As the law now stands, three conditions must be fulfilled before a contract can be rescinded: (1) the mistake must relate to a material feature of the contract; (2) it must have occurred despite the exercise of reasonable care; and (3) the other party must be placed in the position it was in before the contract was made.
Appellee seller miscalculated the selling price of new trucks in a contract with appellant buyer. After realizing the mistake, appellee alerted appellant and appellant refused to continue with the deal at the true intended price. Appellant sought to recover for damages it incurred by loss of equity in trucks it used for trade-in and in lost profits it would have earned under a lease of some of the new trucks it intended to purchase. The trial court held that appellant had a duty to mitigate and rescinded the contract. On appeal, judgment against appellant on its principal claim was affirmed. The Supreme Court of the United States affirmed the decision.
Was rescission appropriate based on appellee seller’s miscalculation of the selling price of new trucks in a contract with appellant buyer?
Rescission was appropriate based upon a mutual clerical or mathematical mistake. Mitigation of damages was not required on a rescinded contract. However, any loss of equity in appellant's trucks was caused by appellant's own actions and that restoring appellant to status quo did not require repayment for lost equity.