Contracts II - Mistakes & Meaning

Question 1

Restatements, effect of misunderstanding

Answer 1

Effect of Misunderstanding (Restatement Second § 20)

When entering into a contract, if the parties have different understandings of the terms used, and:
* Neither party is aware or has reason to be aware of the other’s understanding, or
* Both parties are aware or have reason to be aware of each other’s different understandings, then there is no mutual agreement, and the contract is not formed.

Question 2

Restatements, whose Meaning Prevails

Answer 2

Whose Meaning Prevails (Restatement Second § 201)

Shared Meaning:

If both parties understand a term in the same way, that understanding is accepted.

Different Meanings:

If the parties have different understandings:

The term is interpreted based on the meaning attached by one party if, at the time of agreeing:
That party didn’t know the other’s different meaning, and
The other party knew what the first party meant, or
That party had no reason to know the other’s different meaning, and
The other party had a reason to know what the first party meant.

No Shared Understanding:

Except in these situations, neither party is required to accept the meaning attached by the other. The main goal is to find an understanding that both parties agreed upon, rather than forcing a meaning based on legal rules.

Question 3

Why is the parol evidence rule a misnomer?

Answer 3

Because “parol” implies that it discharges oral evidence only but it discharges both written and oral extrinstic evidence

Question 4

Where can we find the parol evidence rule in the Restatements?

Answer 4

§213

Question 5

What does the parol evidence rule say in Restatements §213?

Answer 5

213 is the discharge provision

To the extent an agreement is integrated, it discharges prior or contemporaneous agreements or representations
◼ Inconsistent with it; or
◼ Within its scope

Question 6

Where can the exceptions for the parol evidence rule be found in the Restatements? What does it say?

Answer 6

§ 214

Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish

(a) that the writing is or is not an integrated agreement;
(b) that the integrated agreement, if any, is completely or partially integrated;
(c) the meaning of the writing, whether or not integrated;
(d) Invalidating causes: Illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause;
(e) Remedies: Ground for granting or denying rescission, reformation, specific performance, or other remedy.

Question 7

When a court recognizes that you have a separate agreement, what does it implicitly agree to?

Answer 7

That the agreement is not complete, i.e. partial integration.

Question 8

What are weasel words? Give two examples

Answer 8

In the context of U.S. law, “weasel words” refer to words or phrases that are intentionally vague, ambiguous, or misleading. These words are often used to create an impression of a promise or guarantee without making a clear commitment. Weasel words may give the appearance of specificity or certainty, but they are carefully chosen to provide an escape route or to avoid legal responsibility.

Naturally or reasonably.

Question 9

Parol evidence rule in the restatements does not discharge collateral (i.e. consistent additional terms) under which conditions? Where do we find this in the Restatements?

Answer 9

§216

(1) Evidence of a consistent additional term is admissible to supplement an integrated agreement unless the court finds that the agreement was completely integrated.
(2) An agreement is not completely integrated if the writing omits a consistent additional agreed term which is
(a) agreed to for separate consideration, or
(b) such a term as in the circumstances might naturally be omitted from the writing.

Question 10

Besides fraud, what other invalidating causes are there? (2 cases)

Answer 10

There was no contract intended (Columbia Nitrogen Corp. v. Royster Co.)
Failure of pre-condition (Smith v. Toyota)

Question 11

In Columbia Nitrogen Corp. v. Royster Co, how could Nitrogen prove that there was no contract intended?

Answer 11

Columbia was allowed to use extrinsic evidence. It showed that this kind of agreement in the industry is not considered a contract.

Question 12

What are the four elements needed for tort to be established?

Answer 12

◼ Representation of a present fact
◼ Made with knowledge of its falsehood (scienter), sometimes not required
◼ Reliance
◼ Injury

Question 13

Fraud requires a representation a fact. What does that mean?

Answer 13

Example: Saying something is worth 1 M USD, presenting it as a fact. If you say that it could be worth 1 M USD, you are implying that it could be wrong. It’s an opinion.

Question 14

Fraud requires Made with knowledge of its falsehood (scienter), sometimes not required. What does it mean?

Answer 14

Some courts make it a requirement that you know that you are lying.

Question 15

Do merger and and integration clauses bar fraud?

Answer 15

Some courts say yes, some say no.

Question 16

Why can the parol evidence rule be used for equitable relief?

Answer 16

The intention of the parol evidence rule was to ensure that the jury would not be influenced by extrinsic evidence. In equitable proceedings, there is no jury.

Question 17

Where in the UCC can we find the provision for the Parol Evidence Rule and the Supplementation of Terms?

Answer 17

UCC § 2-202

General Rule (Subsection 1):

Agreement in Writing: If the parties have a written contract, and that writing is intended as a final expression of their agreement regarding certain terms, then evidence of any prior oral agreements or contemporaneous oral agreements cannot be used to contradict the terms in the written contract.

Supplementation of Terms: However, the written contract can be supplemented by evidence of:

(a) Course of performance, course of dealing or usage of trade.
(b) Consistent additional terms, unless the court finds that the written record was intended to be a complete and exclusive statement of the agreement’s terms.

