Interstate Indus. Uniform Rental Service, Inc. v. Couri Pontiac, Inc.

• Decision Date: 16 April 1976
• Citation: 355 A.2d 913
• Court: Maine Supreme Court
• Parties: INTERSTATE INDUSTRIAL UNIFORM RENTAL SERVICE, INC. v. COURI PONTIAC, INC.

Page 913

355 A.2d 913

INTERSTATE INDUSTRIAL UNIFORM RENTAL SERVICE, INC. v. COURI PONTIAC, INC.

Supreme Judicial Court of Maine.

April 16, 1976.

Richard A. Davis, Portland, for plaintiff.

Perkins, Thompson, Hinckley, Thaxter & Keddy, by Owen W. Wells, Thomas Schulten, Portland, for defendant.

Before DUFRESNE, C. J., and WEATHERBEE, POMEROY, WERNICK and ARCHIBALD, JJ.

WEATHERBEE, Justice.

This is an action for the alleged breach of an express written contract dated March 12, 1970 between the plaintiff and defendant in which plaintiff agreed to provide and service for the term of two years a designated number of rental uniforms and accessories for defendant's personnel. The contract provided for liquidated damages in the event of defendant's default, such damages to be measured by one-half the weekly rental service charge for the remaining life of the contract, together with any loss charge and reasonable attorney's fees incurred by the plaintiff in enforcing its rights. Plaintiff brought this action in the Superior Court for Cumberland County to enforce this liquidated damages clause.

The defendant, Couri Pontiac, Inc., was acquired in early 1970 by Harold Wiley, who had for many years been a business acquaintance of John McIntosh, a salesman for plaintiff Interstate Industrial Uniform Rental Service, Inc. Largely because of this previous relationship, the parties, through their respective agents, executed the Uniform Rental Agreement, breach of which the plaintiff now alleges. The plaintiff's salesman, John McIntosh, testified that before the agreement was executed defendant's secretary made a 'rough' check to determine whether defendant had any uniform rental agreement with another uniform company. Although the check revealed nothing, Couri was, in fact, under written contract to Standard Uniform Rental Servce, Inc. for the same service on a year to year basis unless terminated by written notice 30 days prior to the contract anniversary. At the time the contract with Interstate was executed, neither party knew of this written contract, although both were aware that Standard was then servicing Couri.

Plaintiff procured and tailored the uniforms which were installed in the defendant's place of business during the first week of April 1970. Both parties performed pursuant to the agreement for approximately five weeks. Mr. Wiley then discovered that Couri was under contract with Standard for the same type of service. In an effort to resolve the problem, he telephoned Mr. McIntosh and asked him if there was anything he, on behalf of Interstate, could do to solve the problem. Neither party disputes that plaintiff then agreed to withdraw its uniforms.

The parties do, however, disagree about the understanding accompanying the withdrawal of the uniforms. Mr. McIntosh testified that the uniforms were withdrawn as an accommodation to Wiley and that he and Wiley agreed to resume uniform service on October 18, 1970 at which time the contract with Standard was to expire upon seasonable notice. Defendant denies that there was any agreement that Interstate would resume its service after this brief suspension.

In October, plaintiff contacted Mr. Wiley about resumption of uniform services under the contract and was informed by Wiley that the status of the contract was uncertain because he had failed to cancel seasonably the contract with Standard. Mr. Wiley had, on October 16, some 28 days too late, notified Standard that he was cancelling service with them because he had a contract with the plaintiff. Because that letter was not timely, the contract between Standard and defendant was automatically renewed. Finding that he had two different contracts for the same service, Mr. Wiley announced that he would do business with the company that agreed to indemnify him in the event of a law suit by the other. Standard agreed to do so. Plaintiff refused and brought this suit for breach of the contract.

After trial, the justice below concluded that the contract resulted from the parties' antecedent mutual mistake under which both believed that the relationship between Standard and the defendant could be terminated at will and the business immediately transferred to the plaintiff. This mutual mistake, he ruled, prevented the formation of a legally binding contract. The justice further found that the plaintiff had lulled the defendant into a false sense of security regarding the suspension of services and had thereby waived its right to liquidated damages. Finally, the Court determined even if no waiver occurred, the plaintiff could not recover under the liquidated damages clause because the damages stipulated were penal, bearing no relation to any actual damages arising from a possible breach. Plaintiff now appeals these rulings. We sustain the appeal.

