It Was Just a Mistake! Or Was It Negligence? Ohio Supreme Court Defines Mistake for Contract Principles

In a certified conflict, the Ohio Supreme Court considered whether a negligent failure to exercise a lease renew option warranted equitable relief. The Court found it did not.

The lessee, dba Speedway, submitted an untimely renewal to the lessor, and the lessor then terminated the leases. Interestingly, the lessor had been late renewing during the previous term, and the landlord accepted the notice without contest. In the relevant year, the Speedway executed the renewal notice on time but did not send the executed notice to the lessor. The lessor terminated the leases, and Speedway filed a complaint seeking a declaration that the exercise of its renewal was effective and seeking specific performance of the leases. 

Following the Tenth District, the trial court found that equity could forgive an unintended error under a lease and that the lessee’s failure to submit the renewal notice was an inadvertent, honest mistake. Additionally, the trial court noted that strict enforcement of the renewal deadline would result in forfeiture of millions of dollars of improvements. 

In its analysis, the Supreme Court of Ohio noted that strict compliance with time limits is typically not required in contracts, but the same general rule does not apply to offers and, therefore, does not apply to option agreements. In coming to their decision to strictly enforce an option deadline, the court held that the “honest mistake” doctrine does not include a mistaken understanding of the deadline because such a mistake is “more akin to negligence than to the equitable defense of mistake.” 

In so holding, the court found, “Ohio law permits equity to intervene when a party has failed to strictly comply with the requirements for exercising an option to renew a lease, but only when traditional grounds such as fraud, accident, or mistake apply. And ‘mistake’ means a misapprehension of the terms of the contract at the time of contract formation, not negligence or other mistaken beliefs that arise after the parties have entered into the contract. The potential for forfeiture does not enter the analysis.” 

Although offering narrowing language as to option contracts in the body of the opinion, the holding applies to contracts broadly. 

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