Even if the language in the written record is not considered ambiguous, terms in the record can be explained by evidence of:
Course of performance, Course of dealing, or Usage of trade, without the need for a preliminary determination by the court that the language used is ambiguous.

Question 18

What benefit does it have to call something a question of law rather than a question of fact?

Answer 18

In legal proceedings, questions of law are determined by the judge, not the jury, and involve the interpretation and application of legal principles (construction). These questions can be reviewed by higher courts. In contrast, questions of fact, initially decided by the jury, may transform into questions of law, allowing the judge to make the final decision.

Question 19

What was the traditional view regarding the interpretation of a contract? What modern trend is observed in some jurisdictions regarding contract interpretation?

Answer 19

Traditionally, the interpretation of a contract was considered a question of law, primarily decided by the judge. In some jurisdictions, there is a modern trend where certain aspects of contract interpretation are entrusted to the jury, as reflected in Restatement (2nd) § 212

Question 20

Is intent a fact?

Answer 20

No, it’s a conclusion.

Question 21

What different types of intents are there?

Answer 21

Actual Intent:

Summary: Actual intent refers to the real and conscious state of mind or purpose of an individual when engaging in a particular action. It involves a genuine and deliberate desire to achieve a specific outcome. In legal contexts, proving actual intent often requires demonstrating that the person knowingly and willfully intended the consequences of their actions. “Private meaning” - what the parties actually meant.

Hypothetical Intent:

Summary: Hypothetical intent involves assessing how a reasonable person, placed in the same situation as the individual in question, would have intended the consequences of their actions. It considers an objective standard, imagining what a typical person might intend under similar circumstances. This standard is applied when determining intent without direct evidence of the individual’s subjective state of mind. “What if they had thought about this”

Constructive Intent:

Summary: Constructive intent is a legal fiction that imputes intent to an individual based on the reasonably foreseeable consequences of their actions. Even if the person did not actually desire a particular outcome, constructive intent holds them responsible for the consequences that a reasonable person would have anticipated. This concept is often employed in legal doctrines to attribute intent in situations where the individual should have known the likely results of their conduct. “What they should have thought if there were reasonable”

Question 22

Does a mutual mistake justify a recission of contract?

Answer 22

Yes.

Question 23

Was Raffles v. Wichelhaus (1864) a mutual mistake?

Answer 23

No. Both parties made a different mistake.

Question 24

What is mutual mistake in contract law?

Answer 24

Mutual mistake in contract law occurs when both parties to a contract share a common misunderstanding about a fundamental fact related to the agreement. This misunderstanding must be material, meaning it significantly impacts the contract, and it may render the contract voidable.

Question 25

In a scenario where both the seller and the buyer claim an item is an imitation, and it turns out it’s not, what kind of mistake is it?

Answer 25

It is a mutual mistake. Both parties were under the mistaken belief that the item was an imitation, and if they had known the true nature of the item, the contract might not have been formed.

Question 26

In a situation where the seller asserts that an item is an imitation, but the buyer knows it’s not, what type of mistake or issue might arise?

Answer 26

It’s not a mutual mistake.

Question 27

Can contracts be rescinded if there is a mutual mistake?

Answer 27

Contracts may be rescinded if there is a “mutual mistake” regarding a material fact that formed the basis of the contract. A mutual mistake occurs when both parties share a common misunderstanding about a fundamental aspect of the agreement, and this mistake is significant enough to impact the validity of the contract. Rescission allows the parties to undo the contract as if it never existed.

Question 28

When is rescission for unilateral mistakes allowed?

Answer 28

◼ The mistake was not the result of neglect of a legal duty, and
◼ The other party knew, or should have known, of the mistake, and
◼ Enforcement would be unconscionable

When none of the parties is the government, the first element can be skipped.

Question 29

What are the most common unilateral mistakes?

Answer 29

Clerical errors. When someone wrote down the wrong information.

Question 30

Contracts may be rescinded for “mutual mistake” regarding a material fact that formed the basis of the contract. What is the counterargument for this? In other words, with what argument might courts not grant a mutual mistake?

Answer 30

There is no mistake if the parties knew the question was uncertain and allocated the risk.

Question 31

In the context of a thrift store transaction, what is a factor that courts consider when setting a side a claim for mutual mistake? (i.e., both parties were not aware of the real value of the item).

Answer 31

The counterargument revolves around the allocation of risks. Both the thrift shop and the buyer are aware of the uncertainty in the value of items at a thrift store. If the contract acknowledges this uncertainty and allocates the associated risks, courts are less likely to set aside the contract based on mutual mistake. The idea is that when both parties understand and accept the inherent risks in the transaction, and these risks are allocated in the contract, the court tends to uphold the agreement, leaving the parties responsible for the risks they knowingly assumed.

Question 32

Under what circumstances is reformation possible in contract law?

Answer 32

Reformation in contract law is possible when there is a mutual mistake, fraud, undue influence, duress, or a similar defect that affects the written terms of a contract. It allows a court to modify or rewrite the contract to accurately reflect the true intentions of the parties involved. Reformation aims to correct errors or omissions in the written agreement, making it fair and equitable based on the actual agreement between the parties.