The case of the law
In 1886, Mr. Sherwood of Plymouth, Mich., wanted to buy a cow. Hiram Walker owned cattle in Greenfield, Mich., and he sold Sherwood one of his cows, who had the lofty name of “Rose 2d of Aberlone.”
A simple sales agreement was drafted. It read: “Dear Sir: We confirm sale to you of the cow Rose 2d of Aberlone, lot 56 of our catalogue, at five and half cents per pound, less 50 pounds shrink.”
At the time of the sale, both parties thought Rose was barren. She was not, and when Walker learned that the cow was pregnant, he sought to rescind the sale. His argument was that he had made a mistake.
Walker was a breeder of cattle, and if Rose was not barren then she was worth much more than the amount he had sold her for. A material mistake of fact had been made. Sherwood v. Walker, 33 N.W. 919 (Mich. 1887).
The court confirmed the sale as the contract had made no representation either way about Rose’s fertility.
This case has been cited hundreds of times by courts and legal commentators, and it is part of the standard contracts course in law school. It is a perfect example of a unilateral mistake.
The buyer wanted a cow, and he got a cow. The owner wanted to sell the cow, and he did. One party’s mistaken judgment about the transaction did not void the agreement.
Rose to Spearin
Unilateral mistakes tend to arise from unspoken intentions or desires. As a rule, the courts do not want to get involved with such matters and have developed an array of terms that can trace their lineage to Rose.
For example, there is the parol evidence rule. Loosely stated, the rule precludes oral statements or understandings that are made before the written contract is signed from being used to add to or vary the terms of that agreement.
The courts look only to what is written within the “four corners” of the contract to decide any questions that arise about the parties’ agreement.
The “objective” theory of contract interpretation is an approach to deciding what the contract means. Under this theory, the courts must refer only to what is actually written and how would a “reasonable man” understand the words of the contract.
Another variation is the Spearin Doctrine. In general, the Spearin Doctrine requires payment to the contractor for the work performed even if the result is not to the owner’s liking, so long as the contractor built to the plans and specifications provided by the owner.
What about bid mistakes?
When it comes to bid mistakes, Rose is somewhat put on her ear. Here, equity and law are at odds again. As a strict legal matter, if a contractor says that it will perform work for X dollars and the owner says OK, there is a binding agreement. The contractor’s complaints that he forgot to bid an item or that his calculations are incorrect should be irrelevant. Since the owner made no mistake, the contract is enforceable.
No general rule on bid mistakes is possible. The courts consider whether the mistake is discovered before the work began, whether the owner will be harmed if the bid is withdrawn or amended, whether the mistake goes to the heart of the bargain, whether the owner had reason to know a mistake had been made, and whether the mistake is merely a clerical error. With government contracts, state or federal, other considerations apply.
Other unilateral mistakes
The list is endless. There are mistakes of law, of measurements and even of the identity of a party. There are mistakes leading to overpayment, to abandonment of a claim and mistakes of subsurface data, etc.
Mistakes have been made over two ships both named “Peerless,” over chickens vs. poulets, the unexpected value of an old painting and the payment of life insurance for someone who did not die. Quite frankly, humans are capable of all manner of mistakes, but the law does not exist to right all wrongs or to level all playing fields.
In an effort to create a private law between the parties, contracts usually address most of the common problems, at least broadly.
The contract remedy and the seesaw effect
Lawyers and their clients have struggled valiantly to find a way to make the written agreement the only agreement. In the past, language such as “as is” was popular, as was the phrase “caveat emptor” (let the buyer beware).
More recently, it is commonplace to find a “merger” clause, which states that there are no representations, promises or warranties between the parties except for those expressly contained in the writing. Under a merger clause, often labeled “entire agreement,” precontract negotiations are merged into the contract.
Another example includes the “site inspection” clause. In this instance, the owner is saying that he makes no representations about the site, and the contractor should make no potentially incorrect assumptions about it. I leave it to the reader to detect other terms you have seen that are intended to avoid the impact of unilateral mistakes.
While contract drafters have been busy dealing with potential mistakes, so have the courts and legislatures. Weighing in on the one-sided errors of fact or judgment debates are “implied” responsibilities and promises.
The “implied” category adds things back into the contract, not physically, but legally nonetheless. There are implied covenants of good faith and fair dealing.
In construction, there are implied duties to cooperate and coordinate. Under the UCC, there are implied warranties of merchantability and fitness for a particular purpose.
You may think that it is difficult to write a contract where the owner specifically exempts himself from good faith and fair dealing. Not true. A review of “no damages for delay” clauses shows one avenue of -approach.
With the UCC, implied warranties can be avoided by specifically stating that there are no such warranties. This avoidance language must be highlighted in the contract, but it is permissible.
The above discussion is not meant to leave the reader with a sense of chaos. Rather, this article contains suggestions, and a format for analyzing circumstances, where there is a unilateral mistake problem. Start with Rose 2d of Aberlone, and then look to find where your circumstances can justify a different outcome. EC