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Corbin on Contracts

Copyright 2007, Matthew Bender & Company, Inc., a member of the LexisNexis Group.

PART I FORMATION OF CONTRACTS

TOPIC A OFFER AND ACCEPTANCE

CHAPTER 4 INDEFINITENESS AND MISTAKE IN EXPRESSION

1-4 Corbin on Contracts § 4.10

§ 4.10 Mistake as to the Words Used, or as to the Meaning Given to Words and Expressions

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In coming to an agreement, the expressions of the parties may be wholly oral, in which case mistakes may arise out of faulty enunciation or faulty hearing. If a seller offers to sell a horse for $165, and the offeree hears the offer as $65, the words ''I accept your offer'' will not consummate a contract.n1 No one would doubt this result if the words of acceptance had been ''I accept your offer at $65.'' Defective enunciation can be avoided, but few people are so well trained in expression as to avoid it and it is seldom that they can be charged with ''negligence'' because of it. Defective hearing also can sometimes be avoided, and no doubt careful persons will generally avoid mistakes by realizing that they may not have heard distinctly and correctly, but even more seldom will they be charged with ''negligence'' for not avoiding mistakes due to the inaccurate hearing of words. It is always a mere question of fact, however, whether the words were not correctly heard and also whether one of the parties did not have reason to know what the words were and how they were heard.

In the case of a contract that has been reduced to writing, there is less probability of a mistake as to the words in fact used and a greater probability that the mistake, if made, will be held to be negligent. Most such mistakes are made by reason of signing a document without reading it, or after a hasty and inaccurate reading.n2 In one case, however, an agent drew up a written building contract in duplicate, causing the builder to promise to erect the building for $33,500 and the owner to promise to pay $23,000 for erecting it.n3 If either party was negligent in this case, the two parties were equally negligent.

One party may make an offer to another and assume that the other's silence and other conduct are intended to express an acceptance, when in fact the other did not hear the offer at all. In such a case, there is no contract.n4 There was in fact no actual assent or any expression of assent, and the offeree did not negligently lead the offeror to believe that there was.

A much more common form of mistake is as to the meaning of words and expressions. Both parties know with accuracy the words used but understand them differently. Either party may inadvertently or ignorantly use words that by common usage do not express the user's own meaning and intention. Either party may inadvertently or ignorantly give to another's words a meaning that the other did not intend or that may not accord with common usage. In such a case there is a misunderstanding of the terms used in making a contract, a misunderstanding that prevents a ''meeting of the minds'', that is, prevents a true agreement. Nevertheless, there may be a valid contract in spite of such a lack of true agreement.

When two parties have reduced their agreement to writing, using the words that each of them consciously intends to use, it is often not a sufficient ground for declaring that the agreement is void or subject to cancellation by the court that the parties subsequently gave different meanings to the agreed language, or even that they gave different meanings thereto at the time that the agreement was expressed. If the meaning that either one of them gave to the words was the only reasonable one under the existing circumstances, as the other party has reason to know, the latter is bound by that meaning and there is a contract accordingly.n5 If one of the parties gave a meaning to the language that is not the only reasonable one under the circumstances, and the other expressed assent knowing that the first party was giving it this meaning, that is the meaning that the court should adopt, and there is a contract accordingly. But if the parties had materially different meanings, and neither one knew or had reason to know the meaning of the other, there is no contract.n6

If the expressions of one party were used only as a practical joke and without intention to be bound, they will create no contract if the other party understands it to be a joke or ought so to understand it. But if the words are taken seriously and the joker has reason to know that they are so taken, the joker may be held bound by contract.n7 One who secretly intends the bargain to be only an illegal wager is bound if the other party knows nothing of this and innocently agrees.n8

