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Business Law FLASHPOINTS February 2020

February 14, 2020Print This Post Print This Post

Elizabeth E. Babbitt & Paul J. Coogan | Taft Stettinius & Hollister LLP, Chicago
312-836-4116 | E-mail Elizabeth E. Babbitt | 312-840-4493 | E-mail Paul J. Coogan

Below is an excerpt from §5.14 of CONTRACT LAW 2020 EDITION.

Examining the Meaning of “Mistake” in the Contract Formation Context

A “mistake” is “a belief that is not in accord with the facts.” RESTATEMENT (SECOND) OF CONTRACTS §151 (1981). For a mistake to justify equitable relief, it “must affect the substance of the contract, and not a mere incident or the inducement for entering into it.” Steinmeyer v. Schroeppel, 226 Ill. 9, 80 N.E. 564, 566 (1907). Accord Santucci Construction Co. v. County of Cook, 21 Ill.App.3d 527, 315 N.E.2d 565 (1st Dist. 1974).

Mistakes can be divided into two groups. The first group includes “those fundamental in character, relating to an essential element of the contract which prevent a meeting of the minds of the parties and so no agreement is made.” Harley v. Magnolia Petroleum Co., 378 Ill. 19, 37 N.E.2d 760, 765 (1941). Mistakes of this kind “generally have to do with such matters as the existence and identity of the subject matter, errors as to price, quantity, and the like.” Id. The second group of mistakes includes those in which an actual understanding has been reached by the parties but, through some error, their written contract does not express their actual understanding. Generally, “[t]he former of these classes constitutes ground for rescission but not reformation, while the latter may be reformed.” Id. See also Wheeler-Dealer, Ltd. v. Christ, 379 Ill.App.3d 864, 885 N.E.2d 350, 319 Ill.Dec. 79 (1st Dist. 2008).

The mistake must relate to a past or present fact in existence at the time the contract was executed. Cameron v. Bogusz, 305 Ill.App.3d 267, 711 N.E.2d 1194, 1198, 238 Ill.Dec. 533 (1st Dist. 1999). In other words, a mere mistaken prediction as to the costs or benefits associated with future performance will not suffice. Corcoran v. Northeast Illinois Regional Commuter R.R., 345 Ill.App.3d 449, 803 N.E.2d 87, 91, 280 Ill.Dec. 857 (1st Dist. 2003). Relief is likewise generally denied for errors in judgment. Wil-Fred’s Inc. v. Metropolitan Sanitary District of Greater Chicago,57 Ill.App.3d 16, 372 N.E.2d 946, 14 Ill.Dec. 667 (1st Dist. 1978). Specifically, mistakes in business judgment not warranting relief have included miscalculation of profit, overlooked expenses, an unforeseen increase in the price of parts, or other situations that lead a contracting party to discover that a contract is less profitable than anticipated when entered. People ex rel. Department of Public Works & Buildings v. South East National Bank of Chicago,131 Ill.App.2d 238, 266 N.E.2d 778 (1st Dist. 1971); Diedrich v. Northern Illinois Publishing Co., 39 Ill.App.3d 851, 350 N.E.2d 857 (2d Dist. 1976).

Parties seeking relief must not have known of the mistake nor consciously ignored the facts at the time of contract formation. MAN Roland Inc. v. Quantum Color Corp., 57 F.Supp.2d 576, 580 (N.D.Ill. 1999). Illinois law generally forbids relief on the basis of a careless mistake. Praxair, Inc. v. Hinshaw & Culbertson, 235 F.3d 1028, 1035 (7th Cir. 2000) (citing Illinois cases). Parties to a contract have a duty to read and understand the document and generally cannot raise mistake as a defense by claiming that they were not fully advised as to the contents of the agreement. Preston A. Higgins & Co. v. Stevenson, 28 Ill.App.3d 150, 328 N.E.2d 79 (1st Dist. 1975); Leon v. Max E. Miller & Son, Inc., 23 Ill.App.3d 694, 320 N.E.2d 256 (1st Dist. 1974). But see Tuchowski v. Rochford, 368 Ill.App.3d 441, 857 N.E.2d 829, 306 Ill.Dec. 430 (1st Dist. 2006) (excusing client’s duty to read when attorney modified real estate contract and urged client to sign it quickly so attorney could attend next closing). There is no indication that Tuchowski has application beyond its circumstances, which involved both a fiduciary relationship and facts at least suggestive of constructive fraud.

Courts have granted relief for clerical and mathematical mistakes that occur despite the exercise of due care. One such clerical error was a misplaced decimal point that was inadvertently transposed by a secretary who was otherwise exercising ordinary care in preparing a contract. South East National Bank, supra; Schaffner v. 514 West Grant Place Condominium Ass’n,324 Ill.App.3d 1033, 756 N.E.2d 854, 861 – 862, 258 Ill.Dec. 580 (1st Dist. 2001) (distinguishing “scrivener’s error” as mechanical or technical in nature and not product of error in decision or judgment).

For more information about business law, see CONTRACT LAW 2020 EDITION. Online Library subscribers can view it for free by clicking here. If you don’t currently subscribe to the Online Library, visit www.iicle.com/subscriptions.

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