I. Mutual Mistake

Both parties remind us that this Court's review of the record is governed by M.R.C.P., Rule 52(a) which requires that

'. . . (f)indings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses.'

The burden is on the appealing party to prove clear error in the proceedings below. Flagg v. Davis, 147 Me. 71, 83 A.2d 319 (1951). From the evidence before him, the presiding Justice concluded that as a result of their mutual antecedent mistake, the parties had no legally binding contract. The presiding Justice based this determination upon the testimony of the plaintiff's general manager that the plaintiff would not, as a matter of company policy, have solicited the defendant's business had the plaintiff been aware of the written contract between Standard and defendant.

We do not doubt that the presiding Justice could reasonably have concluded that both plaintiff and defendant mistakenly believed defendant had no written contract with Standard or that had plaintiff been aware of that contract, it would never have signed the agreement now in dispute. These are the Justice's findings of fact; that is, they represent his conclusion that these phenomena occurred, but without any assertion as to their legal effect. We accept them. The proper question on this appeal, however, is not whether the justice erred in concluding that both parties labored under a mistaken belief of fact, but whether the Justice was correct in concluding that that particular mistake partakes of a sufficient number of the elements constituting the legal standard or formula of mutual mistake to permit one party to avoid the contract. The disputed conclusion is not one of fact, then, but one of law, occasioned by the application of a judicially developed standard or principle to certain facts.

This Court will hold open to corrective judicial review conclusions resulting from the application of a general legal principle to the facts of a particular case. E.g., Frost v. Chaplin Motor Co., 138 Me. 274, 25 A.2d 225 (1942) (whether possession of a certain automobile constituted a bailment); Murray's Case, 130 Me. 181, 154 A. 352 (1931) (whether petitioner was an independent contractor or an employee within the meaning of the Workmen's Compensation Act). Where the facts are already determined, an appellate court may draw its own legal inference from the record and substitute its judgment thereon for that of the trial court. Belanger v. Belanger, Me., 240 A.2d 743 (1968); Springfield Nat'l Bank v. Couse, 288 Mass. 262, 192 N.E. 529 (1934); Stevens v. Cross Abbott Co., 129 Vt. 538, 283 A.2d 249 (1971).

The principle that a contract is not legally binding if both parties have entered into it under an actual and goodfaith mutual misunderstanding is well-established in this jurisdiction. Blue Rock Industries v. Raymond International, Inc., Me., 325 A.2d 66 (1974). A mistake of fact occurs if the parties entertain a conception of the facts which differs from the facts as they really exist. Ibid. The mistake must be mutual, that is, the minds of the parties must fall prey to the same musconception with respect to the bargain. Buol Machine Co. v. Buckens, 146 Conn. 639, 153 A.2d 826 (1959); Ward v. Lyman, 108 Vt. 464, 188 A. 892 (1937). For example, a mistaken assumption about the subject matter of the bargain by one party and ignorance of that mistake by the other party is not a mutual mistake, but two unilateral mistakes; the initial mistake by the first party and a mistake as to the first party's mental state by the second party.

We need not decide whether the present case presents a true mutual mistake or merely two unilateral mistakes; for even if the mistake was mutual to both the plaintiff and defendant, it was not sufficiently material to justify rescission of the contract. The doctrine of mutual mistake requires that the mistake touch the subject matter of the bargain and not merely be collateral to it. Bellwood Discount Corp. v. Empire Steel Building Co., 175 Cal.App.2d 432, 346 P.2d 467 (1959); Petrey v. John F. Buckner & Sons, 280 S.W.2d 641 (Tex.1955). Only if the mutual mistake relates to a material fact of the essence of the bargain can the injured party avoid the contract. Vrabel v. Scholler, 369 Pa. 235, 85 A.2d 858 (1952). Because the materiality of the mistake depends upon the circumstances of each case, this requirement is necessarily imprecise and is better understood by illustration than through mere recitation. For example, a contract to sell land, '275 acres more or less', will not be enforced where, unknown to the parties, the parcel of land in question was less than 200 acres, Enequist v. Bemis, 115 Vt. 209, 55 A.2d 617 (1947), nor will a sales agreement requiring the transfer of good and marketable title to land be enforced where neither party knew of a third party's option on the land. MacGowen v. Gaines, 127 Vt. 477, 253 A.2d 121 (1969). In other words, the mutual mistake must so vitally affect the facts upon the basis of which the bargain was struck that the...