This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
If the parties to a contract enter into it under the belief that the subject-matter or consideration is in existence, and in effect condition their contract thereon, no contract exists if the subject-matter is not then in existence.1 A contract by which one party agrees to remove from the land of another a certain amount of mineral, and to pay a certain sum of money for such privilege, creates no liability if such mineral does not exist, unless the parties agree that the person who is to remove such mineral takes the risk of its non-existence.2 A lease of property to be used for manufacturing purposes can be avoided where entered into under a mistake as to water rights which were thought to be easements appurtenant to such realty and without which it could not be used for such purposes.3 If A buys realty which actually belongs to himself, thinking that it belongs to B, such transaction is not valid.4 If A and B believe that they have been adopted by X legally, and under such mistake A sells to B his interest in realty which he thinks has come to him from X by descent, equity frill give relief.5 A contract for an extension of time of a mortgage debt which is entered into by reason of the mistake of both parties in believing that the person who gives such mortgage has a legal title to the property subject thereto, and that the mortgage is a valid lien, is invalid.6 A release given under a mistake as to the existence of an estate contracted for,7 does not affect such right. If A, with whom goods have been deposited is unable to find them, believes that they are lost, and so gives his check therefor, he may, on discovering the goods on the day following, and before payment of the check, stop such payment.8 So if A gives his note to B, thinking that there is a balance due from him to B for which such note is given, when in fact nothing is due, such note may be avoided as to B or an in dorsee with notice.9 If A is mistaken as to the amount of his indebtedness and under such mistake gives a note for too large an amount, equity will give rescission and cancel the note on payment of the amount due,10 and if he has overpaid his debt will decree repayment of such excess.11 A similar rule exists where one by mistake assumes a debt due him to be smaller than it is.12 So where X had forged A's name to a note to B, and induced A to borrow money from B and to give a note therefor and a mortgage securing such note "together with any sums that I now owe" B A not knowing of the existence of the forged note, it was held that the mortgage could not be enforced against A for the forged note.13 So if under a mistaken belief that no credit had been given for a payment which had been made, and in fact credited, the creditor gives a receipt in full on payment of less than the real amount due in pursuance of a contract settling the account, he may recover such difference.14 Any other contract entered into under mistake as to the amount due on a pre-existing liability and based thereon, may be avoided for such mistake.15 Where A has valid insurance on B's life, and thinking B still alive, and being unable to continue paying the premiums, surrenders it ten days after B's death for a paid-up policy, A may avoid the surrender and enforce the policy,16 and a like rule applies where insurance on a vessel is cancelled after the loss, in ignorance of such loss.17 Where insurance is effected on a vessel already lost, the insured knowing of the loss and the insurer being ignorant thereof, the insurer may avoid such policy.18 A contract by which A sold to B an insurance policy on reversed in the life of X, believing that X was alive, when in fact X was dead, may be set aside in equity for mistake.19 If property which is insured has been reinsured, and such contract of reinsurance is rescinded by mutual consent after the insured property has, without the knowledge of either party, been injured by fire, such contract of rescission does not relieve the reinsurer from liability for such loss.20
9 Boston Ice Co. v. Potter, 123 Mass. 28, 25 Am. Rep. 9 (advantage here taken of known mistake).
10 Consumers' Ice Co. v. Webster, 53 N. Y. Supp. 56, 32 App. Div. 592 (fraud, but referred to as misrepresentation). See also, School Sisters v. Kus-nitt, 125 Md. 323, L. R. A. 1916D, 792, 93 Atl. 928 (fraud but referred to as mistake).
11 Fifer v. Clearfield & Cambria Coal ft Coke Co., 103 Md. 1, 62 Atl. 1122 (misrepresentation or fraud causing mistake).
12 School Sisters v. Kusnitt, 125 Md. 323, L. R. A. 1916D, 792, 93 Atl. 928 (fraud, referred to as mistake).
13 Haines v. Starkey, 82 Minn. 230, 84 N. W. 910.
1 England. Couturier v. Hastie, 5 H. L. 673; Smidt v. Tiden,, L. R. 9 Q. B. 446.
United States. Allen v. Hammond, 36 U. S. (11 Pet.) 63, 9 L. ed. 633; Great Northern Ry. Co. v. Reid, 245 Fed. 86, 157 C. C. A. 382.
Illinois. Koenig v. Haddix, 21 111. App. 53.
Kansas. Smith v. Kansas City, 102 Kan. 518, 171 Ac. 9.