The statements in the preceding paragraphs are equally true of agreements orally expressed-not in writing, if the oral expressions of the two parties are in identical words. Thus, if A makes an offer to B in definite words, and B replies with words of acceptance, it is the definite words of A that constitute the terms of the contract and must be interpreted. For this purpose they are just the same as if the words were in writing. But in the case of orally expressed agreements it may not be possible to prove what were the exact words used. If misunderstanding occurs it may be more difficult to determine whether one party had reason to know the intentions of the other.n9

Raffles v. Wichelhaus is a well-known English case that has been very much discussed. A buyer and a seller made what appeared to be an agreement for the purchase and sale of a stated amount of Surat cotton to arrive by the ship Peerless from Bombay. It happened that there were two ships then at Bombay, both named the Peerless. The buyer knew of only one of these ships, and depended on the arrival of the cotton on that ship in October. The seller knew only of the other ship, the one on which the cotton was shipped, and asserted a breach of contract when the buyer refused to receive the cotton on its arrival in December. The court held that no contract existed and that the plaintiff had no right to damages.n10 Had there been delivery and acceptance of the goods, a quasi contract would have been constructed.n11

The decision in this case is clearly correct, and it would be the same if the parties had been reversed. No convincing reason was shown for charging either party with the loss or for penalizing one for the benefit of the other. The possibility of dividing the loss has not been recognized at common law. In this case the parties used identical words, equally well descriptive of the two ships, but by those words they meant different things, a fact that neither one of them had reason to know. Each one used his words with reasonable prudence and according to the common usage of humanity.

There are cases in which the mistake is due to the negligence of both parties equally. When such is the case, there is no agreement in fact and there is no sufficient reason for holding either one bound by the contract that the other intended to make.n12

In cases now under discussion, there may be a valid contract even though there is no actual ''meeting of the minds'', but for such a result there must be agreement in expression, interpreted in accordance with the understanding of one of the parties, an understanding that the other party had reason to know.n13 Indeed, there may be no contract even though there is an actual ''meeting of the minds'', as where an offeree means to accept unconditionally, but uses language that leads the offeror reasonably to believe that the acceptance is conditional.n14

Legal Topics:

For related research and practice materials, see the following legal topics:

Contracts LawFormationAmbiguity & MistakeMutual MistakeContracts LawFormationExecutionContracts LawFormationAmbiguity & MistakeUnilateral MistakeContracts LawFormationMeeting of Minds

FOOTNOTES:

(n1)Footnote 1.

Ill. - Rupley v. Daggett, 74 Ill. 351 (1874) .

Mass. - Neel v. Lang, 236 Mass. 61, 127 N.E. 512 (1920) .

(n2)Footnote 2. In Chapter 28 on Mistake there is a section dealing at some length with cases of this kind.

Where a contract for the sale of goods incorporated by express reference a Standard Cotton Textile Salesnote that contained a provision for arbitration, a party was held bound to arbitrate even though its agents had never read the Salesnote. Level Export Corp. v. Wolz, Aiken & Co., 305 N.Y. 82, 111 N.E.2d 218 (1953). See § 607 below.

(n3)Footnote 3.

Mass. - Vickery v. Ritchie, 202 Mass. 247, 88 N.E. 835 (1909) .

(n4)Footnote 4. Royal Ins. Co. v. Beatty, 119 Pa. 6, 12 A. 607 (1888) . As to when silence, with knowledge of the offer, operates as an acceptance, see § 3.18-3.21.

