Imagine this. You are on your honeymoon cruise. You visit the on-board jewelry store and see they have some beautiful diamonds. But they don’t have exactly what you want. So, you ask if they have something that meets your very specific requirements. You want a 15-20 carat diamond, emerald cut, high quality, color D, E, or F with a G.I.A. certificate. As anyone who has purchased a diamond ring will know, such a diamond would truly be a thing to behold and would be far outside most newlywed budgets. But you are no ordinary newlywed.
The ship’s store doesn’t have anything, but they contact their corporate office. The corporate office, in turn, reaches out to their diamond vendor. The vendor then reaches out to a diamond broker in New York who happens to have 2 stones available meeting your requirements. One is 20.64 carats, D Color, VVS2 clarity and GIA certified. The other is 20.73 carats, E color, VVS2 clarity and GIA certified. The diamond broker sends the list back through the channels. Eventually, the list is emailed to the on-board jewelry company’s main office stating, “These prices are ship sailing prices based on the lowest tier diamond margin we have. Let me know if you have any questions.” It then lists the two available stones – the first with a “selling price $235,000”; the second with a “selling price $245,000.” The main office forwards this information to the shipboard salesperson who offers these stones at the stated price to you. Neither the store’s main office nor the shipboard salesperson had ever sold a diamond like this before, and neither of them realized that the price was “per carat.”
You, also not being a true expert in gemology, asked your sister (who is a graduate gemologist) for her opinion. She says something seems off because a diamond of that size should be worth millions and so she suggests not buying it. But you, being excited to buy your new bride such a beautiful stone at a seemingly great price, go ahead and sign a contract to buy one of the stones, and you pay with your American Express card. Because you are not an ordinary newlywed, the charge goes through.
Unfortunately, soon after the sale is completed, the shipboard jewelry company discovers the quoted price was actually “per carat.” Therefore, the actual purchase price for the stone should have been $4,850,400. The store immediately notifies you of the error and reverses the charge to your credit card. You, however, want your diamond. A deal’s a deal. So, you sue to enforce the contract. Is the contract enforceable?
Believe it or not, a case involving these facts (slightly modified herein for dramatic effect), was recently decided by the full panel of judges sitting on Florida’s Third District Court of Appeal in DePrince v. Starboard Cruise Services, Inc., 43 Fla. L. Weekly D1734, 2018 WL 3636849 (Fla. 3rdDCA Aug. 1, 2018). The question before the court was whether one party who made a unilateral mistake when entering into an otherwise binding contract could rescind the contract based on their mistake. To answer this question, the Court had to decide what elements are necessary to prove unilateral mistake. For example, one can’t change their mind after executing a contract by saying they “made a mistake” simply because they want out of the contract. As noted above, a deal’s a deal, and courts will generally not relieve parties from their contractual obligations simply because they made a bad deal. But there are exceptions.
The Florida Supreme Court addressed this very issue over 50 years ago in Maryland Cas. Co. v. Krasnek, 174 So.2d 541, 542 (Fla. 1965). In that case, the Court confirmed that equitable relief on the basis of unilateral mistake is a valid defense to a breach of contract claim. However, the Court strictly limited the defense, stating that no such defense could be asserted “in instances in which the mistake is the result of a lack of due care or in which the other party to the contract has so far relied on the payment that it would be inequitable to require repayment.” Id.at 543.
However, in cases decided after Krasnek, the Third DCA had issued several decision with differing interpretations of the Krasnek opinion. In some cases, the Third DCA had held that unilateral mistake can be asserted if three requirements are met: i) the mistake was not the result of negligence or inexcusable lack of due care on the part of the party seeking to rescind the contract; ii) denial of rescission would be inequitable; and ii) the other party has not so detrimentally relied on the contract that rescinding it would be inequitable to the other party. See U.S. Alliance Corp. v. Tobon, 715 So.2d 1122, 1123 (Fla. 3rdDCA 1998); Penn. Nat’l Mut. Ins. Co. v. Anderson, 445 So.2d 612, 613 (Fla. 3rdDCA 1984). In other cases, the Court added an additional requirement – that the party making the mistake was induced by the other party seeking to benefit from the mistake. DePrince v. Starboard Cruse Servs., Inc., 163 So.3d 586, 592 (Fla. 3rdDCA 2015) (DePrince I); Rachid v. Perez, 26 So.3d 70, 72 (Fla. 3rdDCA 2010); Lechuda v. Flannigan’s Enters., Inc., 533 So.2d 856, 857 (Fla. 3rdDCA 1988). Adding the inducement requirement made it much more difficult to void a contract based on unilateral mistake.
The Third DCA, in an opinion written by Judge (now Justice) Robert Luck, resolved this conflict in DePrince II, en banc, by concluding that “inducement is not an element of unilateral mistake” and thus receded from the decisions in Lechuga, Rachid and DePrince I. As a result, in the Third DCA, which covers Miami-Dade and Monroe counties, unilateral mistake is a valid defense to a breach of contract claim if:
(1) the mistake was not the result of an inexcusable lack of due care; (2) denial of release from the contract would be inequitable; and (3) the other party to the contract has not so changed its position in reliance on the contract that rescission would be unconscionable.
DePrince, 2018 WL 3636849 at *8. This decision is also consistent with how the other four Florida District Courts of Appeal have interpreted Krasnek, harmonizing this issue throughout Florida.
Applying this standard, the Third DCA held that based on the facts (as summarized above), the jury’s conclusion that unilateral mistake justified rescinding the diamond contract was supported by the evidence. The lucky newlyweds did not get that perfect diamond at the unbelievably low price of $235,000.00.
In sum, if you or your business make a mistake in a contract, all hope is not lost. You may be able to void the contract if you can prove that: (i) the mistake was not due to your own negligence or inexcusable lack of due care; (ii) forcing you to perform the contract would be inequitable to you; and (iii) the other party to the contract has not so far relied on the contract that voiding the agreement would be inequitable to them. This standard will not get you out of a contract simply because it turns out to be a bad deal or because you changed your mind. You must also make every reasonable effort to avoid the mistake before entering the contract, and you can’t wait to take action until after the other party has relied on the contract to their detriment. However, if you discover a mistake that was not easily found before entering a contract, and you quickly act to let the other party know of the mistake, you may be able to void the agreement and avoid liability.
The Court’s full opinion can be found here: DePrince v. Starboard Cruise Services, Inc.:
http://www.3dca.flcourts.org/Opinions/3D16-1149.rh.pdf
If you would like more information about this decision or have questions about other business contracting issues, please contact me by email at info@llambertlaw.com, by calling my office at 305.459.3033, or by visiting my website at www.llambertlaw.com.