A mutual mistake of fact, (a) as to the existence of the subject matter, (b) as to the identity of the subject matter, (c) as to terms employed, prevents the existence of a contract, but mistake as to value or quality, does not affect the validity of the contract.
The subject of mistake in contract has occasioned a great deal of difficulty and a diversity of views, and what is said here will be an attempt to formulate that part of the subject upon which there is a general agreement.
(a) Mutual mistake as to existence of subject matter. This prevents contract.
Example 29. Riegel had a policy of insurance upon the life of his debtor. The debtor disappeared and Riegel kept up the premiums, but finding the matter burdensome, took out a paid up policy for a less sum, in exchange for the old policy. At the time of this change, the debtor was dead, unknown to both parties, and Riegel had the right to recover on the former policy. Held that the mistake prevented the new policy from taking the place of the old and that it would be set aside and a recovery allowed on the faith of the old policy.46
45. Maxfield v. Schwartz, 45 Minn. 150, 47 N. W. 448.
(b) Mutual mistake as to the identity of the subject matter.
If one person has in mind one thing and the other has in mind another thing, and each attempts to contract as to thing he had in mind, there is no "meeting of the minds" and no contract results.
Example 3o. A has a quantity of hemp and also tow for sale all done up in bales, and identified by numbers. The auctioneer made out a catalogue describing the bales by numbers and not disclosing the difference in the commodities. B examined some of the bales of hemp, but not of tow. At the auction the auctioneer offered a quantity of tow, describing it by the number of the bale, and B bid, intending to buy hemp. Held that there was no contract because of the mistake.47
(c) Mutual mistake as to terms employed.
Mistake as to terms employed is not a mistake that ordinarily can be set up by a party to a contract, if we eliminate the cases of mistake induced by fraud. Those cases we have already considered, and are not to be thought of as cases under the heading of mistake, but rather as cases under the subject of fraud.
46. Riegel v. Amer. L. Ins. Co., 153 Pa. 134.
47. Scriven Bros. v. Hindley & Co., L. R., K. B. 1913, p. 564.
If, there being no fraud present, a person will not read a contract, he will be bound by what it contains.47a Any other rule, as has been explained, could not be a workable rule, for the reason that there is really no test whereby we could determine the actual fact, and because also, such a rule would encourage laxity.
Example 31. A landlord presents a lease for B, his prospective tenant, to sign. B signs it without reading it. B is bound by the provisions of the lease although he neglected to read the lease, there being no fraud on the part of the landlord.
If a document as finally written contains a scrivener's error, as where the parties agree to a one year lease, and the typist in preparing makes it ten years, a court of equity would, upon that fact being proved, reform the instrument to meet the true intention of the parties.
Mistake as to Terms of Oral Contract. If there is a mutual mistake as to the terms of an oral contract, and it is evident to the court that there was such a mistake, and if the party claiming the mistake has not acted in any way to prejudice the other, there is no contract.48
(d) Known Mistake as to Terms Taken Advantage of by the Other Party.
If one party makes a mistake as to the terms of the contract which the other party knows he has made and takes advantage thereof, there is no real meeting of minds, and a contract does not result.
47a. Bateman v. Small, 100 S. E. 573 (Geo.). 48. Rupley v. Daggett, 74 111. 351.
Example 32. Butler wrote Moses he would sell him cloth at "five cents a yard that Gale would charge you." This cloth was worth from $2.00 to $6.00 a yard, and Butler meant he would sell cloth for five cents a yard less than Gale would charge. Moses knew this, as he knew that Gale would not sell for the absurd price of five cents a yard. Held no contract.49
B. Circumstances of Undue Advantage Rendering Contract
(a) Fraud in the inducement or consideration.
Fraud in the inducement consists in a representation of fact by one party to the other, known to be false, or with disregard as to whether true or false, made to be acted upon and which is relied upon to the other's damage.
If a party to a contract has secured its execution by the other party by making a statement as to a material fact which he knew to be false and which he made in order to secure its execution and thereby did secure it, the party thus misled may, by proceeding aptly, avoid the contract and may have the aid of the courts, where necessary, to secure rescission.
In cases involving this sort of fraud, the party defrauded is not misled as to the nature of his act, but is simply misinformed as to its advantages or value to him. He has, for instance, been defrauded in buying the Maple Leaf Farm, but he knew that he was buying that farm. Facts were asserted which misled him in order to induce him to make that contract, but he did the very act and entered into the very contract he intended. He may abide by this contract, or avoid it if he chooses.
49. Butler v. Moses, 43 Ohio St. 166, 1 N. E. 316.
Statements of fact which misrepresent, whether by reason of their falsity, or by being so framed as to actually mislead, constitute fraud.
Any statement of fact by which another person is actually misled, is fraudulent.
In Twin Lakes Land & Water Company v. Dohner,50 the Court said: "And it is not at all improbable that defendant's agents, without any literal misstatement of fact, would have created in Dohner's mind the impression that they were claiming the existence of this quantity of reserve water, and should have they known that what they said would create that impression and so must be deemed to have misrepresented in this respect just as much as if they had used the very language charged against them."