Saturday, May 21, 2011

Fight Over Tractor Teaches the Lesson of "Mutual Mistake"

Representative photo.

In Tracy v. Morell (Ind. Ct. App. 2011), the Indiana Court of Appeals recently resolved a dispute between a buyer and seller of a tractor using the principle of "mutual mistake."

In 2002, Mr. Morell sold Mr. Tracy a used 2002 Ford New Holland tractor for $12,500.  Tracy signed a promissory note promising to pay Morell $500 down and $500 per month until the note was paid in full.  Tracy paid only $8500 on the note.
Meanwhile, the Orange County Sheriff's department brought charges against Morell alleging that he had received other stolen property (including some farm equipment). Morell pled guilty.  Tracy learned of this conviction and became concerned that the tractor he purchased was also stolen.  A detective investigated and found that the identification number on the tractor had been ground off, puttied, and altered.  Ultimately though, it was "cost prohibitive" according to the detective to determine whether the tractor was indeed stolen because "the tractor would have to be torn apart, the engine taken apart, and the numbers taken from the engine, and then contact the manufacturer in Japan to see which dealer the tractor was sold to."

A lawsuit followed.  Tracy sued Morell for fraud and Morell counterclaimed for the balance of the tractor note, $4000.  At trial, Morell tried to explain how he sold a tractor with an altered identification number without "knowing" it was stolen:
Q[Attorney]: Did you know the tractor had altered [identification] numbers or ground off [identification] numbers?
A[Morell]: No, sir.
Q: You didn’t know the [identification] numbers had been ground off and putty filled in and repainted over?
A: No, sir.
Q: How long did you own that tractor before you sold it to Mr. Tracy?
A: I’m gonna say longer than a year. I don’t know roughly really right off hand.
Q: Where’d you get it?
A: Bought it.
Q: Where’d you buy it from?
A: Uh, I believe, I don’t know, I believe it come out of Richmond, Indiana.
Q: Okay, who did you buy it off of?
A: I don’t know, this was ten years ago.
* * *
Q: Did you ever have a chance to look for the [identification] numbers or serial numbers?
A: Never really came up or spend anytime looking.
Q: And when you sold that tractor to Mr. Tracy, you didn’t know the [identification] numbers had been ground out and putty put back in and repainted?
A: Had no idea.
* * *
Q: Yeah. And you don’t, you think it’s just a coincidence that you pled guilty to four other counts involving altered [identification] numbers and farm equipment and this tractor you sold Mr. Tracy is altered, is that just a coincidence?
A: I believe it is.
Q: Now, you had no intention of selling Mr. Tracy a stolen tractor.
A: No, sir.
Q: And you don’t think that tractor is stolen?
A: At the time I had no reason to believe that.
Q: Do you think the tractor is stolen now that you know about it?
A: I have no idea.
Though Morell's answers to these simple questions were somewhat evasive, the Court of Appeals held that the evidence was insufficient to support a finding of fraud--that Morell knowingly or intentionally sold a stolen tractor.

But that was not the end of the matter. Morell's "no idea" about how the identification numbers were ground down, puttied over, and replaced, created another problem for him.  If he truly did not know that the tractor was stolen--and Tracy certainly did not know it was stolen--then there was a "mutual mistake" at the center of the contract.  Mutual mistake exists where both parties share a common assumption about a vital fact upon which they based their contract, and that assumption is false. Courts generally hold that under such facts, there is no contract, because the minds of the parties have in fact never met.  As result, the Court of Appeals here ordered that the tractor be returned to Morell, and that Morell return to Tracy the $8500 he had already paid, with interest.

The moral to this story is best expressed by the court itself:  "We decline to adopt a rule that someone may sell altered property with impunity and then claim ignorance as a complete defense in a civil action arising from the sale."  Farmers should be cautious when purchasing farm equipment from a stranger.

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