MIAMI BUSINESS LITIGATION: CONTRACTS AND UNILATERAL “MISTAKE”

Florida businesses often enter into contracts that define the rights and responsibilities of the contracting parties. Each contracting party is presumed to understand the terms of the contracts that they agree to. Courts will generally enforce contracts as they are written; however, complications can arise when a party to a contract recognizes that he made a mistake when agreeing to the contract. In limited circumstances, Florida law provides relief to parties that make unilateral mistakes when entering into contracts. Peter Mavrick is a Miami business litigation lawyer, and also represents clients in business litigation in Fort Lauderdale and Palm Beach. The Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

For a contract to be formed, the parties must first express their mutual agreement to the essential terms of the contract. State v. Family Bank of Hallandale, 623 So. 2d 474 (Fla. 1993) (stating that there must be a “meeting of the minds” as to all essential terms). Once the parties come to an agreement concerning these essential terms, the contract becomes enforceable. A breach of that contract can subject a party to damages.

Sometimes, a party to a contract will notice that he made a mistake when entering into the contract. Florida legal precedent is clear that a party cannot avoid its obligations under a contract simply because it is a bad deal. As Miami’s Third District Court of Appeal explained in the seminal case Int’l Expositions, Inc. v. City of Miami Beach, 274 So.2d 29 (Fla. 3d DCA 1973), “courts may not rewrite, alter, or add to the terms of a written agreement between the parties and may not substitute their judgment for that of the parties in order to relieve one from an alleged hardship of an improvident bargain.” However, in certain circumstances, a party to a contract that made a mistake about the substantive terms of the contract may have that contract rescinded.

A contract may be set aside on the basis of a unilateral mistake of material fact 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 v. Starboard Cruise Services, Inc., 271 So. 3d 11 (Fla. 3d DCA 2018). The mistake also must “go to the very substance of the agreement” for the mistake to be substantial enough to justify rescission of the agreement. Garvin v. Tidwell, 126 So.3d 1224 (Fla. 4th DCA 2012) (finding that the court must determine whether a mistake goes to the “very substance of the agreement”); see Lakes of Meadow Vill. Homes Condo. Nos. One, Two, Three, Four, Five, Six, Seven, Eight, & Nine Maint. Associations, Inc. v. Arvida/JMB Partners, L.P., 714 So. 2d 1120 (Fla. 3d DCA 1998) (finding the discovery of hidden defects in construction is a sufficiently substantial mistake to justify rescission); Maryland Cas. Co. v. Krasnek, 174 So. 2d 541 (Fla. 1965) (allowing an insurance company to rescind an agreement to pay a claim when the insurance company mistakenly believed that the other party was an insured, stating “[i]t is difficult to imagine a mistake going more to the substance of the agreement than the one made by the petitioner here”). “However, what constitutes an essential term of a contract will vary widely according to the nature and complexity of each transaction and must be evaluated on a case specific basis.” ABC Liquors, Inc. v. Centimark Corp., 967 So. 2d 1053 (Fla. 5th DCA 2007).

“[A] party’s performance under a contract is not excused on the basis of unilateral mistake when the mistake is the result of the party’s own negligence and lack of foresight.” Limehouse v. Smith, 797 So. 2d 15 (Fla. 4th DCA 2001). As all mistakes essentially derive from the negligence of the party making the mistake, the question is not whether there was negligence or a lack of foresight, but the degree of culpability the mistaken party had when making the mistake. In determining whether the mistaken party was negligent, courts will generally review the sophistication of the parties and evaluate whether the mistake should have been avoided had the mistaken party been professionally diligent.

When a mistake should have been caught had the mistaken party undertaken due diligence, but was not caught because of a failure to undertake this due diligence, then courts are less likely to rescind the agreement. Stamato v. Stamato, 818 So. 2d 662 (Fla. 4th DCA 2002) (refusing rescission of a settlement agreement where the plaintiff claimed she would not have agreed to the settlement had she known that the court had already granted her request to seek punitive damages, because the mistake could have been corrected by reviewing the docket). When the mistake is conducted by a professional whose particular knowledge or expertise should have identified the mistake, the courts will tend to find that the mistake was negligent. BMW of N. Am., Inc. v. Krathen, 471 So. 2d 585 (Fla. 4th DCA 1985) (finding inexcusable lack of due care when attorney omitted the fact that returning a vehicle was a condition precedent to receiving a settlement payment); Limehouse v. Smith, 797 So. 2d 15 (Fla. 4th DCA 2001) (finding negligence when the mistaken party was a real estate investor who should have known the terms of the contract it had entered into).

By contrast, when the mistake is an innocent clerical mistake, courts will be more likely to rescind the agreement as requested by the mistaken party. Florida Ins. Guar. Ass’n, Inc. v. Love, 732 So. 2d 456 (Fla. 2d DCA 1999) (permitting rescission of a contract when the offering party accidentally typed a “2” instead of a “1” when conveying an offer because the mistake was clearly a “clerical error”).

Similarly, courts will refuse to rescind a contract due to a mistake when the contract is clear. “When a contract is clear and unambiguous, the court is required to enforce the contract according to its plain meaning.” Limehouse v. Smith, 797 So. 2d 15 (Fla. 4th DCA 2001). Courts will generally not entertain claims that there was a mistake made in a clear and unambiguous contract, Ali R. Ghahramani, M.D., P.A. v. Pablo A. Guzman, M.D., P.A., 768 So. 2d 535 (Fla. 4th DCA 2000) “[T]o set aside an unambiguous agreement it is insufficient to simply allege and prove a unilateral mistake”).

In sum, parties that enter into contracts are generally required to fulfill the contractual terms as written, even if the party subsequently recognizes that the contract was a bad deal. There is an exception to this rule when one of the parties makes a mistake about the substantial terms of the agreement, but that mistake must not have been negligent in making the mistake. These principles are best illustrated by the recent Miami appellate case, DePrince v. Starboard Cruise Services, Inc., 271 So. 3d 11 (Fla. 3d DCA 2018), where the court evaluated whether to rescind a contract for the sale of a diamond. There, a cruise ship passenger requested the price of large “loose” diamond. The cruise ship employee inquired with the company of what the terms would be for such a sale, and advised the passenger that the price was $235,000. The passenger consulted with his sister, a graduate gemologist, who stated that the price did not sound right. Nevertheless, the passenger entered into a contract to purchase the diamond. Subsequently, the cruise ship employee discovered that the quoted price was not per diamond but was per carat, making the true value of the diamond to be well over a million dollars. The court found that this was the sort of mistake that justified rescission, reversing precedent within the Third Circuit Court of Appeal which required that the other party be at fault in some way before the mistaken party could request rescission.

Peter Mavrick is a Miami business litigation attorney who also practices business litigation in Fort Lauderdale and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.