No “Mutual Mistake” Where Disagreement Exists

Where a stockholder openly disputed the value of his stock as set forth in a Redemption Agreement, the stockholder was later precluded from arguing that the Redemption Agreement’s stock price was a “mutual mistake of fact.” Oliver v. Brown & Morrison, Ltd., 2022 NCBC 13 and 16 (J. Robinson).  Absent the existence of a “mistake,” the Business Court held the legal theory of “mutual mistake of fact” was not available to the stockholder.

Plaintiff was a 50/50 shareholder with Defendant Marks in Brown & Morrison, Ltd (“Company”). After a series of events, Plaintiff requested the Company redeem his shares. Plaintiff subsequently objected to the Company’s proposed redemption share price, contending the Company’s calculation failed to properly account for a number of items that would have increased the share price of his stock.  The Company rejected Plaintiff’s objections. Although he continued to voice his objection, Plaintiff nonetheless signed the agreement and received payment.  A short time later, Plaintiff filed suit against the Company and Marks asserting numerous claims, including a request to set aside the Redemption Agreement on the theory that the Redemption Agreement’s share price was the product of a “mutual mistake” between the parties.  The Company moved to dismiss, contending that because Plaintiff admitted that he was aware of the purported “mistake” and signed the Redemption Agreement anyway, he could not have reasonably relied on any “mistake” that he now claims exists.

The Business Court agreed.  Finding that a “mutual mistake” can only exist when both parties to a contract proceed “under the same misconception of a material fact,” (Opinion, ¶71), the Business Court held that Plaintiff’s complaint plainly stated that he and the Company had a difference of opinion about the appropriate stock price and thus there was no “mutual mistake” about the price. (Id., ¶75, 77, 79).  Rather than acting under a “mutual mistake,” the Business Court concluded, Plaintiff had simply agreed to take less than what he contended he was owed.  (Id., ¶82).  Absent an actual “mistake,” Plaintiff’s claim based upon the legal theory of “mutual mistake” could not survive and was dismissed.

Based upon this decision, a business should understand that if it disagrees with another party’s proffered terms to an agreement but nonetheless enters into the agreement anyway, it will be foreclosed from later arguing a “mutual mistake” existed at the time the agreement was made.

 Additional Legal Points:

  • To maintain a claim for negligent misrepresentation or negligence based on a statement, a plaintiff must show “justifiable reliance” on the alleged misrepresentation (Opinion, ¶85); if a party knows the inaccuracy of the fact (i.e., the correct stock price) at the time it entered into the agreement, it cannot later claim to have “justifiably relied” on the purported misrepresentation. (Id., ¶85, 87).
  • Corporation generally does not owe de jure fiduciary duties to an officer (Id., ¶98).
  • Where owners are 50/50 shareholders, the fiduciary duty running from a majority shareholder to a minority shareholder does not exist. (Id., ¶99).
  • Officers typically owe fiduciary duties only to the corporation, not to the shareholders; but a shareholder can bring a breach of fiduciary duty claim against the officer if the shareholder can show either (1) that he suffered an injury that is different than an injury to the company; or (2) that he was owed a special duty. (Id., ¶102).
  • Unjust enrichment need not specifically be pled as “in the alternative” (Id., ¶114) and is sufficient so long as it provides an indirect benefit to defendant (Id., ¶112).

Categories: Uncategorized

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s