Also known as: materially affects · materially affected · materially affecting · material effect · material impact
Written by attorneys — see sources below.
An effect on the agreed exchange of performances that is sufficiently substantial to render a contract voidable by the adversely affected party when both parties or one party labored under a mistake about a basic assumption at the time of contracting.
Marcus Mitchell and Musa Mensah signed a contract to exchange two parcels of land based on their shared belief that both parcels contained valuable timber. After execution they discovered the timber on Mitchell's parcel had been destroyed by fire months earlier. The destruction substantially changed the value each party expected to receive, so Mitchell may avoid the contract.
Monica Morgan agreed to sell equipment to Miles Montgomery at a price calculated on the assumption that a key patent remained in force. Montgomery knew the patent had expired. The expiration drastically reduced the equipment's market value and produced a severe loss for Morgan. Because enforcement would be unconscionable, Morgan may avoid the contract.
Mariam Mansour and Michelle Murphy contracted for the sale of a building under the shared belief that the structure could support a third story. After signing they learned the foundation would not bear the added weight. A court may order restitution of the down payment rather than rescission because the relief reduces the material effect on the exchange.
A coal company challenged a state subsidence statute that required it to leave small pillars of coal in place to protect surface structures. The company showed that only a minor percentage of its coal was affected and that its overall investment-backed expectations remained intact. The court held the duty did not produce a material effect on the value of the support estate.
Beginning well over 100 years ago, landowners in western Pennsylvania began severing title to underground coal and the right of surface support while retaining or conveying away ownership of the surface estate. Approximately 90 percent of the coal that petitioners mine or will mine was severed from the surface in the period between 1890 and 1920. When acquiring or retaining the mineral estate, petitioners or their predecessors typically acquired the right to deposit wastes, provide drainage and ventilation, erect surface facilities, and obtained waivers of claims for damages resulting from coal removal. In 1966 the Pennsylvania Legislature enacted the Bituminous Mine Subsidence and Land Conservation Act after concluding that existing subsidence legislation had failed to protect public safety, land conservation, municipal tax bases, and land development. Section 4 of the Act prohibits mining that causes subsidence damage to public buildings and noncommercial buildings used by the public, dwellings used for human habitation, and cemeteries that were in place on April 17, 1966. The Department of Environmental Resources applies a formula that generally requires 50 percent of the coal beneath protected structures to remain in place. Section 6 authorizes the Department to revoke a mining permit if removal of coal causes damage to a protected structure and the operator has not repaired the damage, satisfied any claim, or deposited security equal to the reasonable cost of repair within six months. Petitioners are an association of coal mine operators and four corporations engaged in underground mining of bituminous coal in western Pennsylvania. Their members and the corporate petitioners own, lease, or control substantial coal reserves and support estates beneath surface property affected by the Act. In 1982, petitioners filed a civil rights action in the United States District Court for the Western District of Pennsylvania seeking to enjoin officials of the DER from enforcing the Subsidence Act and its implementing regulations. The parties entered a stipulation of facts on the facial challenge and filed cross-motions for summary judgment. The District Court granted respondents' motion in 1984. The Court of Appeals affirmed in 1985. The Supreme Court granted certiorari in 1986. Stipulations established that enforcement of the 50 percent rule would require petitioners to leave approximately 27 million tons of coal in place across 13 mines containing over 1.46 billion tons total. This amount represents less than 2 percent of the coal in those mines. Petitioners did not claim that any specific mine had become unprofitable since the Act's passage.
View caseA court examines whether the mistake concerns a basic assumption that substantially alters the value or performance each party expected. Reformation, restitution, or other relief may reduce the effect and prevent avoidance.
Enforcement is unconscionable when the mistake produces severe, unanticipated losses that shock the conscience and the mistaken party does not bear the risk. The other party's knowledge of the mistake supplies an independent ground for avoidance.
Yes. A party bears the risk when it knows its knowledge is limited yet treats the assumption as sufficient. Conscious reliance on preliminary data prevents avoidance even if the mistake materially affects the exchange.
…profitably mined in any event, and there is no showing that petitioners’ reasonable “investment-backed expectations” have been materially affected by the additional duty to retain the small percentage that must be used to support the structures protected by § 4. The Support Estate Pennsylvania property law is apparently unique…