Condos and HOA's

Diamonds are not forever if there is a unilateral mistake

Condominium and homeowners’ association officers and directors need to be careful when negotiating and entering into contracts with vendors such as construction contractors, interior decorators, architects etc. because if the association and the vendor are not on the same page (legally have a meeting of the minds), the contract can be nullified based upon what is called a unilateral mistake of one of the parties.

This unilateral mistake concept is well set out in a recent appellate case out of the east coast of Florida, DePrince v. Starboard Cruise Services Inc., Case No. 3D16-1149 (Fla. 3rd DCA, August 1, 2018). In this Case, a Thomas DePrince was on a cruise and visited the ship’s jewelry boutique and said that he was interested in purchasing a 15- to 20-carat loose diamond. He said he wanted an emerald cut, high quality, color D, E, or F diamond with a GIA certificate.

The sales associate at the boutique electronically mailed Mr. DePrince’s request to Starboard’s corporate office. An employee at the corporate office reached out to Starboard’s vendor in California, Sophia Fiori. The employee from Sophia Fiori, who had reservations because he did not believe a sale of this magnitude should take place aboard a ship, called a diamond broker in New York, Julius Klein, for its available inventory.

Two diamonds were selected from the inventory listing and the following information was emailed to the ship and the information was presented to Mr. DePrince, and his partner, Mr. Crawford.

“These prices are ship sailing prices based on the lowest tier diamond margin we have. Let me know if you have any questions. EC 20.64 D VVS2 GIA VG G NON selling price $235,000, EC 20.73 E VVS2 GIA EX EX FNT selling price $245,000.”

The Starboard’s corporate employee and the sales associate on board at the ship’s boutique had never sold a large loose diamond before and did not realize the quote price was per carat. Mr. Crawford, who was a certified gemologist, asked the opinion of DePrince’s sister, a graduate gemologist. She warned that something was not right because the price for a diamond of that size should be in the millions and recommended not buying the diamond (in this case the price should have been $4,850,400 for the diamond with the quoted selling price of $235,000).

Disregarding his sister’s advice, Mr. DePrince contracted to purchase the 20.64 carat diamond for the quoted $235,000 price and paid with his American Express credit card.

Shortly after the sale, Starboard discovered that the $235,000 price was per carat and immediately notified DePrince of the error and reversed the charges to his credit card. DePrince then sued to enforce the parties’ contract.

The trial court first ruled in favor of Starboard in Summary Judgment based upon Starboard’s defense of unilateral mistake. A panel of the 3rd DCA reversed in favor of DePrince. The case then went to trial and the jury found that Starboard should be excused from performing under the contract because it committed a unilateral mistake. On the second appeal, another panel of the 3rd DCA reversed again in favor of DePrince and so upon Starboard’s Motion for Rehearing En Banc the 3rd DCA revisited the facts and pertinent law.

The 3rd DCA sitting, En Banc looked to see if “inducement” is an element of a unilateral mistake as there had been conflicting cases – some saying yes and some saying no.

The 3rd DCA finally said that inducement is not an element of unilateral mistake. The Court held that: “A contract may be set aside on the basis of a unilateral mistake of material fact if: (1) the mistake was not the result of an inexcusable lack of due care; (2) denial of release from the contract would be inequitable; and (3) the other party to the contract has not so changed its position in reliance on the contract that rescission would be unconscionable.

The 3rd DCA said that the jury was properly instructed and that there was competent substantial evidence supporting the jury’s finding that all three (3) required elements for a unilateral mistake had been met. Starboard received incorrect information from its home office, which caused the company to quote a price that was a fraction of the company’s cost to purchase the diamond wholesale. The mistake was not “inexcusable” and DePrince did not detrimentally rely on the mistake such that it would be unconscionable to rescind the sales contract. Starboard won.

It is interesting to note that Mr. DePrince had been informed from his sister and his partner (who were gem experts) that something was wrong with the extremely low price for the diamond and that he never shared this knowledge with the sales associate on the ship but rather appeared to try to “get a steal” and quickly close the sale with his American Express. Courts do then take into consideration the apparent demeanor and intent of the parties which in this case finally resulted in a just outcome.

Unilateral mistake can sometimes come up in community association contracts, especially when the contract is based upon time and materials. An example would be when the association is looking for say a $100,000 social room redo and the architect and/or interior designer has in mind a $400,000 job. The contract based upon payment by the amount of time and materials chosen should state estimated maximums or not to go over a certain cap to prevent a unilateral mistake which could nullify the contract and leave either contract party in a place they did not contemplate being when entering into the contract or maybe even in a lawsuit.

Rob Samouce, a principal attorney in the Naples law firm of Samouce & Gal, P.A., concentrates his practice in the areas of community associations including condominium, cooperative and homeowners’ associations, real estate transactions, closings and related mortgage law, general business law, estate planning, construction defect litigation and general civil litigation. This column is not based on specific legal advice to anyone and is based on principles subject to change from time to time. Those persons interested in specific legal advice on topics discussed in this column should consult competent legal counsel.