Commercial Law

by Richard D. Currier; Richard William Hill; Samuel Williston

MISTAKE.—Where parties have attempted to make a contract and a mistake of fact occurs, no contract results. The minds of the parties never really meet. Yet if benefits have been conferred, justice requires that the benefit should be returned, or compensation given, and this, in fact, is just what the law seeks to do when there has been such a mistake that upon the attempted contract itself no suit can be brought. The essentials of mistake, and the way in which a mistake usually arises, are:

(1) It would not be a mistake if a party had paid money when he had any reason to suppose it was not due. A recovery of money under such circumstances cannot be allowed.

(2) The payment must have been induced by mistake in order to allow the recovery. This rule prevents the recovery of money paid in settlement of a disputed matter; but it must be assumed that it was to the party's interest to make the payment. However, suppose that a compromise settlement has been made in the belief that certain facts were different from what they really were. Here the mistake would have induced the payment, and, hence, in such a situation a recovery will be allowed.

(3) The fact regarding which a mistake has been made must also be a material fact, and the fact must have been a part of the transaction itself, not collateral to it in any way. A mistake as to the value of an article purchased, for instance, is not a material fact.

(4) Ordinarily, money paid under mistake of law cannot be recovered, although it is against conscience for the defendant to retain it. A mistake as to the law of another State, however, is a mistake of fact, and money paid under such a mistake can be recovered.

(5) Where the party who mistakenly parted with the money did so because of his own negligence, and to allow a recovery would throw a loss on the other party, he cannot recover what he parted with. One party cannot make another suffer because of his own negligence. Where a party paid money under mistake, and the payee was negligent, the party paying may recover.

(6) When parties suppose they have made a contract, and money has been paid, or services rendered, under that supposed contract, but in fact there was no valid contract at all, or there was a mutual mistake as to a term, this money, or the value of the services, may be recovered.

(7) When money has been paid for the transfer of something by defendant, whether recovery will be allowed in case it should turn out that the defendant had no title, depends on the nature of transaction. If the defendant made a warranty that he had title, a recovery may be had. If, however, the defendant simply sold what he had, whether that was something or nothing, a recovery cannot be allowed unless, as is the law in some States, a vendor impliedly warrants his title by the fact of having possession.

(8) In the case of parties mistaking the existence of a subject matter of sale, if the understanding was that A was purchasing an existing thing, then he can recover the money paid if it should turn out that the thing was not in existence. But if he bought simply a chance, he cannot recover.

BENEFITS CONFERRED UNDER COLOR OF CONTRACT.—Aside from the cases of mistake, there are other grounds for allowing recovery under the principle of quasi contract. A group of these is made up of cases where there cannot be a recovery upon the contract itself, although the parties have come together and agreed without any mistake or misunderstanding, because of the absence of some essential necessary to create an enforceable contract obligation; yet a benefit has been conferred upon the one party who, but for the lack of that essential, would have been liable in an action upon the contract itself. Such cases arise largely where there has been a partial performance of an illegal contract, or of a contract unenforceable because of non-compliance with the statute of frauds, or where full performance is excused by impossibility. Some States also allow recovery on the theory of benefits conferred, where, after partial performance, a party defaults under circumstances not excusing default.