Monarch Marking System Co. v. Reed's Photo Mart, Inc.

Supreme Court of Texas · Contracts

ContractsUnilateral mistakeRescissioncontractsunilateral mistakerescissionstatus quofully executed contract

Facts

Reed's submitted a written purchase order for several labels, listing four items as "2M" and a fifth special-print item as "4MM." Monarch's representative treated "MM" according to trade usage as one million, had the special labels printed, changed shipping from parcel post to "Best Way," and delivered four million labels by motor freight. Reed's refused the shipment, claiming it had mistakenly ordered four million instead of four thousand labels. The jury found that by custom and usage in the trade "MM" meant one million, Monarch's shipping substantially complied with the purchase order, Monarch did not know the order was a mistake, and the labels and attorney's fees had the values found by the trial court.

Issue

Can Reed's obtain relief from its unilateral mistake in the purchase order when Monarch fully performed the contract and Reed's did not show that Monarch could be restored to the status quo? Relatedly, was any omitted issue about whether Monarch should have known of the mistake material under those circumstances?

Rule

Under Texas law, relief from a unilateral mistake depends on the mistaken party's ability to put the other party in the same situation as before the transaction in the equity sense. One usual prerequisite to rescission for unilateral mistake is that the parties can be placed in status quo, so rescission must not prejudice the other party except for loss of the bargain; where the other party has fully performed and cannot be restored to status quo, rescission is unavailable.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Dallas, Lena Ortiz emailed a signed purchase order to Blue Mesa Printworks, a fictional specialty printer, for 250,000 custom coupon booklets. She later discovered she had meant to order 25,000, but Blue Mesa had already completed all printing and packaging for the full quantity using artwork unique to her store chain.

If Lena seeks rescission based on her unilateral mistake, which is the strongest reason a Texas court following the majority rule would deny relief?

Explanation. The governing rule is that rescission for unilateral mistake ordinarily requires the mistaken party to be able to place the other party in status quo in the equity sense, so that rescission does not prejudice the other party except for loss of the bargain. Where the non-mistaken party has fully performed and the mistaken party offers no proof of restoring that party to its prior position, rescission is unavailable.