(n5)Footnote 5. Lamson v. Horton-Holden Hotel Co., 193 Iowa 355, 185 N.W. 472, 26 A.L.R. 465 (1921) . The opinion in this case contains a long and intelligent discussion, but we may disagree with some of the statements expressed therein. The parties executed a written lease of a hotel in which the lessee promised to pay as rent ''$2,000 per month ... and in addition thereto, one third of the receipts for guest rooms in excess of $200 per day.'' The lessor interpreted that to mean one third of the excess over $200, treating each day as a separate unit. The lessee interpreted it to mean one third of the excess over the average of $200 for each entire year. The court held that even if their interpretations thus differed from the beginning, that fact did not show that there was no contract, as argued by the lessee. Reformation was not asked. Apparently, the court thought that the reasonable meaning was that given by the lessor, for it affirmed a judgment for the lessor. It does not expressly tell us what that judgment was, what meaning was adopted, or by what process it was arrived at. It states, however, that a mistake by one party as to ''the legal meaning and effect'' of a contract is not ground for either reformation or rescission. Such a mistake it calls a ''mistake of law'', further saying: ''Nor will a mutual mistake as to the construction of a contract entitle either party to equitable relief.'' With these statements, the present treatise does not agree. It seems to be true that the lessee asked for a rescission on a ground that was too broad to be tenable.

In Norton & Lamphere Constr. Co. v. Blow & Cote, Inc., 123 Vt. 130, 183 A.2d 230 (1962) , the court held that a letter enclosing a form contract for signature and return was operative as an offer to be accepted by signature and return, because the plaintiff so understood it, as the defendant had reason to know.

See statement of facts under § 2.9. See further § 532.

In Swartz v. Carmen, 111 Ohio App. 27, 167 N.E.2d 505, 13 Ohio Op.2d 383 (1959) , the defendant's sister wrote to the plaintiff offering to pay a stated amount in settlement of the debts owed by defendant to plaintiff. The latter accepted the offer, signing a specific statement attached to the written offer. It is the plaintiff's contention that he understood the offer to apply only to an open accommodation account and not to a debt secured by mortgage. The court interpreted the written offer in accordance with the offeror's intention and not according to the plaintiff's. Also, the plaintiff received and retained the money paid and did not ask reformation or rescission. There was a binding accord and satisfaction as to the mortgage sought to be foreclosed.

(n6)Footnote 6. Some of the better known cases so holding are:

Cal. - Rovegno v. Defferari, 40 Cal. 459 (1871) .

Conn. - Rowland v. New York, N.H. & H.R., 61 Conn. 103, 23 A. 755 (1891) .

Ill. -In Bailey v. Eater, 53 Ill.App.2d 37, 202 N.E.2d 656 (1964) , a contract for sale of land provided for transfer of ''possession of land on or before 25th of April'' and for ''possession to be given on or before 25th day of June.'' Purchaser understood the first date to refer to the land and the second date to refer to the buildings. Vendor contended that both land and buildings were not to be transferred in possession and declared the contract void. Held no contract was formed because the parties had not agreed on the date for the transfer of possession, with the apparent unjust result that purchaser forfeited the down-payment.

Mass. - Kyle v. Kavanagh, 103 Mass. 356 (1869) .

Minn. - Stong v. Lane, 66 Minn. 94, 68 N.W. 765 (1896) , mistake as to identity of land described.

Ohio - Irwin v. Wilson, 45 Ohio St. 426, 15 N.E. 209 (1887) , same.

Okl. -In Altshuler v. Malloy, 388 P.2d 1 (Okl.1963) , the plaintiff operating a genealogical service wrote a letter to defendant offering to disclose the existence of certain assets that had been owned by her husband now many years deceased, for a commission of 1/3 of the amount recovered. The defendant accepted the offer, with the result that certain bonds that were already in defendant's safe were shown to be worth $33,000. In this suit for a commission the court permitted the defendant to testify as to her understanding of the terms of the plaintiff's letter. ''The decisive question presented for our determination is whether the above quoted letter is ambiguous.'' The court held that it was so and that the defendant's testimony showed that no contract existed for lack of mutual agreement. See also § 2.30.

Eng. -Raffles v. Wichelhaus, 2 Hurl. & C. 906 (1864).

In Peerless Glass Co. v. Pacific Crockery & Tinware Co., 121 Cal. 641, 54 P. 101 (1898) , a seller offered goods at definite prices, stating in his letter ''Freight allowance is seventy-four cents.'' The buyer asserts that this meant 74 cents per 100 pounds, but the court failed to find that the words had one reasonable meaning. If difference in understanding as to this prevented the sale contract from being consummated, the seller was entitled to the reasonable value of the goods, so far as they were received and kept.

