Anderson Bros. Corp. v. O'Meara
306 F.2d 672 (1962)
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Rule of Law:
A party cannot obtain relief from a contract based on a unilateral mistake if that mistake resulted from the party's own lack of due diligence in investigating readily accessible facts prior to the transaction.
Facts:
- Anderson Brothers Corporation built a specialized barge dredge designed specifically for cutting narrow trenches to lay underwater pipelines.
- Having never used the dredge, Anderson Brothers advertised it for sale in a magazine.
- Robert W. O’Meara, an oil well driller, required a dredge capable of 'sweep dredging'—digging wide channels to access offshore oil well sites.
- O'Meara saw the advertisement and made an offer to purchase the dredge for $35,000, subject to an inspection.
- O'Meara sent his employee, Kennedy, who was familiar with engines but not with dredges, to inspect the equipment.
- Following Kennedy's inspection of the engines, O'Meara purchased and took delivery of the dredge.
- O'Meara later discovered the dredge was incapable of performing sweep dredging without extensive and costly modifications.
- The bill of sale for the dredge warranted only title and freedom from encumbrances, with no mention of its capabilities.
Procedural Posture:
- Robert W. O’Meara sued Anderson Brothers Corporation in federal district court, seeking rescission or damages for breach of warranty, fraud, and mutual mistake.
- Anderson Brothers Corporation denied the claims and filed a counterclaim for the unpaid balance of the purchase price.
- Following a non-jury trial, the district court found for O'Meara on the grounds of mutual mistake.
- The district court awarded O'Meara damages by cancelling the remaining debt on the dredge but denied the request for rescission.
- The district court also denied Anderson Brothers Corporation's counterclaim.
- Both parties appealed to the United States Court of Appeals for the Fifth Circuit. Anderson Brothers is the appellant; O'Meara is the appellee and cross-appellant.
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Issue:
Does a party's unilateral mistake about the suitability of goods for their intended purpose provide a basis for relief, such as rescission or damages, when the other party was unaware of the mistake and the mistaken party failed to exercise due diligence to ascertain the facts before the purchase?
Opinions:
Majority - Jones, Circuit Judge
No. A party's unilateral mistake does not provide a basis for relief where that party failed to exercise due diligence. First, the trial court erred in finding a mutual mistake. A mutual mistake requires both parties to labor under the same misconception. Here, O'Meara was mistaken about the dredge's capability for sweep dredging, while Anderson Brothers knew its actual capability (trenching) and was, at most, mistaken about O'Meara's intended use; these are two separate mistakes, not one common mistake. Second, relief is not available on the grounds that Anderson Brothers knew of O'Meara's mistake, as the trial court correctly found no evidence that Anderson Brothers was aware of O'Meara's specific plans. Finally, O'Meara is not entitled to relief for a grave unilateral mistake because he failed to exercise due diligence. Despite being aware of his own lack of knowledge, he sent an unqualified employee to inspect the dredge, did not inquire about its intended purpose, and failed to secure any warranty as to its capabilities. Equity will not assist a party whose predicament is attributable to a failure to take reasonable steps to ascertain the facts.
Analysis:
This decision reaffirms the principle of caveat emptor (let the buyer beware) in commercial transactions, particularly where a sophisticated buyer has the opportunity to inspect goods. The court draws a sharp distinction between a true mutual mistake (a single, shared misconception) and two concurrent but different unilateral mistakes. The ruling establishes that a claim of unilateral mistake will likely fail if the mistaken party neglected to perform reasonable due diligence, thereby placing the burden of investigation squarely on the buyer who has specific, undisclosed needs.
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