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South v. Transportation Ins. Co.3/18/1996
racts and are subject to contract law. Giles v. Bozeman Public Schools (1993), 257 Mont. 289, 292, 849 P.2d 180, 182. A contract may properly be rescinded if the parties were laboring under a mutual mistake regarding a material fact at its inception. Wray v. State Comp. Mut. Ins. Fund (1994), 266 Mont. 219, 879 P.2d 725. "A mutual mistake occurs when, at the time the contract is made, the parties share a common misconception about a vital fact upon which they based their bargain." Mitchell v. Boyer (1989), 237 Mont. 434, 437, 774 P.2d 384, 386 (citations omitted). In order to justify rescission, the mutual mistake must be regarding a fact that is vital to the completion of the contract. Wray, 879 P.2d at 725. Further, it must be "so substantial and fundamental as to defeat the object of the parties in making the contract." Wyman v. DuBray Land Realty (1988), 231 Mont. 294, 298, 752 P.2d 196, 199 (citing Johnson v. Meiers (1946), 118 Mont. 258, 164 P.2d 1012).
In the field of Workers' Compensation, the seminal case on rescission for reason of mutual mistake of fact is Kienas v. Peterson (1980), 191 Mont. 325, 624 P.2d 1. Kienas was the first in a string of modern cases to apply the principles of general contract law to workers' compensation settlement agreements. In Kienas, a final settlement agreement was set aside because the parties were mutually mistaken regarding the nature and extent of the claimant's injuries at the time the settlement was established. Kienas, 624 P.2d at 3.
Numerous subsequent cases followed the line of reasoning set forth in Kienas. These cases similarly addressed the question of whether a mutual mistake of fact existed regarding the nature or extent of the claimant's injuries at the time of settlement. See Sanford v. Brandon Owens, Inc. (1994), 268 Mont. 8, 885 P.2d 444; Giles, 849 P.2d 180; Wolfe v. Webb (1992), 251 Mont. 217, 824 P.2d 240; Rath v. St. Labre Indian School (1991), 249 Mont. 433, 816 P.2d 1061; Whitcher v. Winter Hardware Co. (1989), 236 Mont. 289, 769 P.2d 1215; Kimes v. Charlie's Family Dining (1988), 233 Mont. 175, 759 P.2d 986; Weldele v. Medley Development (1987), 227 Mont. 257, 738 P.2d 1281. Some were set aside, some were not, but all confined the inquiry solely to whether or not a mutual mistake existed regarding the nature or extent of claimant's injuries. Since workers' compensation settlements by definition involve an injured worker, it is only to be expected that very frequently the alleged mutual mistake would concern the claimant's injury .
The Workers' Compensation Court, however, interpreted the Kienas decision and its progeny to establish that a mutual mistake regarding the nature or extent of the claimant's injury is the only mutual mistake sufficient to set aside a final settlement agreement. Having concluded that no such mistake existed at the time the settlement agreement was formed, the Workers' Compensation Court declined to allow the agreement to be rescinded.
While such a limitation might reasonably be surmised from the Kienas line of cases, it is nevertheless incorrect. The fundamental contract principles which allow for rescission do not support such a narrow application. If a party can show a mutual mistake of any material fact, impacting the contract to such an extent that the intended bargain of the parties is defeated, the contract may be rescinded. Mitchell, 774 P.2d at 386. Nothing in general contract principles justifies the limitation of the mistake doctrine to the nature and extent of the injuries. If a mutual mistake exists in a workers' compensation settlement agreement which would suffice to set it aside under general contract principles, then it should be set aside. Because K
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