It is believed that Restatement (Second) of Contracts, § 20, ''Effect of Misunderstanding'' is substantially in harmony with the present treatise. It provides:

''(1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestation and

(a) neither party knows or has reason to know the meaning attached by the other; or

(b) each party knows or each party has reason to know the meaning attached by the other.

(2) The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if

(a) that party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party; or

(b) that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party.''

This section of the Restatement (Second) deals with whether or not a contract exists. If a contract exists, § 201 deals with whose meaning prevails if the parties have different meanings.

In Julius Kayser & Co. v. Textron, Inc., 228 F.2d 783 (4th Cir.1956) , in making a contract for the assignment of a lease, the parties agreed that the assignee should be responsible for the rent from the time of ''occupancy''. The assignor understood that term to mean use of the premises for any purpose, such as for storage or for making alterations, and the assignee understood it to mean the beginning of manufacturing operations. The court held that, since neither party misled the other there was no contract. It was also found that they did not intend to be bound until the agreement was reduced to writing and signed. See § 2.9.

If the parties gave different meanings to the words of a fully ''integrated'' contract, either party who sues for enforcement in accordance with his own meaning has the burden of proving that the other party knew or had reason to know what that meaning was and that he himself had no reason to know that the other party gave the words a different meaning. See Frigaliment Importing Co. v. B.N.S. International Sales Corp., 190 F.Supp. 116 (S.D.N.Y.1960) , discussed in § 543B, and followed on this burden of proof point in United Steelworkers of America, AFL-CIO-CLC v. North Bend Terminal Co., 752 F.2d 256 (6th Cir.1985) .

(n7)Footnote 7.

Iowa - Deitrick v. Sinnott, 189 Iowa 1002, 179 N.W. 424 (1920) .

Mich. - Keller v. Holderman, 11 Mich. 248 (1863) .

N.J. - McClurg v. Terry, 21 N.J.Eq. 225 (1870) , marriage ceremony.

Tex. - Chiles v. Good, 41 S.W.2d 738 (Tex.Civ.App.1931) , rev'd, 57 S.W.2d 1100 (Com.App.1933) .

W.Va. - Plate v. Durst, 42 W.Va. 63, 24 S.E. 580 (1896) .

The jesting cases are discussed at § 2.13 above.

(n8)Footnote 8.

Mass. - Farnum v. Whitman, 187 Mass. 381, 73 N.E. 473 (1905) .

(n9)Footnote 9. In Embry v. Hargadine, McKittrick Dry Goods Co., 127 Mo.App. 383, 105 S.W. 777 (1907) , the court held that the employer had reason to know that his employee understood that they made a contract for a full year's employment. The employer was therefore held bound accordingly, although the employer did not intend to make such a contract.

(n10)Footnote 10. Raffles v. Wichelhaus, 2 Hurl. & C. 906 (1864).

In Oswald v. Allen, 417 F.2d 43 (2d Cir.1969) , Mrs. Allen showed the plaintiff two coin collections, one called by her the ''Swiss Coin Collection'', the other called the ''Rarity Coin Collection.'' She showed the first collection to the plaintiff and also showed him some Swiss coins from the Rarity collection. Speaking through an interpreter, plaintiff offered to buy all her Swiss coins for $50,000. She agreed, believing that she was selling the ''Swiss Coin Collection.'' The trial court ruled that because the parties misunderstood each other no contract existed, basing its conclusion on the credibility of the witnesses, the records of the defendant, the values of the coins involved, the circumstances of the transaction and the reasonable probabilities. The circuit court affirmed, relying on Raffles v. Wichelhaus.

