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.
Mistake in the inducement exists, as we have seen,1 when one party enters into a contract with full knowledge of the existence and identity of the essential elements thereof, namely, the adversary party, the subject-matter, the consideration, and the terms; but his willingness to enter into such contract is caused by his erroneous belief as to a collateral but material fact without which he would not have entered into such contract, and such erroneous belief is not due to any statement made by the adversary party. If the fact in question is immaterial the mistake is clearly inoperative, since even-fraud is inoperative if the statement concerns an immaterial matter.2 If, on the other hand, the erroneous belief is due to some statement made by the adversary party we have a case either of fraud3 or of misrepresentation.4 Mistake in the inducement is therefore limited as indicated. Now it is evident that very few contracts have ever been entered into where each party was fully advised of all the facts which were material, and which affected his willingness to enter into the contract. Whatever may be thought of the propriety from a moral standpoint of holding a person to a contract into which he entered under a mistake as to a collateral material fact, the law is confronted with the necessity of adopting a rule which will make it possible to enforce contracts at all. Accordingly, the rule adopted by the great weight of authority is that mere mistake in the inducement is not operative and that a contract induced by reason thereof is perfectly enforceable and valid. A mistake of this sort is "an error for which the law furnishes no relief."5 Mistake is said to be operative only when it concerns the very essence of the transaction.6 The rule is the same in equity.7 This distinction between the effect of mistake as to an essential element of a contract and mistake in the inducement has been sharply emphasized.8 In a leading English case it was held that a sale of oats by sample is valid, though they are new oats and the vendee believes that he is buying old oats.9 So the purchase of realty under a mistake as to the quality of the land,10 or as to the use to which it has been put,11 or its value;12 the purchase of a horse under a mistake of fact as to its condition;13 the purchase of an interest in a partnership under mistake as to its value;14 a contract for the settlement of an estate, made under mistake as to the value of bank stock accepted by one of the parties as his share;15 the purchase of a machine under the mistaken belief that it was fit for a specific purpose;,16 the purchase of a note under mistake as to the solvency of the maker, whether after17 or before18 such maker has made an assignment; the purchase of municipal bonds under a mistake as to their validity;19 and the purchase of government bonds under mistake as to the amount of premium due thereon,20 are all examples of contracts entered into under mistake of fact in the inducement, which are valid and binding. So where a party makes a mistaken estimate of the value of properly,21 or where A sold B a note which both parties thought was secured by a first trust deed, though in fact a prior trust deed had been overlooked in searching the record,22 such contracts can not be avoided on the ground of mistake. One of the most extreme cases under this subject is Wood v. Boynton.23 In this case A sold a stone to B, both believing that it was probably a topaz, and both knowing that they did not know exactly what it was. The price was one dollar. It subsequently turned out that the stone was a rough diamond worth about seven hundred dollars. A on learning of these facts tendered one dollar and interest to B and demanded the stone. On B's refusal to deliver it, A sued him to recover the stone. It was held that A could not recover at law, the court declining to express an opinion as to whether A could obtain relief in a suit in equity. While this is an extreme case, since the actual value was so greatly in excess of the belief of the parties, the decision is undoubtedly correct. If the stone had proved to be worthless, B could not have recovered the dollar paid by him. So where A enters into a contract with B by reason of mistake as to other collateral facts he can not avoid liability on the contract: as where A is mistaken as to the terms of a contract made with X and because of that contracts with B;24 or A employs B as a trainer under mistake as to the speed qualities of A's horse; 25 or A promises to pay for hauling groceries to his residence under a mistaken belief that he is under quarantine;26 or A makes a conveyance to B, thinking that the notes and mortgage received by her in payment would not be subject to taxation;27 or A buys the interest of the heirs in an estate, not knowing that some of it has been devised by will to others; 28 or A is advised by counsel that a certain claim is a lien;29 or A makes a mistake in estimating the amount of work done,30 or in the nature of the soil in which piles are to be driven.31 So a subscription can not be rescinded because the purchaser thought she was buying stock in an existing corporation instead of organizing a new corporation,32 and a purchaser of warrants can not have rescission because seller and purchaser both believe that the bonds issued to take up the warrants will be four per cent, and in fact they are three and one-half per cent.33 So where A offers to buy land from B, and B disclaims knowledge thereof but tells A what he has heard about the quality and location of the land, neither A nor B having seen it, and A buys it thinking such statement correct, he can not avoid the sale on learning that it is incorrect.34 Where A published advertising for B, and as payment therefor was to receive a specified credit if he bought a launch from B, and seven years after, A assigned his claim to C, who concealed from B the fact that he was A's brother, and bought a launch fron £ at a low figure, and then offered this credit in part payment, it was held that B could not avoid the sale to C because he did not know that C held this credit.35