Monday, February 25, 2013

Mutual mistake as a defense – unilateral mistake likely won’t work, not to mention second thoughts about signing the contract


The defense is not available to undo a contract upon second thoughts about the wisdom of signing it, or after-the-fact regrets by one party.

The elements of mutual mistake are: (1) a mistake of fact; (2) held mutually by the parties; (3) which materially affects the agreed-on exchange. City of The Colony v. N. Tex. Mun. Water Dist., 272 S.W.3d 699, 735 (Tex. App.-Fort Worth 2008, pet. dism'd).
A mutual mistake of fact occurs when the parties to an agreement have a common intention, but the written agreement does not accurately reflect that intention due to a mutual mistake. See Smith-Gilbard v. Perry, 332 S.W.3d 709, 713 (Tex. App.-Dallas 2011, no pet.); City of The Colony, 272 S.W.3d at 735. When mutual mistake is alleged, the party seeking relief must show what the parties' true agreement was and that the instrument incorrectly reflects that agreement because of a mutual mistake. Atlantic Lloyds Ins. Co. v. Butler, 137 S.W.3d 199, 213 (Tex. App.-Houston [1st Dist.] 2004 pet. denied). Under the doctrine of mutual mistake, when parties to an agreement have contracted under a misconception or ignorance of a material fact, the agreement will be voided. Walden v. Affiliated Computer Servs., Inc., 97 S.W.3d 303, 326 (Tex. App.-Houston [14th Dist.] 2003, pet. denied).

To prove a mutual mistake, the evidence must show that both parties were acting under the same misunderstanding of the same material fact. Id. A unilateral mistake by one party, combined with knowledge of that mistake by the other party, is equivalent to mutual mistake. Davis v. Grammer, 750 S.W.2d 766, 768 (Tex. 1988). But, "[a] mistake by only one party to an agreement, not known or induced by acts of the other party[,] will not constitute grounds for relief." Smith-Gilbard, 332 S.W.3d at 713-14 (quoting Johnson v. Snell, 504 S.W.2d 397, 399 (Tex. 1974)).
Mutual mistake should not be available to avoid the results of an unhappy bargain. Williams v. Glash, 789 S.W.2d 261, 265 (Tex. 1990). Parties should be able to rely on the finality of freely bargained agreements. Id.
SOURCE: HOUSTON COURT OF APPEALS - No. 01-11-01034-CV – 2/21/2013

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