Lanci v. Metropolitan Insurance Co.

Citation. 564 A.2d 972 (1989)

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Citation564 A.2d 972 (1989)

Brief Fact Summary.

Plaintiff agreed to agreed to accept a $15,000 settlement from Defendant and signed a release. Plaintiff’s attorney sent Defendant a letter confirming the settlement stated that Plaintiff agreed to accept $15,000 in settlement of the claim, “which sum you have represented to be the straight and/or stacked policy limits applicable to this claim.” The actual limit under Plaintiff’s policy was $250,000.The trial court denied Defendant’s motion to enforce the settlement agreement. Defendant appealed.

Synopsis of Rule of Law.

One party’s unilateral mistake may be sufficient to void a contract if the other party knew or should have known of the mistake.

Points of Law - Legal Principles in this Case for Law Students.

However, if a mistake is not mutual but unilateral and is not due to the fault of the party not mistaken, but to the negligence of the one who acted under the mistake, it affords no basis for relief in rescinding the contract.

View Full Point of Law

Lanci (Plaintiff) was in settlement negotiations with his insurer, Metropolitan Insurance Co. (Defendant) related to a car accident. Plaintiff agreed to accept a $15,000 settlement and signed a release. The letter from Plaintiff’s attorney to Defendant confirming the settlement stated that Plaintiff agreed to accept $15,000 in settlement of the claim, “which sum you have represented to be the straight and/or stacked policy limits applicable to this claim.” The actual limit under Plaintiff’s policy was $250,000. Defendant moved to enforce the settlement agreement. The trial court denied the motion, finding that the letter showed a mutual mistake about the policy limits. Defendant appealed.

Issue.

Whether one party’s unilateral mistake may be sufficient to void a contract if the other party knew or should have known of the mistake.

Held.

Yes. The trial court’s ruling is affirmed. One party’s unilateral mistake may be sufficient to void a contract if the other party knew or should have known of the mistake.

Discussion.

In general, a release is binding on the parties to the release, unless it is executed under fraud, duress, or mutual mistake. The trial court incorrectly found that there was a mutual mistake in this case, because there is no indication that Defendant understood the policy limit to be $15,000 rather than $250,000. However, under § 153 the Restatement (Second) of Contracts, if a unilateral mistake about a basic assumption on which the contract is made materially affects the parties’ performance, the contract is voidable if the mistaken party does not bear the risk of the mistake, and either: (1) the effect of the mistake makes enforcement unconscionable or (2) the other party had reason to know of the mistake or caused the mistake. In this case, Plaintiff’s letter accepting the settlement offer clearly indicates that he understood the policy limit to be $15,000. Defendant therefore knew or should have known that Plaintiff was accepting the offer under the mistaken belief that the offer was for the policy limit. Plaintiff is therefore entitled to void the settlement agreement based on his unilateral mistake.