Stare v. Tate
98 Cal. Rptr. 264, 21 Cal.App.3d 432, 1971 Cal. App. LEXIS 1085 (1971)
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Rule of Law:
When one party to a contract makes a unilateral mistake, and the other party knows or suspects the mistake, the contract may be reformed to express the mistaken party's intention. The knowing party is estopped from claiming their intent was different from what they led the mistaken party to believe.
Facts:
- Joan and Tim Tate were negotiating a property settlement agreement as part of their divorce, with both represented by counsel.
- A primary point of disagreement was the value of the 'Holt property'; Joan maintained it was worth $550,000, while Tim valued it between $425,000 and $450,000.
- Joan's attorney submitted a settlement proposal based on the $550,000 valuation but made two significant mathematical errors, calculating Joan's share of the equity to be approximately $70,000 instead of the correct figure of approximately $120,000.
- Tim's attorney and accountant discovered the mathematical errors in Joan's proposal.
- Tim's attorney then prepared a counteroffer that used Joan's erroneous $70,000 equity figure for the Holt property. The counteroffer was structured to conceal its basis by only listing the final equity figure, unlike other properties where gross value and encumbrances were detailed.
- Believing Tim had accepted her $550,000 valuation (which her attorney's errors led her to believe resulted in a $70,000 equity), Joan agreed to the settlement, conceding her position on other disputed assets like family stock.
- The parties signed the final agreement on February 21, 1968.
- Shortly after their divorce became final, Tim sent Joan a copy of her attorney's original mistaken calculation, with a handwritten note stating: 'PLEASE NOTE $100,000.00 MISTAKE IN YOUR FIGURES.'
Procedural Posture:
- Joan Tate (plaintiff) filed an action in a California trial court seeking to reform a property settlement agreement she had entered into with her ex-husband, Tim Tate (defendant).
- The trial court entered judgment in favor of the defendant, Tim, finding that the property division was equitable and that no reformation was required.
- Joan Tate (plaintiff-appellant) appealed the trial court's judgment to the California Court of Appeal.
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Issue:
Does a party's knowledge and concealment of the other party's unilateral, material mistake in a written agreement provide grounds for reformation of the contract to reflect the mistaken party's intent?
Opinions:
Majority - Kaus, P. J.
Yes. A party's knowledge and concealment of the other party's unilateral, material mistake in a written agreement provides grounds for reformation of the contract. California Civil Code § 3399 explicitly allows for reformation when a contract does not express the parties' true intention due to a 'mistake of one party, which the other at the time knew or suspected.' Tim's attorney was aware of the mistake made by Joan's attorney but concealed this knowledge and incorporated the erroneous figure into the counteroffer, leading Joan to believe Tim had accepted her valuation. The law estops the party who knows of the mistake (Tim) from claiming his intent differs from what he led the other party (Joan) to believe. Therefore, the contract which was intended by the party acting under the unilateral mistake known by the other is, as a matter of law, the contract of the parties. The trial court erred by retrying the valuation of the property; the purpose of a settlement is to obviate litigation of such disputed facts, and the only relevant question was whether the written agreement reflected the intended agreement.
Analysis:
This decision reinforces the application of contract reformation in cases of unilateral mistake where the non-mistaken party is aware of the error. It establishes that a party cannot engage in 'sharp practices' by knowingly taking advantage of another's clerical or mathematical mistake during negotiations. The ruling emphasizes that the knowing party is estopped from enforcing the written contract as-is, and the court will reform the document to match the mistaken party's understanding. This precedent strengthens the duty of good faith in negotiations and discourages parties from capitalizing on opponents' errors, even if those errors are due to negligence.
