REAL LIFE LAW Blog Post ImageSome things in the law are cut-and-dried, others not so simple. I ran into one of the latter the other day as I represented my client Susie (not her real name) before the general manager at the auto dealership from which she had bought a shiny new Jeep. Susie was concerned that the dealer, having sold her the car, would refuse to register it to her unless she refunded a $1,000, which was a large sum to her. What had happened was that before the contract was signed and the money paid in full, the dealer had surprised Susie with the good news that she was entitled to an extra $1,000 rebate. But after she signed on the dotted line and paid the money, the dealer sheepishly revealed they’d made a bookkeeping error and that she was not entitled, after all, to the rebate.

I advised Susie that since she had paid the money, had signed the contract, and was in no way responsible for the dealer’s screw-up, she had an enforceable contract and needn’t return a penny, even assuming the dealer’s accounting error was innocent. The advice was based on California’s well-established law regarding “unilateral mistake of fact.” A contracting party may rescind the contract (that is, undo it) if he made a mistake about some material (significant) fact—for example, the availability of a rebate to a customer. But where only one of the parties was mistaken, he may not rescind unless (1) the non-mistaken party had reason to know of the mistake and it was his fault that caused the mistake, or (2) the effect of the mistake is such that enforcement of the contract would be unconscionable. In our case, neither condition existed, since Susie had no reason to know of the mistake before she made the deal, and the goof was certainly not her fault. Further, the $1,000 price difference was small enough as to not permit a finding that it would be unconscionable to enforce the contract.

Once I pointed out to the manager the key facts and circumstances that led to the conclusion that the dealership did not have a legal leg to stand on in refusing to honor the deal, the manager said he would respect it, but he still tried to play on Susie’s sympathy (a 75-year-old retired schoolteacher with plenty of that to go around) to induce her to refund the unwarranted rebate, by showing exactly how the rebate had been miscomputed. She withstood the pressure, though, and was pleased with herself for standing her legal ground.

My reaction was mixed, though. While I had successfully vindicated my client’s legal rights--as the rules governing attorneys required me to do--I was left with misgivings about the ethical correctness of the result. On the one hand, the law absolutely permitted Susie to keep the benefit of the money. But the dealer’s mistake had been innocent, and Susie had gotten a windfall. First I felt that, well, the big, rich dealership was hardly harmed; $1,000 to it was insignificant. But then I realized that was not a principled response, since if my client got an undeserved benefit, what difference should it make what the impact was on the dealer? And should it matter that my client is elderly, retired, living on a very tight fixed income? Does the relative wealth of the parties make it any more right or less wrong to accept the benefit? And what if the mistaken party had been a little old lady from Pasadena instead of a major automobile dealership?

Fortunately, the decision was not mine to make: I did my job; since Susie didn’t ask my opinion about the rightness of keeping the rebate, I didn’t offer it. It’s an interesting dilemma—or maybe it isn’t one at all: One may reasonably take the position that the courts and Legislature have, over time, considered all the relevant factors into— including fairness--in determining what the law should be. But one could also reasonably opine that just because the law permits you to keep unearned money doesn’t mean you should. I had a businessman friend who, having contracted for certain sums, would routinely increase his payments, though not obliged to, when he believed that the other party’s performance was worth more than he had agreed to pay.

What would you do in Susie’s shoes? Would it matter that the other party had made a totally innocent error? Would it matter how wealthy or powerful the other party is? Would it matter how badly you needed the money? Does this pose for you a simple legal issue, or an ethical dilemma, or some of both?