Parties May Still Rescind from Contracts Based on Obvious Unilateral Mistakes

The Court of Appeals for the Eleventh Circuit just reconfirmed the traditional rule that when one of the parties to a contract has, without gross fault or laches on his or her part, made a mistake, the mistake was known, or ought to have been known, to the opposite party, and the mistake can be relieved against without injustice, a unilateral mistake may be a ground for rescinding a contract, or for refusing to enforce its specific performance.

In the case, two private persons bid a higher and higher amount to purchase a home via a short sale (first $371,000, then $412,000, then $444,000. After that, the hopeful buyer bid a disputed amount that would, at any rate, have resulted in a much lower net payout to the bank than any of the above total prices would have.).

Finding for the bank, the panel noted that the buyers “will not suffer an injustice under Georgia law because they will only be deprived of what Georgia law does not allow them to have—in [one person’s] case the opportunity to take advantage of another’s obvious unilateral mistake; in [the other person’s] case the opportunity to retain mortgaged property after he defaulted on the underlying loan. The breach of contract claims fail.”

Property is considered unique, but not so unique as to overcome an apparent failure to be on the up-and-up in the bargaining process. It did seem like the buyers here were indeed trying to see if the bank would simply not notice its own mistake, which it in fact only did two years later, for some reason.