Mistakes of Fact Flashcards
Mistake is
Mistake is a belief not in accord with fact. (§ 151)
- Can’t be opinion…can’t be value statement…belief of fact.
- Need not be an articulated belief, may occur when one makes an assumption with respect to it without being aware of other alternatives
- Must be a belief relating to the facts as they exist at the time of making the contract.
Rule: Where a mistake
- of both parties
- at the time a contract was made
- as to a basic assumption on which the contract was made
- has a material effect on the agreed exchange of performances, then the contract is _____.
is voidable
- by the adversely affected party
- unless he bears the risk of the mistake. (§ 152)
- In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution or otherwise
Elements of Mistake
(1) Mutual Mistake
(2) That goes to a basic assumption on which the contract was based
(3) Materially affects the agreed performance
(4) Adversely affected party doesn’t bear the risk of the mistake
3 ways to bear the risk:
- The _risk was allocated to him by agreemen_t/in the contract
- Conscious ignorance: when the party makes the contract knowing his basis is not factual (such as something based on a guess or an estimate or prediction), OR
- The risk is allocated to him by the court in equity.
Sherwood v. Walker
mistaken breeding cow for barren cow
F: P contracted for a cow from D. The cow was priced at $0.05/pound with the belief that it was barren, whereas it would have been worth more than 10x that if she could bear. After signing but before delivery, cow was found pregnant. Seller refused delivery.
I: Can this contract be voidable on the grounds that there was a mutual mistake on barrenness of cow?
H: both parties’ belief that cow was barren is a bi-lateral mistake voiding going to the essence of a thing, voiding contract.
R1: mutual mistake means that both parties are wrong about the same fact. R2: mistake must go to the essence of the contract, or the very thing that was bargained for to be voidable.
BATES: Mistake was to the value, not a material fact. Both agreed she was a cow and she was. They took a risk, illustrated by the price, that she was barren.
Dissent: disagreement on fact. Did buyer believe cow was barren or could bear? If the latter, there was only a disagreement as to the quality of the cow, there not voidable. It was not a mistake about the current status of cow, it was a mistake about prediction of future events.
Wood v. Boynton
uncut diamond sold for $1
F: P sold an uncut diamond to a jeweler for $1, both parties were not sure as to identity of item and believed it possibly to be a topaz.
I: Is the sale void on the fact that there was a mistake as to the identity of the item and fraud of D?
H: no fraud, D didn’t act in bad faith, truly didn’t know what item was when he bought it. No pretense of mistake since the object for sale was presented to both parties before sale was made and both parties knew they were clueless as to the identity of the stone, both supposed $1 was an adequate $ at the time.
R: Court will not grant rescission once contract is already performed (unlike Sherwood). In absence of fraud or warranty, the value of the property sold, as compared with the price paid, is no ground for a rescission of a sale
Nester v. Michigan Land & Iron Co.
(Pine Trees - mistake in the value of trees, much like Rose 2d Abelone)
P tried to negotiate land purchase with D; failed; P granted option to purchase timber on lands for $35K. P consented to purchase timber at $27K. Tendered installment; remainder was to be paid in equal payment as timber was cut. P cut and carried away all the pine after making only one payment. D sought to recover the timber; P said there was a mutual mistake over the quality of the timber.
HOLD: (Similar to Bates’ analysis of Sherwood) Party may not seek to modify an agreement based on mutual mistake as to the quantity or quality of the goods being exchanged, absent a guaranty in the contract’s provision assuring their acceptability. It was virtually impossible to ascertain the quality and quantity of timber to be harvested; D made no representations or assurances, P conducted his own examination of the goods.
Lenawee County Board of Health v. Messerly
(condo condemned by poop, septic problems, worthless)
F: D’s bought P’s property as an investment, purchases property with clause to agree to purchase property in its present condition. D discovers an unlawful septic tank, unbeknownst to P, which results in condemnation of property. Now worthless.
I: Can this contract be voided on grounds of mutual mistake and failure of consideration?
H: Mistake is not characterized as collateral because it also affects the very essence of the consideration as well as value. (avoids Sherwood decision). Parties’ mistake as to basic assumption materially alters the agreed performances of the parties. Because of “as is” clause, buyer bares risk.
R: Ct, in mistake of two innocent parties, determines who should bear the risk based on §154. Existence of assumption of risk clauses in contracts determines who bears risk.
General Principles:
If there is a mutual mistake, you must focus on
General Principles:
If there is a mutual mistake, you must focus on the allocation of risks on the parties.
Was the mistake about the thing or the value of the thing?
EX: A, an owner of land, and B, a builder, make a contract under which B is to take from A’s land, at a stated rate per cubic yard, all the gravel and earth necessary for the construction of a bridge, an amount estimated to be 114,000 cubic yards. A and B believe that all of the gravel and earth is above water level and can be removed by ordinary means, but in fact about one quarter of it is below water level, so that removal will require special equipment at an additional cost of about twenty percent.
** The contract is not voidable by B**, because the court will allocate to B the risk of the mistake.
Assumption of Risk
Allowed to avoid a contract but in mutual and unilateral mistakes, you can contract around mistake by assuming the risk. Ways to assume risk:
- expressly agree to assume risk
- court allocates risk in a way it thinks reasonable (ex. Sellers of farm land discover minerals on land)
- party knows at the time they enter into the contract that subject of the contract is not well known – consciously aware of the fact that they didn’t have much knowledge (Sherwood case?)
Voidable Unilateral Mistake
§153: when mistake of one party makes a contract voidable (UNILATERAL mistake)
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,that is adverse to him, the contract is voidable by him if he did not bear the risk of the mistake under §154 and:
- the effect of the mistake is such that enforcement would be unconscionable, OR
- the other party had reason to know of the mistake or his fault caused the mistake.
Tyra v. Cheney
subK. mistakenly left off amount stated in oral bid in written bid
I: Can P collect damages for a mistake in estimate made to D that D knew about when accepting bid?
H: yes, D knew of mistake.
R1: Since GC knew mistake was made, there was no mutual assent (error in contract formation). No enforceable contract to begin with, so terms of contracts are refused to be imposed by the court.
R2: work did benefit other party, to prevent unjust enrichment, court awards restitution. When only one party has made a mistake – “tough on them”. Since D knew about mistake, he didn’t really rely on the bid, therefore, no contract.
**Drennan v. Star Paving **
misquoted SubK estimate, GC wins bid on estimate
Drennan entitled to $3000 since P relied on mistake. Can D rescind since it made a mistake?
NO, because P did not know about mistake and relied on it, contract is enforceable. Burden of loss on party that made the mistake in the case when both parties are innocent unless otherwise stipulated.
**Laidlaw v. Organ, Treaty of Yent **
Tobacco investment, S attempts to take tobacco back
I: Can Seller claim fraud when Buyer knew price of tobacco would rise due to Treaty of Yent which was not yet known to other persons? is suppression of information known by buyer considered fraud?
R: Organ is not bound to communicate information, but each party cannot do anything tending to deceive another. Case remanded to determine if there was any imposition of Buyer on Seller.
