Two, Three, or Four Prongs? The Contractual Defense of Unilateral Mistake in Florida.

• Author: Carrier, Paul

Until recently, Florida litigators would have the choice between two and four elements for a unilateral mistake defense depending on the court where an action was filed. This is now clarified in the DePrince v. Starboard Cruise Services, Inc., 163 So. 3d 586 (Fla. 3d DCA 2015) (DePrince I) and DePrince v. Starboard Cruise Services, Inc., 271 So. 3d 11 (Fla. 3d DCA 2018) (en banc) (DePrince II) cases, and the elements of this contractual defense are now clear. In DePrince I, the Third District Court of Appeal opted for a four-prong analysis of the defense to contract enforcement on the basis of unilateral mistake instead of a three-prong analysis. (1) The court en banc adopted a three-prong analysis on rehearing. (2) The previous split among the Florida districts could have been resolved by the Florida Supreme Court, but it is argued that the Third District's en banc rehearing, which moved that district in line with other districts, has likely resolved the issue whether there are three or four prongs to the unilateral mistake defense. An understanding of what necessitated this reconciliation is instructive and would make practitioners more effective in the use of all contractual mistake defenses to enforcement. First, the level of discretion afforded to courts exercising their equitable authority may explain the previous variances between district courts of appeal regarding the number of elements establishing unilateral mistake. Overlap between equitable defenses may also be a factor. Second, there are foundational and historic differences between the contractual defenses of rescission/cancellation, on the one hand, and reformation on the other, which elucidate a possible reason for lack of judicial conformity. Added together, it is not surprising that this set of issues was not fully decided until 2018 in what appears now to be a unified position by all Florida districts.

Case History--DePrince I and DePrince II

The series of events in the DePrince cases began in February 2013 when DePrince visited a jewelry shop onboard one of Starboard Cruise's ships. (3) Starboard's jewelry shop, which maintained a consignment arrangement with a jewelry supplier, sold loose gemstones; DePrince was interested in purchasing a large diamond between 15 and 20 carats. (4) The sales manager contacted the supplier for a quote, and the price of $235,000 was given for the 20.64-carat diamond that DePrince ultimately contracted to purchase. (5)

Subsequently, Starboard learned that the $235,000 quoted price was actually per carat, for a total value of $4,850,400. (6) Starboard contacted DePrince and explained the error but DePrince insisted that the parties complete the sale. (7) Starboard reversed the charges on DePrince's credit card and informed him that the sales agreement had been repudiated. (8) As a result, DePrince filed suit on multiple counts, including breach of contract. (9) Starboard moved for summary judgment based on the fact that there had been a unilateral mistake concerning the diamond's price. (10) The trial court ruled in favor of Starboard and granted the summary judgment motion. (11)

On appeal, the Florida Third District Court of Appeal reviewed whether the trial court should have granted summary judgment based on the tests for unilateral mistake. (12) The Third District noted three tests to determine whether unilateral mistake should be a basis for rescinding a contract. (13) The first, a two-prong test, articulated the following elements: (14) "(1) the mistake did not result from an inexcusable lack of due care, and (2) defendant's position did not so change in reliance that it would be unconscionable to set aside the agreement." (15) The second test, a three-prong test stated in Florida's jury instructions, noted the following elements: "1. (Defendant) was mistaken about (insert description of mistake) at the time the parties made the contract; 2. [The effect of the mistake is such that enforcement of the contract would be unconscionable] [or] [(Claimant) had reason to know of the mistake or [he][she][it] caused the mistake.] and 3. (Defendant) did not bear the risk of mistake...." (16) The Third District ultimately selected a four-prong test, articulating the following elements: (17)

(1) [T]he mistake was induced by the party seeking to benefit from the mistake, (2) there is no negligence or want of due care on the part of the party seeking a return to the status quo, (3) denial of release from the agreement would be inequitable, and (4) the position of the opposing party had not so changed that granting relief would be unjust. (18)

When it applied the facts of the case to the four-prong test, the Third District held that there were factual disputes at issue. In particular, the defendant was unable to produce evidence regarding whether DePrince induced Starboard into making the pricing mistake. (19) In addition, as to the second element, the issue whether Starboard made a reasonable mistake or acted negligently, was also a factual inquiry. (20) Though the Third District determined that the trial court's grant of summary judgment was inappropriate, based on the four-prong test, it further articulated that neither of the other two tests would have given cause to grant summary judgment. (21) In regard to the two-prong test, the first element also required an inquiry into whether Starboard was unduly negligent when it formed the contract, thus leaving a factual dispute. (22) And though no Florida decision adopted or cited the three-prong test, it also would have left a factual question as to whether Starboard bore the risk of mistake. (23) As a result, the Third District reversed and remanded the case. (24)

On remand, the jury found that Starboard committed a unilateral mistake and, thus, was excused from performing under the contract. (25) The trial court denied DePrince's motion for a directed verdict and entered judgment for Starboard. (26) Defendant appealed the second verdict, and the district court of appeal reversed and remanded for a new trial because the trial court's unilateral-mistake jury instruction was inconsistent with the first DePrince trial. (27) Starboard moved for rehearing en banc to resolve which test for unilateral mistake the trial court should apply and, more particularly, whether some level of inducement by the party seeking to enforce was an element of the defense. (28)

On rehearing, the Third District Court of Appeal reviewed a series of prior cases that did not require the...