Kentucky. Blakemore v. Blakemore (Ky.), 44 S. W. 96.
Maine. Neal v. Coburn, 92 Me. 139, 69 Am. St. Rep. 495, 42 Atl. 348.
Massachusetts. Gould v. Emerson, 160 Mass. 438, 39 Am. St. Rep. 501, 35 N. E. 1065.
Michigan. Gibson v. Pelkie, 37 Mich. 380; Gauntlett v. Ins. Co., 127 Mich. 504, 86 N. W. 1047.
Minnesota. Althoff v. Torrison, 140 Minn. 8, 167 N. W. 119.
Missouri. Beland v. Brewing Association, 157 Mo. 593, 58 S. W. 1; Fisher v. During, 53 Mo. App. 548.
New York. Duncan v. Ins. Co., 138 N. Y. 88, 20 L. R. A. 386, 33 N. E. 730.
Pennsylvania. Riegel v. Ins. Co., 153 Pa. St. 134, 19 L. R. A. 166, 25 Atl. 1070; same case, 140 Pa. St. 193, 23 Am. St. Rep. 225, 11 L. R. A. 857, 21 Atl. 392; Fink v. Smith, 170 Pa. St. 124, 50 Am. St. Rep. 750, 32 Atl. 566.
Virginia. Burton v. Haden, 108 Va.
51, 15 L. R. A. (N.S.) 1038, 60 S. E. 736.
Vermont. Bedell v. Wilder, 65 Vt. 406, 36 Am. St. Rep. 871, 26 Atl. 589.
2Gribben v. Atkinson, 64 Mich. 651 [sub nomine: Gibben v. Atkinson, 31 N. W. 570]; Valley City Milling Co. v. Prange, 123 Mich. 211, 81 N. W. 1074; Cook v. Andrews, 36 O. S. 174; Brick Co. v. Pond, 38 O. S. 65.
3 Bedell v. Wilder, 65 Vt. 406, 36 Am. St. Rep. 871, 26 Atl. 589.
4 Bingham v. Bingham, 1 Ves. Sr. 126. Houston v. Northern Pacific Ry. Co., 109 Minn. 273, 123 N. W. 922; Lawrence v. Beaubren, 2 Bail. L. 623, 23 Am. Dec 155.
5 Lewis v. Mote, 140 la. 698, 119 N. W. 152.
6 Towa Loan & Trust Co. v. Schnose, 19 S. D.248, 103 N. W.22.
7 Pegues v. Haden, 76 Tex. 94, 13 S. W. 171.
8 State Savings Bank v. Buhl, 129 Mich. 193, 56 L. R. A. 944, 88 N. W. 471.
9 Wilderman v. Donnelly, 86 Minn. 184, 90 N. W. 366.
10 Thompson v. Hudgins, 116 Ala. 93, 22 So. 632; Beland v. Brewing Association, 157 Mo. 593, 58 S. W. 1.
11 Gould v. Emerson, 160 Mass. 438, 39 Am. St. Rep. 501, 35 N. E. 1065.
12 McCurdy v. Breathitt, 21 Ky. (5 T. B. Mon.) 232, 17 Am. Dec. 65.
13Nourse v. Jennings, 180 Mass. 592, 62 N. E. 974.
14 Russell v. Stevenson, 34 Wash. 166, 75 Ac. 627.
15 Sweeny v. Water Supply Co., 121 Ala. 454, 25 So. 575; Aultman v. Graham, 29 111. App. 77; Powell v. Plant (Miss.), 23 So. 399; Scott v. Hall, 58 N. J. Eq. 42, 43 Atl. 50 [
Scott v. Hall, 60 N. J. Eq. 451, 46 Atl. 611, on the ground that the transaction was executed, and that a judgment at law sustaining the transaction was conclusive in the absence of fraud]. 16 Riegel v. Ins. Co., 153 Pa. St. 134,
19 L. R. A. 166, 25 Atl. 1070; same case, 140 Pa. St. 193, 23 Am. St. Rep. 225, 11 L. R. A. 857, 21 Atl. 392.
17 Duncan v. Ins. Co., 138 N. Y. 88,
20 L. R. A. 386, 33 N. E. 730, (insurance for a round trip was effected but insured when he thought that the vessel had reached her destination cancelled the policy for the return trip and received back part of the premium).
18 Gauntlett v. Ins. Co., 127 Mich. 504, 86 N. W. 1047.