNEW OF or CAUSED the mistake
Lenawee County Board of Health v. Messerly
(Mutual Mistake & Risk Allocation- R §§ 152 & 154)
FACTS
D unknowingly sold the Pickleses a 3-unit apartment building w/ a septic tank, installed w/out permit in violation of applicable health codes
Contract contained clause that “purchaser has examined this property and agrees to accept same in its present condition”
6 days after purchase, Pickleses discovered raw sewage seeping from ground / P condemned the property and sought an injunction against human habitation until brought into compliance w/ sanitation code
ISSUE
Is rescission always granted when there is a mutual mistake?
HELD
A court need not grant rescission in every case in which there is a mutual mistake that relates to a basic assumption of the parties upon which the contract was made and which materially affects the agreed performance of the parties, especially when there is some agreed allocation of the risk
Mutual mistake? → Both parties believed that the property transferred was suitable for residential use / didn’t know about septic tank
Mistake involves basic assumption? → Yes, a structural problem that cannot be remedied
Basic assumption materially affect the agreed performance→ Pickleses are much worse off / Messerlys are much better off
Was the risk allocated? →YES, risk allocation to the Pickleses b/c of the “as is” clause in the contract, which they agreed to
