Contract Law - Mutual Mistake & Novation

Contract Lawyer Austin Texas

Apr 9, 2013 — by Jeff Mundy
Tags: Contract Law


The elements of mutual mistake are: (1) a mistake of fact; (2) held mutually by the parties; (3) which materially affects the agreed-on exchange. City of The Colony v. N. Tex. Mun. Water Dist., 272 S.W.3d 699, 735 (Tex. App.--Fort Worth 2008, pet. dism'd). A mutual mistake of fact occurs when the parties to an agreement have a common intention, but the written agreement does not accurately reflect that intention due to a mutual mistake. See Smith-Gilbard v. Perry, 332 S.W.3d 709, 713 (Tex. App.--Dallas 2011, no pet.); City of The Colony, 272 S.W.3d at 735. When mutual mistake is alleged, the party seeking relief must show what the parties' true agreement was and that the instrument incorrectly reflects that agreement because of a mutual mistake. Atlantic Lloyds Ins. Co. v. Butler, 137 S.W.3d 199, 213 (Tex. App.--Houston [1st Dist.] 2004 pet. denied). Under the doctrine of mutual mistake, when parties to an agreement have contracted under a misconception or ignorance of a material fact, the agreement will be voided. Walden v. Affiliated Computer Servs., Inc., 97 S.W.3d 303, 326 (Tex. App.--Houston [14th Dist.] 2003, pet. denied).

To prove a mutual mistake, the evidence must show that both parties were acting under the same misunderstanding of the same material fact. Id. A unilateral mistake by one party, combined with knowledge of that mistake by the other party, is equivalent to mutual mistake. Davis v. Grammer, 750 S.W.2d 766, 768 (Tex. 1988). But, "[a] mistake by only one party to an agreement, not known or induced by acts of the other party[,] will not constitute grounds for relief." Smith-Gilbard, 332 S.W.3d at 713-14 (quoting Johnson v. Snell, 504 S.W.2d 397, 399 (Tex. 1974)). Mutual mistake should not be available to avoid the results of an unhappy bargain. Williams v. Glash, 789 S.W.2d 261, 265 (Tex. 1990). Parties should be able to rely on the finality of freely bargained agreements. Id.

2. Novation

Novation is the substitution of a new agreement between the same parties or the substitution of a new party on an existing agreement. Honeycutt v. Billingsley, 992 S.W.2d 570, 576 (Tex. App.--Houston [1st Dist.] 1999, pet. denied). Where a novation occurs, only the new agreement may be enforced. Id. To establish a novation, the party raising the defense must prove: (1) the existence of a previous, valid obligation; (2) a mutual agreement of the parties to a new contract; (3) the extinguishment of the old contract; and (4) the validity of the new contract. RM Crowe Prop., 348 S.W.3d at 448 (citing Vickery v. Vickery, 999 S.W.2d 342, 356 (Tex. 1999)).

"Evidence of mutual assent in written contracts generally consists of signatures of the parties and delivery with the intent to bind." Baylor Univ. v. Sonnichsen, 221 S.W.3d 632, 635 (Tex. 2007). Whether a written contract is signed is relevant to a determination of whether the contract is binding on the parties. In re Bunzl USA, Inc., 155 S.W.3d 202, 209 (Tex. App.--El Paso 2004, no pet.). Parties may provide that the signature of each party is a prerequisite to a binding written contract. Id. (citing ARTHUR LINTON CORBIN, CORBIN ON CONTRACTS § 2.10, at 165 (Joseph M. Perillo rev. 1993)). Where parties to a written contract intend that it shall not be binding until it is signed by the parties, the signatures of both parties are required to give effect to the contract. See Simmons & Simmons Constr. Co. v. Rea, 286 S.W.2d 415, 418-19 (Tex. 1955); Birchminster Resources v. Corpus Christi Management Co., 517 S.W.2d 608, 611 (Tex. App.--Corpus Christi 1974, writ dism'd). Therefore, "the question of whether a written contract must be signed to be binding is a question of the parties' intent." In re Bunzl, 155 S.W.3d at 209.


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