Mistakes - Jan. 9, 11

Question 1

What are the two types of mistakes? (Chinen)

Answer 1

The two types of mistakes are mutual and unilateral mistakes. (YouTube - Business Law Institute)

Question 2

What is a mutual mistake? (Chinen)

Answer 2

A mutual mistake is when both parties are mistaken about a material or key fact that formed the basis of their contract. (YouTube - Business Law Institute)

Question 3

If either parties raise the defense of mutual mistake, will a contract be invalidated? (Chinen) (R)

Answer 3

Yes, unless the party who is attempting to void the contract bears the risk of the mistake. (YouTube - Business Law Institute) (152)

Question 4

When is a contract made under mutual mistake not sufficient to invalidate it? (Chinen)

Answer 4

When the mistakes pertain solely to judgment or value. I.e. If you buy an old painting and overestimate its value, that is not a mistake in the legal sense, it’s only an incorrect assessment of the object’s value. (YouTube - Business Law Institute)

Question 5

What is a unilateral mistake? (Chinen)

Answer 5

A unilateral mistake is a mistake in which one of the parties mistakes an important fact about the contract at the time the contract was made. (YouTube - Business Law Institute)

Question 6

When can a unilateral mistake be invoked? (Chinen)

Answer 6

A unilateral mistake can be invoked in two scenarios:

(1) The non-mistaken party knew or should have known that a mistake had been made.

(2) The effect of the mistake is such that enforcement of contract would be unconscionable (extremely unfair). (YouTube - Business Law Institute)

Question 7

Joe, a car dealer, knows that Peter, a customer, can only drive cars with an automatic gear shift. Peter comes to Joe and says he wants to buy a new car for himself and points to a car that has a manual gear shift. He is not aware that the car has a manual gear shift. If Joe still sells Peter the car, can Peter avoid it? (Chinen)

Answer 7

Yes. Peter would be able to avoid the contract based on his unilateral mistake. (YouTube - Business Law Institute)

Question 8

A car dealer advertises a used car for sale in a local newspaper. However, due to a typographical and proofreading error in the newspaper, the ad contained a sale price that was well below what the car dealer intended to advertise. As a result, the ad offered to sell a Jaguar XJ6 Vanden Plas at a price of $25,995 instead of roughly $37,000. Donovan read the add and tried to purchase the car for the advertised price, which was much lower than the price for this type of car at other local dealerships. The car dealer refused to sell, claiming there was a mistake. Was there a unilateral mistake? (Chinen)

Answer 8

Yes. (YouTube - Business Law Institute)

Question 9

What four factors for unilateral mistake did the California Court of Appeal consider in Donovan v. RRL Corporation II (2001)? (Chinen)

Answer 9

(1) Was there a mistake regarding the basic assumption of the contract?

(2) Did the mistake have a material effect on the exchange of performances adverse to the defendant?

(3) Should the defendant bear the risk of the mistake?

(4) Is the effect of the mistake such that enforcement would be unconscionable? (YouTube - Business Law Institute)

Question 10

In a unilateral mistake, is the contract still binding? (Chinen)

Answer 10

Yes. (YouTube - Harvard Online)

Question 11

What rule did Lenawee County Board of Health v. Messerly (1982) add? (Q)

Answer 11

Rescission is appropriate when the mistaken belief relates to a basic assumption of the parties upon which the contract is made, and which materially affects the agreed performances of the parties, but rescission is not available to relieve a party who has assumed the risk of loss in connection with the mistake.

Question 12

What does “as is” mean in the context of a contract? (Q)

Answer 12

The offeree assumed the risk of any mistakes. (Lenawee County Board of Health v. Messerly)

Question 13

What is a mistake? (R)

Answer 13

A mistake is a belief that is not in accord with the facts. (151)

Question 14

When does a party bear the risk of a mistake? (R)

Answer 14

A party bears the risk of a mistake when:

(A) The risk is allocated to him by agreement of the parties, or

(B) He is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or

(C) The risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.

(154)

Question 15

What are the elements of mutual mistake? (R/Chinen)

Answer 15

(1) Mistake of both parties
(2) Basic assumption on which the contract was made
(3) A material effect on the agreed exchange of performances
(4) Unless the party who is attempting to void the contract bears the risk of the mistake (152)

Question 16

When does the mistake of one party makes a contract voidable? (R)

Answer 16

Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in [R2C § 154], and

(a) The effect of the mistake is such that enforcement of the contract would be unconscionable, or

(b) The other party had reason to know of the mistake or his fault caused the mistake. (153)

Question 17

Why are courts more reluctant to set aside agreements for unilateral mistakes? (DeLong)

Answer 17

Because avoidance deprives the un-mistaken party of the benefits of a bargain that it reasonably expected to get. (3)