WPI 301.08 Enforceability—Mutual Mistake

Use this instruction when mutual mistake is asserted as an affirmative defense to the enforcement of a contract. When rescission of a release is involved, see the Comment below.

This instruction does not apply when mutual mistake is used as the basis to reform a contract. Because reformation is an equitable remedy, no separate instruction is offered on mutual mistake as a basis for reformation.

Use the bracketed material in the instruction's final paragraph as necessary to address factors bearing on the risk of mistake.

Use this instruction with WPI 21.01 (Meaning of Burden of Proof—Preponderance of the Evidence) and the second paragraph of WPI 160.03 (Fraud—Burden of Proof—Combined with Preponderance of Evidence).

For a discussion of issues relating to independence of mistake, see the Comment below.

Parties and the court may want to customize the wording of the instruction to fit the participants and the facts of a given case. Care should be taken to avoid commenting on the evidence.

Background. The grounds for mutual mistake as a defense to the enforcement of the contract are the same as those for the remedy of rescission. As an equitable remedy, rescission would not ordinarily be presented for jury determination. On the other hand, mutual mistake may well be presented as a defense to a breach of contract action, and in this context of a case with both legal and equitable issues, the court may decide to present the question to the jury.

It should be noted that the requirements for mutual mistake that may form the basis of reformation of a contract are distinct from those that form the basis for an affirmative defense to the enforcement of a contract. See Comment to WPI 301.06 (Parol Evidence); see also Leonard v. Wash. Emp., Inc., 77 Wn.2d 271, 461 P.2d 538 (1969).

Restatement. This instruction is based on the Restatement (Second) of Contracts § 152, and its comments, together with section 154(b), as well as Washington cases.

According to the Restatement (Second) of Contracts § 152(1) (1981):

Under the Restatement (Second) of Contracts analysis, a “mistake” is a “belief that is not in accord with the facts.” Restatement (Second) of Contracts § 151 (1981); Simonson v. Fendell, 101 Wn.2d 88, 91, 675 P.2d 1218 (1984). The “erroneous belief must relate to the facts as they exist at the time of the making of the contract. A party's prediction or judgment as to events to occur in the future, even if erroneous, is not a ‘mistake’ as the word is used here.” Restatement (Second) of Contracts § 151 cmt. a (1981).

A “basic assumption on which both parties made the contract” is one that would not be within the ordinary risks related to uncertainty involved in typical business transactions. Thus an erroneous assumption about the stability of market conditions or the financial situation of either of the parties would not ordinarily be considered a “basic assumption,” but the erroneous assumption of the presence of timber or of a building on a parcel of land may be. Restatement (Second) of Contracts § 152 cmt. b, illus. 1, 5 (1981); see Pub. Util. Dist. No. 1 v. Wash. Pub. Power Supply Sys., 104 Wn.2d 353, 362, 705 P.2d 1195 (1985).

Material effect on exchange. The mistake must have a material effect on the agreed exchange of performance such that the “resulting imbalance … is so severe that [the party seeking to rescind] cannot fairly be required to carry it out.” Restatement (Second) of Contracts § 152 cmt. c (1981). This does not need to rise to the level of unconscionability, however; ordinarily it will be sufficient to show that the exchange is not only less desirable to the party seeking to rescind the contract but also more advantageous to the other party. Restatement (Second) of Contracts § 152 cmt. c (1981); see Simonson, 101 Wn.2d 88 (materiality of mistake regarding profitability of business being sold).

Risk of mistake—Releases. A party bears the risk of mistake under section 154, and thus cannot avoid or rescind the contract, if the party is allocated the risk by the contract or, in the case more likely to arise for resolution by the trier of fact, when “he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient ….” Restatement (Second) of Contracts § 154(b) (1981); Tiegs v. Boise Cascade Corp., 83 Wn.App. 411, 426, 922 P.2d 115 (1996).

This provision has been applied to preclude rescission of a release executed by parties who were aware of their injuries, but not their extent, at the time of the release. Bennett v. Shinoda Floral, Inc., 108 Wn.2d 386, 395–97, 739 P.2d 648 (1987). Washington recognizes an exception, however, for parties with an unknown or latent injury at the time the release was executed, if they can prove “the release was not fairly and knowingly made.” Del Rosario v. Del Rosario, 152 Wn.2d 375, 382–84, 97 P.3d 11 (2004) (citing Finch v. Carlton, 84 Wn.2d 140, 145–46, 524 P.2d 898 (1974); see also Pub. Util. Dist. No. 1, 104 Wn.2d at 362 (“A party who incurs an obligation with limited knowledge, conscious disregard of surrounding circumstances and awareness of uncertainty must bear the consequences of its decision.”). But see Nevue v. Close, 123 Wn.2d 253, 255–56, 867 P.2d 635 (1994) (recognizing criticism of Bennett's rationale, and applying the “fairly and knowingly made” exception of Finch to injuries that were unknown or latent to the parties at the time a boilerplate release was signed).

Independence of mistake. Washington cases also require, in the case of rescission, that the mistake of both parties be made independently by each, i.e., not relying on information obtained from the other. See Finch, 84 Wn.2d at 142, discussing Beaver v. Harris' Estate, 67 Wn.2d 621, 409 P.2d 143 (1965); Nationwide Mut. Fire Ins. Co. v. Watson, 120 Wn.2d 178, 190, 840 P.2d 851 (1992) (releases, nature or extent of injuries suffered by releasors); see also Simonson, 101 Wn.2d at 91. Therefore the term “independently” is included in the instruction. For a case in which independence of mistake is a central issue, the instruction can be modified to explain this concept in more detail.

Burden of proof. Mutual mistake must be proved by clear, cogent, and convincing evidence. Denaxas v. Sandstone Ct. of Bellevue, L.L.C., 148 Wn.2d 654, 669, 63 P.3d 125 (2003); Nationwide, 120 Wn.2d at 189; Mutual of Enumclaw Ins. Co. v. Day, 197 Wn.App. 47, 64, 387 P.3d 1084 (2016); Urban v. Mid-Century Ins., 79 Wn.App. 798, 804, 905 P.2d 404 (1995) (clear and convincing evidence).