In Flower City Painting Contractors, Inc. v. Gumina Constr. Co., 591 F.2d 162 (2d Cir.1979) , a painting subcontract was ambiguous as to the scope of the work. A trade usage might have clarified it, but the plaintiff, as a neophyte in the trade, was not held to know the usage. The court ruled that no contract existed.

In Balistreri v. Nevada Livestock Production Credit Assn., 214 Cal. App. 3d 635, 262 Cal. Rptr. 862 (1989) , plaintiffs signed a deed of trust (known in most of the United States as a mortgage) on their residence. The cover letter from the mortgagee indicated that the mortgage would cover a house in Sebastopol they owned together with their son, who was the borrower. They signed but did not read the instrument. In fact the mortgage was drawn to cover their home in Petaluma. The son defaulted. The lender threatened to foreclose and the plaintiffs brought this action to quiet title. The court applied the rule in Raffles v. Wichelhaus, granting cancellation of the instrument. In this case, plaintiff's carelessness in failing to read the instrument was not culpable as they were induced to act as they did by defendant's carelessness.

In Konic International Corp. v. Spokane Computer Services, Inc., 109 Idaho 527, 708 P.2d 932 (App.1985) , defendant-purchaser asked an employee to check out the availability and cost of a surge protector for its computer. The employee found several that ranged in price from $50 to $200, but none of these were suitable. He then contacted plaintiff and determined that plaintiff's met the employer's needs. When asked its price, plaintiff's salesman replied ''fifty-six twenty,'' meaning to convey $5620. The purchaser's employee understood this to mean $56.20. Purchaser sent out a purchase order describing the item and listing the price as $56.20. The seller did not notice the discrepancy. The surge protector was delivered and installed. The next day plaintiff's president returned from vacation, noticed the installation and immediately realized that an error had been made and had the protector turned off. Defendant brought this action for the price. The court, based on Raffles v. Wichelhaus, ruled that no contract had been made.

See Frigaliment Importing Co. v. B.N.S. International Sales Corp., 190 F.Supp. 116 (S.D.N.Y.1960) , discussed at length in § 543B, with an exposition of ''objective meanings.'' This case was followed in United Steelworkers of America, AFL-CIO-CLC v. North Bend Terminal Co., 752 F.2d 256 (6th Cir.1985) .

(n11)Footnote 11. In Anderco, Inc. v. Buildex Design, Inc., 538 F.Supp. 1139 (D.D.C.1982) , a construction agreement about which there was a material misunderstanding of the terms did not form a contract. To the extent plaintiff performed, it was entitled to quasi-contractual relief. The court erroneously thought that this relief was limited to the value of the benefit derived from plaintiff's performance. Quantum meruit evaluates the performance, not the defendant's enrichment.

(n12)Footnote 12. In Falck v. Williams, [1900] A.C. 176, one party sent a proposal to another by cable in code words so carelessly arranged that they meant nothing. The other party so negligently decoded the message that in mistaken assent he sent a ship from the Fiji Islands to Barcelona instead of a ship from Australia to England. The parties were equally negligent. Neither could hold the other bound by contract.

In L & L Corp. v. Ammendale Normal Institute, 248 Md. 380, 236 A.2d 734 (1968) , plaintiff broker negotiated a contract of sale, conditioned on industrial zoning, of certain land to be used for an electronics plant site. When it became apparent that industrial zoning was not possible, representatives of both parties met with plaintiff and agreed that commercial zoning of a part of the land, if acceptable to buyer (whose representative there did not have final negotiating authority) would suffice. Buyer's representative stated that it would be acceptable, not knowing that such zoning did not permit construction of a high antenna, a necessity for the plant. The other parties were ignorant of the need for an antenna. Lower court found a modified agreement had been reached. On appeal, reversed, holding there had been no mutual assent.

