SW Legal studies in Business

When Clear, Contract Terms Determine Outcome, Not Industry Custom
Description Appeals court held that it was improper for a trial court to reform a contract on the grounds of mutual mistake. One party to the contract denied there was a mistake, the terms of the contract were unambiguous, and the fact that the terms differed from industry custom was not relevant.
Topic Contracts
Key Words Mutual Mistake; Unambiguous Language; Industry Custom
C A S E   S U M M A R Y
Facts In 1968, North Grand Mall Associates (NGM) leased property for 99 years from Grand Center. An article in the lease specified the terms of an option to purchase the property. NGM exercised the option to buy, which the parties admit it has the right to do; the issue was over the method for computing the price to buy. At trial, the district court found that the method of computing the price was the result of a mutual mistake and reformed the contract to use a different method of computation that results in a higher price. NGM appealed, contending that it denied a mutual mistake and it relied on the words in the lease.

Reversed. The option to buy states that the purchase price would be computed by dividing the average sum of the rent paid for the three lease years prior to the purchase by seven percent. Since the average rent over the past three years was $35,000, dividing by seven percent gives a purchase price of $500,000. The language in the lease, which even included an example, was unambiguous. The fact that industry custom is to use another method to establish commercial real estate prices is irrelevant since the parties to the original contract made their intention clear. The terms established by the contract do not indicate mutual mistake, so the contract stands.

Citation North Grand Mall Associates, LLC v. Grand Center, Ltd., 278 F.3d 854 (8th Cir., 2002)

Back to Contracts Listings

©1997-2002  SW Legal Studies in Business. All Rights Reserved.