Unilateral Mistake, Sua Sponte, Honda v. ERS
A Hawaiian reader kindly called my attention to the contract case,
HONDA vs. BOARD OF TRUSTEES OF THE EMPLOYEES’ RETIREMENT SYSTEM OF THE STATE OF HAWAII (17 June 2005). Mr. Honda made a clearly stupid election for his retirement which gave his heir about a week of benefits instead of a lifetime. The form he filled out was unambiguous but confusing, and the other party had a fiduciary duty to him. His wife did not argue her case well, since she should have been arguing “unilateral mistake” but argued ambiguity instead, but the Supreme Court brought in the correct doctrine for her. This is related to two of my papers, “Explaining Incomplete Contracts as the Result of Contract-Reading Costs,” in the BE Press journal, Advances in Economic Analysis and Policy. Vol. 1: No. 1, Article 2 (2001) (http://Pacioli.bus.indiana.edu/erasmuse/published/Rasmusen_01.negot.pdf) and “Mutual versus Unilateral Mistake in Contracts,” Journal of Legal Studies (June 1993), 22:309-343 (with Ian Ayres) (http://Pacioli.bus.indiana.edu/erasmuse/published/Rasmusen_93JLS.mistake.pdf).
The majority, quoting an earlier opinion on the standard doctrine of unilateral mistake, says
Where a mistake of one party at the time a contract was made as to a basic assumption on which he or she made the contract has a material effect on the agreed exchange of performances that is adverse to him or her, the contract is voidable by him or her if he or she does not bear the risk of the mistake under the rule stated in § 154, and (a) the effect of the mistake is such that enforcement of the contract would be unconscionable, or (b) the other party had reason to know of the mistake or his [or her] fault caused the mistake.
… the ERS Board explained that a beneficiary of the normal retirement mode referred to a person entitled to the monthly payment owed a retirant who had died prior to the monthly payout. The ERS Board’s finding of fact no. 16 explained that “[d]esignating a beneficiary for the ‘normal’ method of retirement is for purposes of informing ERS to whom to pay the balance of the member’s pension if the member dies before pa ment is made to him or her.” This explanation, however, is not found on the application.
The dissent in Honda describes the situtation better than the majority opinion. Here is what the defendants agreed on the facts:
5. … The retirement plans explained are: 1) Normal Retirement; 2) Option A (50% joint and survivor); 3) Option B (100% joint and survivor); and 4) Ten-Year Guarantee. For the normal retirement, the pamphlet states:
The retirant receives a retirement allowance payable for life and in the event of death, there will be no further allowance payable.
Advantages: Provides a maximum life time benefit for the retirant.
Disadvantages: No lifetime survivor benefit for beneficiary(ies).
The explanations for the remaining options make clear that a surviving beneficiary would receive a pension upon the retirant’s death. . . .
6. On December 31, 1993, after receiving retirement estimates from ERS, Katsumi . . . completed his “Application for Service Retirement” requesting that his retirement allowance become effective April 1, 1994, thereby changing and advancing his previously noted retirement date of June 1994. On this same form, Katsumi . . . also selected a mode of retirement. Under the statement, “I have read the information on the reverse side of this application and select the following mode of retirement,” Katsumi . . . checked the area marked “Normal” as opposed to the remaining three (3) areas marked “Option A (50% Joint and Survivor),” “Option B (100% Joint and Survivor),” and “Option C (Ten-Year Guarantee).” [Helen] was named beneficiary. This document was signed by Katsumi . . . and subsequently notarized on January 3, 1994 pursuant to instructions. . .
…
9. Upon being diagnosed with cancer in March 1994, Katsumi . . . did not contact or notify ERS, or make any changes with regard to his retirement plan, including method of retirement.
This would also include advancing his retirement date since the uncontroverted evidence shows that he did this in December 1993.[ (5)]
…
12. Upon the death of Katsumi . . . , his surviving spouse and beneficiary . . . was notified by ERS that under the normal retirement method selected by Katsumi . . . , the only benefit payable would be the final payment of pension between the date of retirement to date of death (i.e., April 1, 1994, to April 6, 1994). The estimated and approximated amount was $46.00 and would be payable to [Helen] as named beneficiary.. .
