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 A is mistaken as to an essential element of a contract, and B, the adversary party, knows of such mistake and does not correct it, no contract exists.1 If the vendor believes .that his estate in certain realty is less than it is in fact, and the vendee knows of vendor's mistake, equity will rescind a contract which the vendor has entered into with the vendee if the vendee has not informed vendor of such mistake.2 So if A, an insurance company, pays a claim to B, the insured, for the loss of B's property by reason of the negligence of X, a railway company, and B does not disclose to A that he has settled with X, thereby defeating A's right of subrogation, A can recover the payment.3 So if tenants who are to pay a less rent than the regular rate if a lower rate is charged for the adjoining premises, pay the regular rate because the lessor does not disclose that he has made a reduction in the rent of such adjoining premises, they may recover such excess.4 Examples of such non-disclosure have been given under mistake.5 Non-disclosure of this type is a peculiar form of mistake. It differs from pure mistake chiefly in this: that while in pure mistake no relief can be given ordinarily where one party has by mistake expressed his intention in terms differing from those intended;6 a different rule applies where the adversary party knew of such mistake and did not disclose it.
1 Corson v. Benson, 86 Cal. 433, 25 Ac. 7; Wilson v. Moriarty, 88 Cal. 207, 26 Ac. 85; Chickasaw, etc., Ins. Co. v. Weller, 98 la. 731, 68 N. W. 443; Manter v. Truesdale, 57 Mo. App. 435.
2 McCormick v. Miller, 102 111. 208, 40 Am. Rep. 577; Mason v. Pelletier, 82 N. Car. 40.
3 Chickasaw, etc., Ins. Co. v. Weller, 98 la. 731, 68 N. W. 443.
4 Corson v. Berson, 86 Cal. 433, 25 Ac. 7.
5 See Sec. 251 et seq. 6 See Sec. 266 et seq.