Teaching Assistants: Brian McCall’s “Learning from Mistakes”
As we transition into summer, I am planning to do some writing on contracts law, and not just on the Blog. Writing involves reading, and I have a pile of recent scholarship to work through on my way to finalizing my own thoughts. As I do so, I hope to post some “Teaching Assistants” columns more often than I usually do on the Blog. “Teaching Assistants” posts usually focus on scholarship that readers might find useful to spur new approaches to the doctrinal matters that we regularly cover in Contracts and Sale courses.
Today’s post is about Brian McCall’s Learning from Mistakes: A Quantitative Comparative Study of Court Decisions Involving the Excuse* of Contractual Mistake, forthcoming in the Florida State University Law Review and available for download from SSRN here. I have had my own struggles with teaching the doctrine of mistake. One challenge is that students become fixated on the test from beloved, older cases, Sherwood v. Walker and Wood v. Boynton, which I think are wrongly decided, as discussed here. Those old cases applied a different and, in my view, faulty test, which gets stuck in the students’ heads, and some then refuse to apply the Restatement 2d test.
Professor McCall (above left) teaches at the University of Oklahoma, and I am happy to give a shout-out to a fellow Oklahoman. Professor McCall’s research is empirical. He analyzes two sets of cases. The first set is comprised of 97 mistake cases decided between 1977 and 1979; that is, just before the completion of the Restatement 2d (R.2d). These are Professor McCall’s “Older Cases.” The second set is comprised of 235 mistake cases decided between 2017 and 2019 (the “Newer Cases”). He first reviews scholarship and treatises on the subject of mistake. Much of the older scholarship on the subject is despairing. In 2004, James Gordley provided the following learned gloss: “[S]ometimes a party who has made a mistake will obtain relief, and sometimes he will not.”
The R.2d seemed to make it easier for parties to claim mutual mistake, so long as they did not bear the risk of the mistake. The R.2d also added a section allowing for unilateral mistake, but the test for unilateral mistake is difficult to satisfy. Parties almost always bear the risk of their own mistake, so a party can only avail itself of a unilateral mistake defense when the facts are quite extreme. Either the mistake was so palpable that the other party must have been aware of it or the other party must have somehow been responsible for the mistake. In either case, the equities must also favor the mistaken party.
Commentators on the R.2d seem generally to applaud the abandonment of attempts, based on the older common-law line of mistake cases, to distinguish between mistakes that go to the “essence” of the consideration those that pertain to its “value.” But we still have the difficulty of determining whether mistakes relate to “a basic assumption” of the contract. And the R.2d offers relatively little guidance on how to allocate risk where the parties have not done so, but I have never found that problem all that vexing, as I explained last week.
The big finding from the data is that, notwithstanding the seeming liberalization of mistake doctrine in the R.2d, the likelihood of success of a mistake claim declined by roughly 50% in the cases considered. While a mistake defense won out in 37.4% of the Older Cases, it succeeded in only 16.6% of the Newer Cases. The success rate of unilateral mistake claims fell by over 80%. The defense worked in only three of 42 cases in which it was adjudicated. My non-empirical conclusion is that those three cases are outliers. Unilateral mistake is a terrible defense; it should almost never work.
Professor McCall’s ultimate conclusions are modest but valuable. The doctrine is a mess. Different courts look at different factors. But the defense rarely works, it works far less often than it used to, and it almost never works when the mistake is unilateral. The change in courts’ willingness to allow mistake defenses in the fifty years between Professor McCall’s two sets of cases is, by far, the most significant factor in explaining why mistake defenses succeed. Beyond that, it is hard to generalize, but courts that look into allocation of risk are more likely to reject the defense, and pairing a mistake defense with a fraud defense doesn’t help the party win its mistake defense. This is, to me, wholly unsurprising for a number of reasons, but there are undoubtedly reasons for adding a fraud defense, if you can, that have nothing to do with winning on the mistake defense.
Only about 10% of the newer cases reference the R.2d, a fact that I find deplorable. I hope that judges are not still trying to distinguish mistakes that go to the essence of the consideration from those that go to its value. Might as well decide cases based on which side is more convincing on the subject of how many angels can dance on the head of a pin (right).
In my experience teaching contracts for over twenty years, one not infrequently comes across judges, including state supreme court justices, who are reluctant to adopt new tests provided in the R.2d or in neighboring jurisdictions. Such changes should be left to the legislature, say these minimalist adjudicators. That’s rubbish. Judges make law. Judges made the common law. It is folly to think that legislators are going to reconsider the common law of mistake when the issue arises in, at most, a handful of cases per year in their jurisdiction. Doing so will not get them re-elected; their constituents don’t care, and they will likely muck it up.
However, the state of the law being as it is, it is exceedingly valuable to have scholarship such as that undertaken by Professor McCall. We, as law teachers, should be mindful that our students need to know the R.2d test, because that is what they will be tested on when it comes time for the bar exam. However, once our students are practicing, they should make no assumptions about the how the doctrine operates in their jurisdiction. And given all of the doctrinal confusion, this is one of many areas of contracts doctrine where having a lawyer who is well-versed in contracts law can really help a client. The judges need to be educated, and the doctrine provides a lot of different avenues that one can pursue in finding the proper path to a decision that is both good for the client and sound as a matter of legal principle.
*Professor McCall treats mistake as an excuse rather than a defense. He is not alone, but I can’t quite follow the reasoning for treating mistake as an excuse. The way I approach the subject matter, defenses pertain to matters extant at the time of formation; excuses pertain to matters that arise after formation. Professor McCall cites to Tracey E. George and Russell Korobkin as authority for treating mistake as an excuse because it gives rise to a “constructive condition,” that the parties are free to contract around. Mistake is thus distinct from infancy, public policy, or unconscionability. I find the analysis illuminating, but I’m not sure why we cannot allow that not all mistakes operate in the same way while preserving the, to me at least, very important distinction between problems with formation and problems that arise during performance.
Professor McCall thinks that little turns on the distinction, because the effect of defense and excuse are the same, and I generally agree. However, treating mistake as an excuse leads to certain muddles. At one point, Professor McCall writes that mistake cannot relate to formation because it arises in cases where there is clearly offer and acceptance. But consideration is also part of formation, and Val Ricks persuaded me many years ago that defenses (but not excuses) arise from failures of consideration. If one or both parties are mistaken as to the subject matter of the contract, that is a failure of consideration.
In addition, Professor McCall notes that very few cases in his dataset discuss force majeure clauses in connection with mistake. He has various possible explanations for the silence on force majeure, but my explanation is that any court that treats a force majeure as relevant to mistake has made a category error. Force majeure clauses allocate risks for hazards that arise post-formation, and mistakes are about facts in existence at the time of formation. This distinction is usefully illustrated in the coronation cases.