Vices of Consent - Error

Question 1

Definitions and Prerequisites

Answer 1

(a) Definition—Simply, an error is a mistake, misunderstanding, or as Professor Litvinoff puts it, a “false representation of reality.”
(b) Prerequisites of error that vitiates consent (i.e., cognizable error)—Not every error results in the nullity of the contract. Said another way, not every error is legally cognizable. Instead, “error vitiates consent only when it concerns a cause without which the obligation would not have been incurred and that cause was known or should have been known to the other party.” (La. Civ Code art. 1949)
(i) Cause without which obligation would not have been incurred—Obligations may have multiple causes. To be cognizable, error must relate to a cause without which the obligation would not have been incurred, or a “but for” cause of the contract. See La. Civ. Code art. 1949, cmts. (b) & (e). Note that pre-revision law referred to “principal cause.” That language has been suppressed in the revision.
(ii) Knowledge of the cause—Article 1949 requires that the cause affected by error was known or should have been known to the party not in error. Note that unlike the common law, Louisiana law does not require the other party to know of the error; it suffices that the non-erring party was aware or should have been aware of the cause.

Question 2

Unilateral Error v. Bilateral Error

Answer 2

Unilateral v. Bilateral Error—The doctrine differentiates between bilateral error (i.e. both parties make the same mistake) and unilateral error (only one party is mistaken). The same legal standard set forth in Article 1949 applies to both unilateral and bilateral error. That said, in cases of bilateral error, courts are usually quite willing to award relief to a complaining party (either rescission or reformation; see “Effects of Error,” below). Cases of unilateral error present more difficult issues surrounding the protection of the non-erring party and stability of transactions.
(i) Illustration—Cal sells Tina a tract of land. They both believe the tract contains 250 acres. After the sale is complete, Tina has the land surveys. They survey shows the tract contains only 200 acres. Thereafter, in order to remedy the deficiency, Cal sells sell Tina a second 50 acre tract of land. Cal later learns that the survey was made in error; in fact, the original tract contained 250 acres, as originally understood by the parties. Either Cal or Tina may rescind the second contract on the basis of their bilateral error.

Question 3

Errors that Concern Cause: 4 Types

Answer 3

Error as to the Nature of the Contract—Relief may be available when a party intends to enter one type of contract and unwittingly enters into another type of contract, such as a sale.
a. Wise v. Prescott, 151 So. 2d 356 (La. 1963)—p. 263—Identify the error that was made in this case. Explain how this was an error regarding the nature of the contract. Was this error legally cognizable? Why or why not?
(ii)
Error as to the Contractual Object or a Substantial Quality of that Thing
a. In General—Relief may be available when either the thing for which the party has contracted or a substantial quality of that thing is different from what he understood it to be at the time of contracting.
i. Voitier v. Antique Art Gallery, 524 So. 2d 80 (La. App. 3 Cir. 1988)—p. 267—Identify the error that was made in this case. Explain how this was an error regarding the contractual object. Was this error legally cognizable? Why or why not?
ii. Deutschmann v. Standard Fur Co., Inc., 331 So. 2d 219 (La. App. 4 Cir. 1976)—p. 243—Identify the error that was made in this case. Explain how this error was an error regarding the contractual object. Was this error legally cognizable? Why or why not? Why is the furrier not compensated?
Article 1952 - Because he knew or should have known of the error, he is liable for his own loss.

