Opinion ID: 1379283
Heading Depth: 3
Heading Rank: 1

Heading: Mistake as a Ground for Avoidance

Text: As support for his principal contention on appeal, the lessee cites Section 152 of the Restatement (Second) of Contracts (1979), which reads in pertinent part: Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in Section 154. Although no New Mexico case appears to have adopted this section of the Restatement, there are intimations in our case law that New Mexico recognizes mutual mistake as a ground for avoidance of a contract, along with other well-recognized grounds such as fraud, duress and undue influence. See, e.g., Woods v. City of Hobbs, 75 N.M. 588, 408 P.2d 508 (1965); Durham v. Gulf Interstate Eng'g Co., 74 N.M. 277, 393 P.2d 15 (1964); Mendenhall v. Vandeventer, 61 N.M. 277, 299 P.2d 457 (1956); Smith v. Loos, 78 N.M. 339, 431 P.2d 72 (Ct.App.), cert. denied, 78 N.M. 337, 431 P.2d 70 (1967). Certainly we have no reason to think that in an appropriate case a New Mexico court would not grant relief by way of avoidance or rescission to a contracting party under the circumstances outlined in this section of the Restatement. Here, the lessee argues that his and the lessor's mistake as to the extent of the Highway Department's impending condemnation was a basic assumption on which the lease was made and had a material effect on their agreed exchange of performances. The lessee swore in his affidavit that he would not have entered into the lease had he and the lessor not been mistaken. He went on to say that the lessor's inability to rebuild the bar at the same location had forced him to go out of business and sustain a substantial loss. These sworn averments were sufficient to raise issues of fact as to the matters they covered. However, assuming that those matters would have been proved to the satisfaction of the fact-finder at trial, they would not have afforded a ground for the relief sought by the lessee, for several reasons. The first, and probably paramount, reason is that the lessee was seeking only partial avoidance of the lease. It is well settled that [a] contract cannot be avoided in part except in circumstances not present here. Restatement (Second) of Contracts § 383 (1979); accord 17 Am. Jur.2d Contracts § 488 (1964). New Mexico follows this well-settled rule. See In re Dasburg, 45 N.M. 184, 113 P.2d 569 (1941) (rule applies where contract not divisible); Ford v. Norton, 32 N.M. 518, 260 P. 411 (1927) (same). The lessee in this case obviously is not seeking to avoid, or rescind, the entire lease. Were he to do so successfully, he would divest himself of any interest in the condemned parcel and thereby forego any right to share in the condemnation proceeds. As stated in the comment to the Restatement, He cannot disaffirm part of the contract that is particularly disadvantageous to himself while affirming a more advantageous part, and an attempt to do so is ineffective as a disaffirmance. Restatement § 383 comment a. There are additional reasons why the lessee in this case cannot avail himself of mutual mistake as a ground for avoidance or disaffirmance of his contractual obligation. First, it appears that the mistake related not to a presently existing fact but rather to an eventuality that was to occur in the future. The lessee's affidavit described the parties'mutual belief and understanding that the condemnation by the state would be partial and described their discussions of the  probable condemnation (emphasis added). But neither it nor anything else submitted on the motion for summary judgment raised even an inference that, at the time of the original lease in 1977, its renewal in 1980, or its second renewal in 1985, the Highway Department's then existing intention was to condemn the entire parcel. In other words, nothing was presented on summary judgment to establish that the parties' belief at the time of making the contract was erroneous; the Highway Department may have intended initially to condemn only part of the property and then changed its mind. The Restatement defines a mistake as a belief that is not in accord with the facts. Restatement § 151. The comment makes it clear that the erroneous belief must relate to the facts as they exist at the time of the making of the contract. A party's prediction or judgment as to events to occur in the future, even if erroneous, is not a `mistake' as that word is defined here. Id. comment a. See also Quintana v. Motel 6, Inc., 102 N.M. 229, 231, 693 P.2d 597, 599 (Ct.App.1984) (erroneous opinion or error of judgment respecting future conditions will not justify setting aside release). Still another reason why the lessee cannot invoke mutual mistake to avoid the condemnation clause lies in the exception stated in Section 152 of the Restatement: A party cannot avoid a contract on account of a mutual mistake if he bears the risk of the mistake under Section 154. According to the latter section, A party bears the risk of a mistake when (a) the risk is allocated to him by agreement of the parties, or (b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or (c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so. All three of these sub-rules appear applicable in this case. First, the lease provides that in the event the said demised premises, or any part thereof; are taken, etc., the lease will terminate as to the part taken and the condemnation proceeds will belong to the lessor. This provision has the effect of allocating to the lessee the risk of being mistaken as to the condemning authority's intention concerning the extent of any impending condemnation. Of course, since the lessee seeks to disaffirm this clause, it may not be appropriate to rely solely on it as allocating the risk of mistake to the lessee; but in the context of the parties' negotiations and dealings, we think the risk of mistake is properly assigned to the lessee by virtue of subsections (b) and (c) of Section 154 as well as under the terms of the agreement itself. The lessee's affidavit declared that he and the lessor had discussed the probable condemnation on several occasions prior to the renewal of the lease. According to the affidavit, the parties shared the misunderstanding as to the extent of the eventual condemnation from the time the lease was first executed in 1977 through the time of -its second renewal in 1985. During all of this time the lessee made no attempt to ascertain from the Highway Department what the intended scope of the condemnation was. The lessor testified at his deposition that he first learned of the Highway Department's intention to expand the Valencia Y in 1961, and he confirmed that he had discussed the future widening of the intersection with the lessee on various occasions. Thus, the materials submitted in connection with the motion for summary judgment established that the lessee was aware that he had only limited knowledge about the extent of the condemnation but treated his knowledge as sufficient to execute the lease and renew it twice. There was nothing to give rise to a genuine issue of fact to the contrary. Portions of the original lease and all of the 1980 amendment were individually negotiated, as indicated by the typewritten additions to the printed lease form and the entirely typewritten amendment. In these circumstances it was reasonable for the court to allocate the risk of mistake to the lessee. For all of these reasons, the trial court properly held that the condemnation clause could not be avoided on the ground of mutual mistake.