Mistake, Impracticability, and Frustration of Purpose

b. An Incorrect Prediction of Future Events Is Not a Mistake

A future event may one day become a fact, but until it has happened, it cannot be thought of as a fact by anyone except Nostradamus. Therefore, as a rule, it is generally accurate to say that the mistake must relate to a fact in existence at the time of contracting. A party cannot claim relief for an erroneous prediction. This is often closely related to point a above, because most predictions at the time of contract are speculations concerning the future value of the transaction and are therefore in the nature of judgments. For example, if a buyer of oranges purchases them in the belief that the market will rise, he cannot complain if it later turns out that he was wrong. This is not a mistake in the legal sense, but simply an erroneous prediction (or misjudgment) of profitability. Again, although the distinction between fact and prediction is easy to draw in some cases, there are situations in which a contractual assumption may have both factual and speculative elements. When that happens, it can be difficult to decide if the error should be treated as a mistake.

c. Mistake of Fact Must Be Distinguished from Mistake as to Meaning (Misunderstanding)

When the parties dispute the meaning of a contract term, this could be characterized as a type of mistake—one of the parties is mistaken as to the intention of the other. Mistake doctrine is not concerned with this type of error, which is not a mistake as to some external fact, but rather a mistake as to the meaning of a manifestation of assent. It is resolved by the process of interpretation, governed by the principles set out in Chapter 10. That is, the correct meaning of a manifestation is decided by determining the reasonable meaning of the words or conduct in context.

  A court might miss this distinction, as shown by Monarch Marketing System Co. v. Reed’s Photo Mart, 485 S.W.2d 905 (Tex. 1972). The photo store had meant to order 4,000 custom labels. The letter “M” was understood in trade usage to signify a quantity of 1,000. Instead of filling in a quantity of “4M” in its order form, the store erroneously wrote the order for “4MM” labels. When the 4 million labels were delivered, the store refused to accept them and the supplier sued for the price. The court resolved the case on the basis of mistake and found that the elements of unilateral mistake were not satisfied. (We will examine these elements shortly. In essence, the court found that the store’s unilateral mistake did not merit avoidance because the store was responsible for the mistake, the supplier had no way of realizing that the order was wrong, and if the contract was not enforced, the supplier would suffer a loss which it could not recover by selling the customized labels to anyone else.) The result is doubtless correct, but the basis for reaching it is wrong. This was not a mistake as to an external fact, but an error in communication. Under the objective test, the store is held to the supplier’s reasonable understanding of its manifestation of intent.