Chapter 15

Question 1

Unilateral Mistakes of Fact

Answer 1

a mistake that occurs when one party to a contract is mistaken as to a material fact.

Question 2

Are unilateral mistakes of fact rescinded?

Answer 2

The general rule is contracts will not be rescinded by the courts

Question 3

John wants to sell his car for $17,250, but his email on the deal has a price of: $12,750.

Answer 3

Mistake was definitely made, but the court would say this was enforceable. (Unilateral Mistake of Fact)

Question 4

John wants to sell his car for $17,250, but his email on the deal has a price of: $12,750.

2 exceptions

Answer 4

1. Mary knew or should have known of John’s mistake. (ex: if Mary knew that John turned down an offer of $16,000 yesterday.)
2. Mathematical miscalculation

Question 5

Exceptions to Unilateral Mistake of Fact.

Answer 5

1). The other party knew of the mistake or should have known of the mistake and failed to correct the mistake; or
2). The mistake was made because of an inadvertent mathematical error and the mistaken party was not grossly negligent.

Question 6

Mutual (Bilateral) Mistakes of Fact

Answer 6

A mistake that occurs when both parties to a contract are mistaken about the same material fact.

Question 7

In general, the mutual mistake of fact contract is…

Answer 7

voidable at the option of either party.

Question 8

If a term in the contract is subject to more than one reasonable interpretation and the parties each attach materially different meanings to the term, the mutual misunderstanding may…

Answer 8

allow the contract ot be rescinded

Question 9

Raffles v. Wichelhaus

Answer 9

Written communications happen with a telegram. English merchant who has been for the past 10 years getting cotton from US cotton farmers. US ports are closed because of the civil war. He has to do business with someone else go get cotton… He finds a cotton farmer in Bombay, India.

A shipment of cotton is purchased by a merchant in England. The seller is a cotton farmer from Bombay, India. The communication is via telegram which reads: “to arrive Peerless.” The ship is known to both the buyer and the seller as “Peerless.” Peerless arrives empty in England. The merchant thinks the contract has been breached, so goes out to find other cotton from somewhere else. 2 months later “Peerless” shoes up with the cotton. Court calls for the rescission of the contract. The merchant did not have to pay for the cotton. Mutual Mistake (2 parties attaching material different meanings to the same thing)

Question 10

Mistakes of Value

Answer 10

more like an opinion, subjective, variable depending upon a variety of factors that we have no control over

Question 11

What is a common example of mistakes of value?

Answer 11

Real Estate

Question 12

Mary goes to a garage sale. She finds a very old violin in excellent condition. The seller only wants $200 for it. Mary buys it. Seller is talking to an antique dealer and figures out the violin is worth $1,000.

Answer 12

The seller cannot get the violin back or get more money for it.

“excellent condition” and “very old” are relative terms
subjective descriptors

Question 13

NO EXCEPTION TO MISTAKE OF VALUE! NEVER RESCISION!

Answer 13

NO EXCEPTION TO MISTAKE OF VALUE! NEVER RESCISION!

Question 14

Simmons finds a stone in his pastures. He believes that stone to be a quartz worth about $10 and contracts to sell the stone to Jenson, who also believes the stone to be a quartz. Just before delivery of stone, it is discovered that the stone is really a diamond worth over $10,000. Can Simmons get out of the contract with Jenson?

Answer 14

Mistake of fact, Simmons can get out of the contract. Mistake of fact affects the value. But, it’s still a mistake of fact.

Question 15

I contract to sell a piece of land. The contract includes both the surface and the mineral rights to the land. 6 months after the land has been sold, the buyer strikes oil. Can I sue to get more money for the land claiming mistake?

Answer 15

NO. The seller should have done more research, or reserved the mineral rights. (Most times… land is value)

Question 16

Fraudulent Misrepresentation.

Answer 16

A contract is voidable (seeking rescission) if a party was damaged by being induced to enter into a contract because he or she reasonably relied upon a false representation of a material fact. Typically seller, but doesn’t have to be..

Question 17

Elements of Fraud

Answer 17

– misrepresentation of a material past or present fact (by the defendant)
– intent to desceive AND (by the defendant)
– Justifiable reliance on the misrepresentation (and they the plaintiff relied)

Question 18

The art collector contracts to buy a Van Gogh original painting for $600 million from a reputable art dealer. The art dealer knows the art is a VERY cleaver fake, but represents the art as the original. Art collector pays the high price and then has the art appraised for insurance purposes only to find out it is a VERY CLEVER fake. Can the art collector get out of the contract by claiming fraud?

Answer 18

Yes.

Question 19

Misrepresentation

Answer 19

A misrepresentation of a material, past or present, fact was made.
The misrepresentation can be words or conduct, including concealment.

Question 20

In general, representations of future facts, predictions, promises, opinions (except those made by ______________________________), and puffery are not treated as representations of fact.

Answer 20

experts, who have superior knowledge

Question 21

Experts can be actionable for fraud. Who classify as experts?

