Is “mistaken” slot machine award of $11 million a “mistake” that excuses the casino from paying?

Contract law problem: couple walks into a casino, plays a slot machine, and wins $11 million. Casino representative claims the award was a mistake caused by a computer glitch and that the proper the couple “actually won $1627.82. The $11 million was what we call a ‘reset value.’ It’s what the jackpot would have been after the prize was claimed.”

It’s a real situation, and, apparently, “the second time in three months a Colorado slot machine has made a multi-million dollar mistake. In March, a machine malfunction was blamed for a $42 million dollar jackpot.” (hat tip to techdirt.)

But here’s the question the stories don’t resolve: is the casino entitled to pay only $1,627.82? In legal jargon, the casino is seeking “reformation” of the contract it had entered into with the couple — that is, the casino is claiming it can “rewrite” the contract it had with the couple. I put “rewrite” in quotation marks because the contract was not written but, instead, was implicitly understood by the couple and the casino to provide that if they paid their money and pulled the lever on the slot machine they’d be entitled to the winnings that appeared, if any. The reformed contract would be that the casino agreed to pay any amount up to $1,627,82 in exchange for the couple paying the money necessary to play the game.

I don’t know enough about the regulation of casinos to supply the answer to this problem. It may well be that casino bets are treated differently than other contracts. Nevertheless, if standard contract law does apply, the basis of the casino’s position would be a claim that it had made a mistake — that it understood the machine would operate in a manner that would make the top prize the lower amount but, as events proved, that understanding was mistaken. The mistake would be “unilateral” rather than “mutual” because the couple would not have been operating under the same assumption.

In order to prevail on a defense of mistake, mutual or unilateral, the person asserting the defense must establish it did not “assume the risk” of the mistake.” To prevail on a defense of unilateral mistake, the person must also establish either (1) that enforcing the mistaken contract would be “unconscionable”  or (2) the other party knew of or caused the mistake.

Plainly, the couple did not know of or cause the mistake. Whether enforcement of the deal the couple thought it was getting would be “unconscionable” is a difficult question to answer. A deal is “unconscionable” if it is so grossly unfair it would the court won’t enforce it. The mere fact the casino makes out so badly isn’t “unconscionable.” We enjoy the “freedom of contract,” which means we are entitled to take stupid risks and courts will enforce the deals we made that subjected us to those risks (unless, of course, you’re an investment bank).

But whether the deal is “unconscionable” really turns, to my mind, on the other question: did the casino assume t his risk? On the one hand, the casino is the one responsible for the hardware or software that caused the glitch. Moreover, if I read the casino’s explanation correctly, the $11 million the machine originally indicated the couple had won is within the realm of reasonable payoffs on that machine. “It’s what the jackpot would have been after the prize [I presume the $1,672] was claimed.” But, given the casino’s online page of “jackpot winners” — none of whom won more than $10,500 — that doesn’t really seem to be what the casino intended to say.

Finally, the “glitch” is one the casino had reason to know might happen. It was the second time in three months a Colorado slot machine had made a multi-million dollar mistake, and the earlier one was for quite a bit more ($42 million rather than “merely” $11 million).

On the other hand, if the couple had no reasonable grounds to believe their bet could earn them $11 million, it seems a lot less likely they could prevail. In essence, the defense of mistake does not enforce a deal when it turns out the deal literally enforced would turn out to be something entirely different than what the parties believed they were agreeing to. Were they entering into a bet that they knew might pay $11 million? If so, the couple ought to win. If not, the casino ought to win.