There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and neither knows or has reason to know the meaning attached by the other. Even though the parties manifest mutual assent to the same words of agreement, there may be no contract because of a material difference of understanding as to the terms of the exchange. Where a phrase of contract is reasonably capable of different interpretations there is no contract. The doctrine applies only when the parties have different understandings of their expression of agreement. The doctrine does not apply when one party's understanding, because of that party's fault, is less reasonable than the other party's understanding. Parol evidence is admissible to establish the facts necessary to apply the rule.
One of the buyer's representatives spoke to the seller about purchasing a surge protector. The representative had priced units, getting prices from $ 50 to $ 200 which did not suit the buyer’s specifications. The seller offered to sell a unit for $ 5,620, which the representative misinterpreted as $ 56.20. The representative worked up a purchase order for $ 56.20, and placed an order with the seller. The unit was installed while the buyer's president was on vacation. When the president returned from vacation, he immediately ordered that power to the equipment be turned off because the surge protector was obviously worth more than $ 56.20. The president contacted the seller to have them pick up the protector, but the seller refused and brought suit for the purchase price. The trial court found that the representative had no authority to enter into the transaction, thus, the buyer did not owe the seller for the equipment.
Was there a perfected contract of sale despite a failure of communication as to the contract price?
The court affirmed the trial court's decision granting judgment for the buyer. The court held that there was no sales contract because the parties had a material mutual misunderstanding and any agreement that they thought they had reached was merely an illusion. Both parties attributed different meanings to the same term, "fifty-six twenty." Thus, there was no meeting of the minds of the parties. The big difference between the two prices was obviously a material term. No contract between the parties was ever formed.