Mountain Law: When to break a contract (column)
When can a person who enters into a contract get out of the contract due to a mistake? In an attempt to answer this question, let’s compare the arguably contradictory results of two leading Colorado cases, Poly Trucking and Sumerel.
Starting with Poly Trucking, the basic facts were that a trucker driver had a seizure while driving and killed a man in an auto accident. The dead man’s widow then sued the trucking company, Poly Trucking, for wrongful death. In turn, Poly Trucking sued Concentra, a health services company, alleging that it had improperly issued a medical certification to the truck driver and was therefore responsible for the accident. Critically, Poly Trucking did not at that time sue Concentra’s doctors who had medically examined the truck driver. Poly Trucking and Concentra exchanged drafts of settlement agreements that initially included a release of liability for the doctors. However, they eventually entered into a settlement agreement that released Concentra, but not the doctors, from liability. Poly Trucking then filed a separate lawsuit against the doctors. In response, Concentra argued that the failure to include a release of liability for the doctors in the settlement agreement had been a mistake.
In contrast, Sumerel was a products liability case that the plaintiffs won, resulting in a large jury award against a product manufacturer, Goodyear. The judgment included an award of interest. In an attempt to reach a settlement, attorneys for the parties exchanged various spreadsheets back and forth about how the interest should be calculated. During this process, Goodyear’s attorney erroneously sent a spreadsheet that miscalculated the interest by $550,000 in the plaintiffs’ favor. The plaintiffs readily agreed to accept this erroneous interest amount. When Goodyear discovered the error, it argued that the agreement was a mistake.
Both of the above cases involved sophisticated parties represented by attorneys. Both also involved the attorneys arguably making mistakes in drafting the agreements—one omitting a release for the doctors and the other miscalculating the interest. How did the cases turn out? In Poly Trucking, the trucking company won and was allowed to sue the doctors. In Sumerel, Goodyear won and was not required to pay the extra $550,000 in interest. In other words, in the first case, the court refused to change the contract despite the mistake and, in the second case, the court did change the contract because of the mistake.
did the cases turn out differently despite their apparent similarities? As it happens, the Sumerel court explained why it did not follow the Poly Trucking precedent. It basically said that it did not believe Poly Trucking had reason to know that Concentra intended to release the doctors because, while such a release was included in an early draft, the parties exchanged multiple drafts without such a release. In contrast, the plaintiffs in Sumerel had reason to know that Goodyear would not agree to pay $550,000 more in interest than was required in the absence of a mistake.
The lesson seems to be that the court will allow a person to get out of a contract on the basis of mistake if the other side knew or had reason to know about the mistake and took advantage of it (and, inversely, that the court will not allow a person to get out of a contract on the basis of mistake if the other side did not know or have reason to know about the mistake). Despite this general guidance, it is difficult to draw conclusions from these cases (and others like them) that would allow one to predict with certainty when the court will overturn a contract due to mistake. This means a person must use a defense based on mistake cautiously.
Noah Klug is owner of The Klug Law Firm, LLC, in Summit County, Colorado. He may be reached at 970-468-4953 or Noah@TheKlugLawFirm.com.
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