(n13)Footnote 13. The following cases held that a party was bound by a contract that the party did not intend to make:

U.S. - New York C. & H. R. R. Co. v. Beaham, 242 U.S. 148, 37 S. Ct. 43, 61 L.Ed. 210 (1916) , railway ticket plainly stating terms of contract; Castor v. Coppock, 211 F.2d 136 (8th Cir.1954) ; Mefer S.A.R.L. of Paris v. Naviagro Maritime Corp., 533 F.Supp. 337 (S.D.N.Y.1982) .

Raffles v. Wichelhaus ''applies [only] when both parties hold different understandings of an agreement, do not disclose their respective positions to each other, nor have any reason to know of any difference of interpretation.'' Murphy v. Gutfreund, 583 F.Supp. 957, 962 n. 6 (S.D.N.Y.1984) , later proceeding 624 F.Supp. 444 . To the same effect is Prudential Ins. Co. v. Miller Brewing Co., 789 F.2d 1269 (7th Cir.1986) .

Colo. - Sunshine v. M.R. Mansfield Realty, Inc., 195 Colo. 95, 575 P.2d 847 (1978) . Sunshine listed property for lease with Plaintiff who found a prospect who agreed to lease conditioned on the Small Business Administration guaranteeing the rent to the landlord. The prospect obtained a guarantee of 80% of the rent, by law the maximum the SBA was allowed to guarantee. Sunshine repudiated the agreement to lease and refused to pay plaintiff's claimed commission, claiming that the agreement required a 100% SBA guarantee. The court held that Sunshine's understanding of the agreement was unreasonable because it was legally impossible to obtain a 100% SBA guarantee.

In BA Mortgage Co. v. Unisal Development, 469 F.Supp. 1258 (D.Colo.1979) , a loan commitment contained an option to extend. It was unclear which party had the option. Although the court thought that the defendant's interpretation was the more reasonable one and therefore plaintiff had no claim, it also said that because each party's interpretation was reasonable, there was no contract and therefore plaintiff had no claim for this reason as well.

Ky. - C.W. Craig & Co. v. Thomas S. Jones & Co., 200 Ky. 113, 252 S.W. 574 (1923) .

Mass. - Goldstein v. D'Arcy, 201 Mass. 312, 87 N.E. 584 (1909) ; Hobbs v. Massasoit Whip Co., 158 Mass. 194, 33 N.E. 495 (1893) ; Mansfield v. Hodgdon, 147 Mass. 304, 17 N.E. 544 (1888) .

Minn. - Field-Martin Co. v. Fruen Milling Co., 210 Minn. 388, 298 N.W. 574 (1941) .

N.H. - Kilroe v. Troast, 117 N.H. 598, 376 A.2d 131 (1977) . Two neighbors executed an agreement to settle a boundary dispute, pursuant to which Kilroe gave Troast a 15-foot right of way. Troast promised there would be no industrial or commercial traffic on the right of way and no parking on the side. Troast hired a contractor to make the right of way passable by vehicles, who used industrial vehicles such as bulldozers and parked them on the side at night. Kilroe sued, alleging there was no meeting of the minds, since he meant no industrial traffic at any time. The court held that a valid contract had been made and that the grant of a right of way necessarily implies allowing such industrial vehicles as are necessary to construct a passable way. The fact that the parties had different understandings of the meaning of the agreement is immaterial if one of their meanings is unreasonable.

Wash. - Hill's, Inc. v. William B. Kessler, Inc., 41 Wash.2d 42, 246 P.2d 1099 (1952) . A buyer ordered goods on an order blank specifying that it must be accepted by the seller. The seller later wrote thus: ''You may be assured of our very best attention to this order.'' The buyer understood this as an acceptance. The court held that the seller had reason to know that it would be so interpreted.

See § 538, 539, 543, 579, 599.

(n14)Footnote 14.

U.S. - United States v. Braunstein, 75 F.Supp. 137 , appeal dismissed, 168 F.2d 749 (2d Cir.) .

Wis. - Jacob Johnson Fish Co. v. Hawley, 150 Wis. 578, 137 N.W. 773 (1912) .