The Costs of Mistakes

Abstract

This Essay provides a novel framework guiding adjudication in cases of mistakes (such as unintended money transfers). We draw on Guido Calabresi’s seminal work, The Costs of Accidents, to introduce a parallel framework for mistakes, and detail its operation and the policy considerations it embodies. We explain that mistakes, unlike accidents, can be socially harmless; when a mistake is harmless, the law acts to protect the mistaken party, thereby helping that party reduce wasteful investment in preventing mistakes. We distinguish harmful mistakes from harmless mistakes, and show that this distinction sheds light on existing legal arrangements. The Essay discusses the normative implications of our analysis, and highlights its general applicability. Motivating the analysis is a recent high-profile New York court decision, involving a mistaken payment of nearly one billion dollars, currently pending appeal. One upshot of our analysis is that this decision ought to be reversed; more generally, we provide the blueprint for deciding future cases of this type.

Keywords: restitution, unjust enrichment, mistakes, remedies, mistaken payments, defenses, discharge for value

JEL Classification: K10, K11, K12