"FOUR MILLION LABELS" Hypo.

Reed operates a small photography store. Reed needs adhesive pricing labels. Reed sends a Purchase
Order (PO) for 5 different types of labels to Monarch. In the quantity column for types 1-4, he writes
"2M." Reed gets a telephone call that interrupts his filling out of the PO. After completing the call, Reed
finishes filling out the PO, but writes "4MM" in the quantity column for label 5. This was a mistake. He
meant to write 4M.
In the industry, M=1,000 and MM=1,000,000.
Monarch's previous largest order from Reed for any one item was 4000 labels. Monarch's largest order
ever was for 1,000,000 labels. Without calling Reed, Monarch fills the order. The 5th label requires
a special printing. Reed does not learn of the problem until a truck shows up with 7 cartons of labels
weighing 622 lbs.
Reed refuses to accept the labels. Monarch sues.
QUESTION: Can Reed obtain rescission of the contract?
ANSWER: Most likely. And the Texas Supreme Court said "yes."
REASONING:
Element 1: Mistake. Reed clearly made a mistake it wrote down the wrong amount for its PO.
Element 2: Basic Assumption. That mistake goes to a basic assumption i.e., that Reed would not
make a huge clerical error regarding the needs of his business.
Element 3: Material Impact. The mistake has a material affect on the contract enforcement will
require Reed to purchase 1000 times the number of labels he needs.
Thus, the basic elements of Rest. 153 are met.
Now Reed must satisfy either Rest. 153(a) or (b).
Element 5, Version (b) (Rest 153(b)). Monarch had reason to know of the mistake the order was 4
times larger than the largest order it had ever received and 1000 times larger than Reed's largest
previous order. Thus, Rest. 153(b) is satisfied.
Note: While Monarch cannot be returned to the status quo, the reliance rule of Rest. 153, cmt. d
(and Wil-Fred's) does not apply when a party seeks rescission under Rest. 153(b).
Element 4: Allocation of Risk (Rest. 154). Nothing in the facts suggests that there is a reason to allocate
the risk of this mistake to Reed.
Element 6: Negligence. Reed made a mistake. But did that constitute gross negligence? This could be
argued either way, but I think the better argument is that this was not gross negligence.
Note: This case is perfect example of why the reliance rule of Rest. 153, cmt. d is limited to Rest. 153(a).
Why should Monarchs reliance be protected when Monarch had reason to know of the mistake, and was
thus at fault? See Rest. 153(b). Similarly, why should a non-mistaken partys reliance be protected when
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that party caused the unilateral mistake? See Rest. 153(b). The non-mistaken partys reliance should
only matter when it is not at fault i.e., when rescission is sought on unconscionability grounds under
Rest. 153(a).