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

THE ELEMENTS OF MUTUAL MISTAKE AS A DEFENSE

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

Illegal Contract Defense

ILLEGALITY AS AFFIRMATIVE DEFENSE TO BREACH-OF-CONTRACT CLAIM The validity of a contract is generally a question of law. Farah v. Mafrige & Kormanik, P.C., 927 S.W.2d 663, 678 (Tex. App.--Houston [1st Dist.] 1996, no writ). ILLEGAL CONTRACT DEFINED - VOID CONTRACTS An illegal contract is one in which the parties undertake what the law forbids. Franklin v. Jackson, 847 S.W.2d 306, 309 (Tex.App.--El Paso 1992, writ denied). A contract to do a thing which cannot be performed without a violation of the law is void. Id. Because the contract violates the law, it imposes no legal obligation on the parties. Miller v. Long-Bell Lumber Co., 148 Tex. 160, 222 S.W.2d 244, 246 (Tex. 1949); Franklin, 847 S.W.2d at 309. However, a contract which could have been performed in a legal manner will not be declared void simply because it may have been performed in an illegal manner. Franklin, 847 S.W.2d at 309, citing Lewis v. Davis, 145 Tex. 468, 199 S.W.2d 146, 148-49 (1947); Wade v. Jones, 526 S.W.2d 160, 162-63 (Tex.Civ.App.--Dallas 1975, no writ). PRESUMPTION OF LEGALITY - BURDEN OF PROOF TO SHOW ILLEGALITY The law presumes that contracts are legal, and the burden to prove illegality is on the party asserting it, in this case, Appellants. See Franklin, 847 S.W.2d at 310. Unless the face of the contract shows it is illegal, the party asserting illegality must present evidence demonstrating the illegality before a court may declare the contract void. See Lewis, 199 S.W.2d at 149; Franklin, 847 S.W.2d at 310. SOURCE: 08-07-00071-CV (7/29/09)