## Facts

- A Texas pipeline-construction company designed and built a barge dredge for narrow submarine trenching to bury pipelines, including in areas with submerged debris.
- The dredge was built from new and used parts, was designed to be disassembled and transported by truck, and had never been used by the seller.
- The seller advertised the dredge for sale; an Illinois oil-well driller sought a dredge to excavate wide, shallow canals in marshland and shallow water (sweep dredging) to reach an offshore location.
- The buyer contacted the seller, negotiated a $35,000 purchase price (down payment plus a promissory note for the balance), and sent an employee to inspect the dredge.
- The employee inspected the engines (which appeared in good condition) but lacked dredge expertise and did not evaluate whether the dredge could perform the buyer’s intended sweep-dredging work.
- After delivery, the dredge proved unsuitable for the buyer’s intended canal-digging without substantial modification; the buyer demanded funds to modify it and later tendered return and demanded repayment.
- The seller refused, and litigation followed.

## Issues

1. Whether the parties were mutually mistaken about a material fact—specifically, the dredge’s capabilities—so as to justify rescission or damages for the buyer.
2. If the buyer’s misunderstanding was unilateral, whether equity nonetheless permitted relief given the seller’s lack of knowledge of the buyer’s intended use and the buyer’s limited pre-purchase investigation.

## Decision

- The Fifth Circuit reversed the district court’s judgment and remanded.
- The court held there was no mutual mistake because the seller knew the dredge’s design and capabilities; only the buyer was mistaken about suitability for sweep dredging.
- Because the mistake was unilateral and the seller neither knew nor had reason to know of the buyer’s intended use, the buyer was not entitled to the damages awarded on a mutual-mistake theory.

## Legal Principles

- Mutual mistake requires both parties to share the same erroneous belief about a material fact at the time of contracting; differing assumptions about future use do not create mutual mistake.
- A seller’s awareness of the item’s actual design and capabilities defeats a claim that both parties were mistaken about those capabilities.
- A buyer’s mistaken belief that goods will satisfy an undisclosed, specialized purpose is generally a unilateral mistake, particularly when the seller has not been informed of that purpose.
- Equitable relief for unilateral mistake is generally unavailable when the mistaken party failed to exercise reasonable diligence to verify a material fact within its capacity to investigate.

## Conclusion

The Fifth Circuit treated the dispute as a unilateral-mistake case: the seller knew what the dredge could do and did not know the buyer’s distinct, uncommunicated intended use. The damages award premised on mutual mistake was therefore reversed, and the case was remanded for further proceedings consistent with the appellate court’s rejection of mutual-mistake relief.


Anderson Bros. Corp. v. O'Meara, 306 F.2d 672 (5th Cir. 1962)