Thus, Honda checked off the “Normal” retirement option, which is special in that it is the only one with no appreciable benefits for the beneficiary. He was asked to name a beneficiary, but only so that that person could get the check for the month in which he died– no t much of a beneficiary. The majority opinion also notes that the word “normal” is used at length with an entirely different meaning in the same document. If you read carefully, the document is unambiguous– but only by defining terms in special ways that are apt to deceive the reader. They must have deceived Honda, because when he was diagnosed with fatal cancer in the months before his retirement, he didn’t try to change his retirement option to one that had survivor benefits, something he was in fact allowed to do. Instead, he died five days after retirement, and his widow discovered the situation (I suppose) a month too late, when she got the tiny $46.00 check.
This case was correctly decided. Even though the contract was unambiguous, it contained a “booby trap”, perhaps intentional, probably just because of poor writing, that benefited the drafter. It is akin to a contract that by mistake contained the sentence “Notwithstanding anything previously mentioned in this contract, the signer’s pension is limited to $2.00 per month if he signs this,” buried somewhere in the fine print. That is unambiguous, but we would all breathe more comfortably if such terms were not enforced– whether the term was put in by accident (our JLS article) or on purpose (my reading cost BEPRESS article). Ayres and I say that in our JLS article where we talk about “scriveners’ errors”, and I think maybe Randy Barnett has a recent article or book on this too– on the idea that only contract terms which might reasonably be expected should be enforced.
What then of cases like Williams v. Walker-Thomas Furniture Company, 198 A.2d 914, 916 (1964), in which the court threw out as unconscionable a contract which allowed the furniture company to repossess *all* of a buyer’s furniture to sell to pay the debt owed on a single piece? “Unconscionability” is a doctrine of much more dubious value. It is too similar to “unfairness”, and gives a judge too much leeway. In Williams, for example, the buyer might well knowingly agree to such a contract, severe as it might seem, because otherwise the furniture store might not let him buy on credit, and because the clause only affects deadbeats who don’t pay their debts anyway. Honest buyers would like the clause, because it deters dishonest buyers from purchasing on credit, failing to pay, and thus raising the seller’s costs and prices.
Now back to Honda, and some jurisprudence and procedure.
The dissent’s main argument is that Helen Honda never raised the “unilateral mistake” legal theory:
In refusing to acknowledge that it may only address the arguments it raises sua sponte by way of plain error review, the majority admits that “Helen did not raise these matters before the circuit court,” but nevertheless frames its analysis pursuant to, inter alia, “the exercise of our general superintendence of the trial courts, [HRS] § 602-4 (1993),[ (12)] and . . . our power to make such orders and mandates as necessary for the promotion of justice, [HRS § 602-5(7) (1993) (13)].” Majority opinion at 2 (footnotes omitted). As discussed infra in section III.C.4, the majority’s exercise of HRS §§ 602-4 and 602-5(7) “review” (1) radically diverges from our plain error jurisprudence by allowing this court to entertain arguments not raised by either party with virtually no limitation, thereby eviscerating the raison d’être of the plain error doctrine and (2) places this court in the untenable position of advocating for a particular party via legal theories that neither party has advanced.
It is true she never mentioned that doctrine, but it also seems that it applies and the court had all the facts necessary to apply it. Also, that is what her argument really is: that Mr. Honda misunderstood the contract. I think it is a very good thing if judges use their expertise to help out litigants who are badly represented by counsel. Not only does such help have a direct benefit for justice, but the possibility means that the other side, better represented, can’t just keep quiet about arguments or precedents that might help the dumb side. Indeed, I seem to recall that Rule 11 even allows a federal judge to fine a lawyer who omits key precedents– why, then, should we not allow the judge to fill in missing precedents and even arguments?
Of course, courts usually don’t do things sua sponte (on their own) because judges know they are apt to get them wrong without the help of lawyers’ briefs. A rule forbidding sua sponte arguments, in fact, is something lazy judges would support, because it excuses them from having to do thinking on their own and possibly getting embarassed. But what judges could do (can do?) is to ask the parties to brief them on arguments the judges think up. Or, as in Honda, the court might have the confidence to apply the doctrine without further briefing. Unilateral mistake is not all that complicated a doctrine, and the court thought it had enough facts to apply it.