Contracts: Mutual Mistake of Material Fact

Minnesota case law summary by Attorney Richard Clem: Contracts, Mutual Mistake of Material Fact.

SCI Minnesota Funeral Services v. Washburn McReavy Funeral Corp., . MN Contracts, Mutual Mistake of Material Fact

Seller transferred its interest in a corporation to purchaser. The assets of the corporation included three cemeteries. Unbeknownst to the persons involved in the transaction, the corporation was also the owner of two vacant lots. Certain assets of the corporation were excluded from the transaction, but the two vacant lots were neither included nor excluded. The total purchase price was $1 million, and the two vacant lots were worth $2 million.

The Supreme Court first held that the contract could not be rescinded for mutual mistake of material fact. The mistake was merely one as to value the parties intended to transfer the stock of the corporation, including all of its assets. "A mistake relating merely to the attributes, quality, or value of the subject of a sale does not warrant recission. Quoting Costello v. Sykes, 143 Minn. 109, 111, 172 N.W. 907, 908 (Minn. 1918). The court declined the invitation to overrule Costello, and declined to follow Clayburg v. Whitt, 171 N.W.2d 623 (Iowa 1969).

Nor was the seller entitled to recission due to lack of mutual assent. There was mutual assent the parties agreed to transfer the corporate stock, along with all of the assets and liabilities of the corporation.

Similarly, the contract should not be reformed. The seller failed to establish that the contract did not express the parties' true intentions, nor that any such failure was due to mutual mistake. And since some employees of the corporate seller were aware of the existence of the lots (and paid property taxes on them), the seller could not argue that it was unaware of their existence, since such knowledge is imputed to the corporation.

No. A09-935 (Minn. Mar. 30, 2011).

Please see the original opinion for the court's exact language.


Richard P. Clem is an attorney and continuing legal education (CLE) provider in Minnesota. He has been in private practice in the Twin Cities for 25 years. He has a J.D., cum laude, from Hamline University School of Law in St. Paul and a B.A. in History from the University of Minnesota. His reported cases include: Asociacion Nacional de Pescadores a Pequena Escala o Artesanales de Colombia v. Dow Quimica de Colombia, 988 F.2d 559, rehearing denied, 5 F.3d 530 (5th Cir. 1993), cert. denied, 510 U.S. 1041 (1994); LaMott v. Apple Valley Health Care Center, 465 N.W.2d 585 (Minn. Ct. App. 1991); Abo el Ela v. State, 468 N.W.2d 580 (Minn. Ct. App. 1991).

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