							b.    Error as to the Value of the Contractual Object—Louisiana courts have consistently refused to award rescission on the basis of an error as to the value of the contractual object.  In other words, unwittingly paying more for something than it is worth is never grounds for rescission of the contract.  See, e.g., Citizens’ Bank v. James, 26 La. Ann. 264 (1874).  Why do you think courts refuse to rescind contracts on the basis of error as to value? 
					(iii)
						Error as to the Person or the Qualities of the Other Party
							a.    In General—Relief may be available when a party intends to contract with a certain person or a person of a certain quality or character and the other party is not the correct person or does not possess the correct qualities.  
								i.    Bischoff v. Brothers of the Sacred Heart, 416 So. 2d 348 (La. App. 4 Cir. 1982)—p. 259—Identify the error that was made in this case.  Explain how this error was an error regarding the person of the other contracting party.  Was this error legally cognizable?  Why or why not?
							b.    Gratuitous Contracts—If the contract is gratuitous, a presumption exists that the person of the intended obligee was the reason why the obligor bound himself.  See La. Civ. Code art. 1950, cmt. (d). But see La. Civ. Code art. 1478 &1479 cmt. (c).
					(iv)
						Error as to the Law—Relief may be available when a party has drawn erroneous conclusions of law and entered into a contract on the basis of them.  Error of law is to be distinguished from mere ignorance of the law, which is generally not cognizable.
							a.    Hill v. Hill, 138 So. 107 (La. 1931)—p. 271—Identify the error that was made in this case.  Explain how this error was an error regarding the law.  Was this error legally cognizable? Why or why not?  See La. Civ. Code art. 3082.

Question 4

The Effects of Error

Answer 4

(a) Rescission

(ii) Exceptions and Limitations—Consider the reason for each of these exceptions or limitations on the “general rule.”
a. Other Party Willing to Perform—“A party may not avail himself of his own error if the other party is willing to perform the contract as intended by the party in error.” (La. Civ. Code art. 1951).

							b.    Protection of the Interest of the Party Not in Error—“A party who obtains rescission on grounds of his own error is liable for the loss thereby sustained by the other party unless the latter knew or should have known of the error.  A court may refuse rescission when the effective protection of the other party’s interest requires that the contract be upheld.  In that case, a reasonable compensation for the loss he has sustained may be granted to the party to whom rescission is refused.” (La. Civ. Code art. 1952)
								i.    Damages Owed Unless Other Party Knew or Should Have Known of the Error—Damages of this sort are intended to protect the non-erring party’s reliance interest.  “Detrimental reliance” is therefore built in to the law of error.  See  La. Civ. Code art. 1952, cmt. (c). · Recall Kethley v. Draughon Business College—p. 179.  There, a teacher agreed to teach an extra course but the school did not intend to pay him for the work.  The school rescinded the contract on the basis of error.  The court then awarded the teacher damages based upon his reliance on his understanding of the contract.
								ii.    Court’s Refusal to Rescind—A court may refuse rescission altogether even when the prerequisites for cognizable error have otherwise been satisfied.

					(iii) Reformation of the Contract—In cases of bilateral error that involve a written contract, the parties are entitled to reformation of the contract.  This applies most frequently in real estate transactions in which a mistake is made in the drafting of the written contract, and that mistake does not reflect the actual  agreement of the parties. In such a case, the court’s judgment serves to rewrite the contract to conform to the original understanding of the parties.
							a. Hypo—Cal sells a tract of land to Tina.  The property description in the deed contains a mistake: it states that 25 acres were conveyed when in fact both parties intended that 50 acres be conveyed.  If Tina can prove that the mistake in the deed was due to mutual error, she is entitled to reformation of the contract to reflect the parties’ true intent.  (iv) Rights of Third Parties—“Nullity of a contract does not impair the rights acquired through an onerous contract by a third party in good faith.  If the contract involves immovable property, the principles of recordation apply to a third person acquiring an interest in the property whether by onerous or gratuitous title.” (La. Civ. Code art. 2035) Note that this is a rule of nullity in general; thus, it applies equally in cases of fraud and duress (see below).
							a. Hypo 1—Cal sells a motorcycle to Tina. Tina later sells the motorcycle to Zeke.  If Cal attempts to rescind the sale with Tina on the basis of error, Zeke retains ownership of the motorcycle.  What relief is Cal entitled to if not ownership of the motorcycle?
							b. Hypo 2—Cal sells a tract of land to Tina.  Tina records the act of sale in the public records.  Tina later sells the tract of land to Zeke.  If Cal attempts to rescind the sale with Tina on the basis of error, Zeke retains ownership of the land.  What relief is Cal entitled to if not ownership of the land?