Answer 21

CPAs, attorneys, brokers, real estate agents…

Question 22

Arthur Murray is a dance studio franchise, sending out invitations to dance parties. Vokes gets an invitation and goes. Vokes is praised for her dancing by a dance instructor, so she starts taking dance lessons (like 2,000 hours worth). Realized she may never actually good at dance and that she was lied to by the instructor. She sues.

Answer 22

Florida court said the dance instructor was an expert. So “fraud” and she gets her money back.

Question 23

Misrepresentation of law

Answer 23

There is a presumption that people know the law of the state in which they reside; a misrepresentation regarding state or local law, therefore, ordinarily does not entitle a contracting party to relief.

Question 24

Exception to misrepresentation of law

Answer 24

When misrepresenting party is in a profession that is known to require greater knowledge of the law than the average person. “experts”

Question 25

Misrepresentation by Silence

Answer 25

in general, there is no duty to inform a contracting party of facts and a party to a contract may remain silent.

Question 26

Exceptions ot misrepresentation by silence

Answer 26

A seller must disclose serious latent defects which ordinarily are not discoverable but which may cause a serious potential problem to buyer.

Question 27

I have a car that was in a wreck. The engine has been replaced and the body has been fixed. I’m selling the car.

Answer 27

I don’t have a duty to tell the seller that the car was in a wreck and was repaired.

Question 28

I have a car that was in a wreck. The engine has been replaced and the body has been fixed. I’m selling the car. I don’t have a duty to tell the seller that the car was in a wreck and was repaired.

But… if the seller asks “has this car ever been in a wreck?”

Answer 28

you have to answer – failure to would be concealing or fraud.

Question 29

Intent to Deceive

Answer 29

“Scienter” knowledge…broader than just actual knowledge (present if we just make an innocent mistake, or…)

Question 30

Mr. Sarvis was the President of CMI International (investment bank). He is convicted for Felony Bank Fraud and serves a 4 year sentence. He gets out of jail. He forms a fake resume. He says “semi-retired” on his resume instead of jail. Vermont hires him to teach Business Law and Ethics. Parole officer calls the University to verify employment. University fires him. He sues them for breach of contract

Answer 30

No. Court says this was fraud.

Question 31

Negligent Misrepresentation

Answer 31

1. Party says or implies that a statement is made on some basis, such as personal knowledge or investigation, when it is not.
2. Party makes a statement with reckless disregard or indifference to its truth or falsity.

Question 32

Innocent Misrepresentation

Answer 32

1. Party who relied on the misrepresentation may rescind the contract.
2. Usually cannot seek damages.

Question 33

Reliance on the misrepresentation.

Answer 33

a. Reliance must have been such that a reasonable person would have been justified in relying upon the misrepresentation.
b. Misrepresentation relied on must be an important factor in inducing the party into the contract.
c. Reliance is not justifiable if the truth would be obvious to a reasonable person.

Question 34

Injury to the innocent party

Answer 34

the contract would not have been formed or would have been more valuable if the representation had been true.
a. In some states, in an action for rescission, actual damages need not be established.
b. In an action for damages due to fraud, proof of injury is required.
c. A court may award punitive/exemplary damages in addition to compensatory damages.

Question 35

Undue Influence.

Answer 35

When a party, who is in a dominant position because of a confidential relationship, secures an unfair advantage in a contract with a weaker, dominated party, the contract is voidable and may be disaffirmed by the dominated party.

Question 36

When is there a rebuttable presumption of undue influence?

Answer 36

when the parties are in a familiar or fiduciary relationship based upon trust and confidence, and the contract is extremely unfair to the dominated party.

Question 37

The undue influence assumption may be rebutted by…

Answer 37

showing that a full disclosure was made, the consideration that was received was adequate and/or competent, and independent advice was received by the weaker party.

Question 38

Duress

Answer 38

In general, if a party is forced into entering into a contract by threatening a wrongful act, the contract is voidable.

Question 39

Wrongful/illegal act in duress

Answer 39

1. Bodily injury to the contracting party or a member of his or her family.
2. Criminal prosecution of (but not commencement of civil litigation against) the party to the contract or a member of his or her family. Civil – NOT duress.

Question 40

Is economic need duress?

Answer 40

NO, even when one party demands a very high price for an item that another party needs

Question 41

Exception to economic duress

Answer 41

party exacting high price is also the party creating the need.

Question 42

Adhesion Contracts and Unconscionability

Answer 42

“shocks your conscious it’s so unfair”

Question 43

Adhesion Contract

Answer 43

1. Example: clauses or provisions in standard form contracts written exclusively by the party who had greater bargaining power.
2. Will not be enforced if enforcement would be unfair or oppressive and, therefore, unconscionable.

Question 44

Aggrieved party must show…

Answer 44

1. Parties had substantially unequal bargaining positions.
2. Enforcement of the contract would be manifestly unjust.