Contracts. A plea by one of the parties to a contract that he was mistaken about a fact pertaining to the subject matter of the contract and therefore should not be bound by the terms of said contract.  Unilateral mistake of fact could be presented as an affirmative defense to a breach of contract claim whereby the defendant claims that he should not be held liable for breach of contract because he was mistaken about a fact pertinent to the subject matter of the contract.  It could also be asserted as a claim by a plaintiff as grounds for seeking equitable relief of rescission or reformation of the contract.

In order to succeed on a claim or defense based on unilateral mistake of fact, the mistaken party must prove each the following elements:

  • That the party was mistaken about a fact pertinent to the subject matter of the contract;
  • That the other party to the contract knew of the mistake and used that mistake to take advantage of the mistaken party;
  • That the mistake was not caused by the party’s excessive carelessness; and
  • That the mistaken party would not have entered into the contract if he had known about the mistake.

Reference Desk

General:

City of Colony v. North Texas Municipal Water District, 272 S.W.3d 699 (2008).

“A plaintiff must show the following in order to be entitled to equitable relief on the grounds of unilateral mistake: (1) the mistake is of so great a consequence that to enforce the contract as made would be unconscionable; (2) the mistake relates to a material feature of the contract; (3) the mistake must have been made regardless of the exercise of ordinary care; and (4) the parties can be placed in status quo in the equity sense; i.e., rescission must not result in prejudice to the other party except for the loss of his bargain.” (Id. at 737.)

Materiality of the Mistake:

Merced County Mutual Fire Insurance Co. v. State of California, 233 Cal. App. 3d 765 (1991).

“Civil Code section 1689 provides that a party to a contract may rescind the contract if his consent was given by mistake or fraud exercised by or with the connivance of the party as to whom he rescinds, or of any other party to the contract jointly interested with such party . . . Thus, when a party has been induced by fraud or mistake to enter into a contract, the party may have the contract set aside and seek restitution of those benefits lost to him by the transaction . . . When contracting parties have entered into a contract under a material mistake of law or fact, the parties are entitled to be relieved by reason of their mutual mistake . . . This mistake may be reflected in an innocent misrepresentation by one party, believed by the other.  Thus, rescission is available for a unilateral mistake, when the unilateral mistake is known to the other contracting party and is encouraged or fostered by that party . . . Materiality is to be determined solely by the probable and reasonable effect which truthful answers would have had upon the insurer (Ins. Code § 334)[1] ; i.e., was the insurer misled into accepting a risk, fixing the premium of insurance, estimating the disadvantages of the proposed contract or making his inquiries.  The fact that the insurer has demanded answers to specific questions in an application for insurance is in itself usually sufficient to establish materiality as a matter of law . . .  The cases allowing rescission for a material misrepresentation involve a misrepresentation regarding the nature of the risk to be insured. For example, in Old Line Life Ins. Co. v. Superior Court, supra, the insured misrepresented her smoking history on a life insurance application. The court held that an insurance company can rescind an insurance policy upon such a misrepresentation. (229 Cal.App.3d at p. 1606.) Likewise, i Imperial Casualty Indemnity Co. v. Sogomonian, supra, 198 Cal.App.3d 169, the applicants made numerous misrepresentations regarding their loss history, litigation and cancellation experience in an application for homeowner’s insurance. The court found the misrepresentations material as a matter of law. (Id. at p. 182; accord, Cohen v. Penn Mut. Life Ins. Co. (1957)48 Cal.2d 720, 725 [312 P.2d 241] — failure to reveal cardiac conditionStandard Accident Ins. Co. v. Pratt(1955)130 Cal.App.2d 151, 155 [278 P.2d 489] — insured misrepresented he had a valid driver’s license in application for auto insurance De Campos v. State Comp. Ins. Fund (1954) 122 Cal.App.2d 519, 523-524, 528 [265 P.2d 617] — failure to name one partner to be covered by workers’ compensation policy because he did not have good credit was a material misrepresentation.)”

Knowledge of the Other Party:

Architects & Contractors Estimating Service, Inc. v. Smith, 164 Cal. App. 3d 1001 (1985).

“It is essential to the existence of a contract that there be parties capable of contracting, their consent, a lawful object and consideration (Civ. Code, § 1550). The consent of the parties to a contract must be free, mutual and communicated by each to the other (§ 1565). Consent is not free when obtained through fraud or mistake (§ 1567) and is deemed to have been so obtained when it would not have been given but for such fraud or mistake (§ 1568).  Mistake may be either of fact or law (§ 1576). A mistake of fact “. . . is a mistake not caused by the neglect of a legal duty on the part of the person making the mistake, and consisting in: ‘1. An unconscious ignorance or forgetfulness of a fact past or present, material to the contract; or, 2. Belief in the present existence of a thing material to the contract, which does not exist, or in the past existence of such a thing, which has not existed.” (§ 1577.) (6) A mistake need not be mutual. Unilateral mistake is ground for relief where the mistake is due to the fault of the other party or the other party knows or has reason to know of the mistake.'”  (Id. at 1007-1008.)

Meyer v. Benko, 55 Cal. App. 3d 937 (1976).

“A unilateral mistake of fact may be the basis of relief. (1 Witkin, Summary of Cal. Law (8th ed. 1973) Contracts, § 295, p. 248.) However, such a unilateral mistake may not invalidate a contract without a showing that the other party to the contract was aware of the mistaken belief and unfairly utilized that mistaken belief in a manner enabling him to take advantage of the other party.” (Id. at 944.)

Excessive Carelessness:

Wal-Noon Corp. v. Hill, 45 Cal. App. 3d 605 (1975).

“We are not dealing here with a situation where equally innocent persons, laboring under a common mistake, have dealt with one another. In such cases the burden of loss resulting therefrom ordinarily will be left where the parties themselves have placed it unless equity and good conscience require restitution by defendant.  Rather we are here presented with a case of unilateral mistake on the part of plaintiffs. Under such circumstances there can ordinarily be no recovery where the error of the mistaken party is occasioned by the neglect of a legal duty.  Failure to make reasonable inquiry to ascertain or effort to understand the meaning and content of the contract upon which one relies constitutes neglect of a legal duty such as will preclude recovery for unilateral mistake of fact.”  (Id. at 614-15, citations omitted.)

Architects & Contractors Estimating Service, Inc. v. Smith, 164 Cal. App. 3d 1001 (1985).

“To rely on a unilateral mistake of fact, Smith must demonstrate his mistake was not caused by his “neglect of a legal duty” (§ 1577). (5b) Ordinary negligence does not constitute the neglect of a legal duty as that term is used in section 1577. (Sun ‘N Sand, Inc. v. United California Bank (1978) 21 Cal.3d 671, 700-701 [148 Cal.Rptr. 329582 P.2d 920]; White v. Berrenda Mesa Water Dist. (1970) 7 Cal.App.3d 894, 901 [87 Cal.Rptr. 338] .)”  (Id. at 1008.)

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