Download presentation
Presentation is loading. Please wait.
Published byJasmin Sherman Modified over 8 years ago
1
1 George Mason School of Law Contracts II Mistake This file may be downloaded only by registered students in my class, and may not be shared by them F.H. Buckley fbuckley@gmu.edu
2
Regret Contingencies I don’t the way this turned out… What are the possibilities? 2
3
Regret Contingencies An occurs: what are the possibilities? Both parties want out and write a termination agreement 3
4
Regret Contingencies An occurs: what are the possibilities? One party only wants out: Uses his clout to extract a modification agreement—subject to duress barriers 4
5
Regret Contingencies An occurs: what are the possibilities? One party only wants out: Uses his clout to extract a modification agreement Alleges a Breach by the other party 5
6
Regret Contingencies An occurs: what are the possibilities? One party only wants out: Uses his clout to extract a modification agreement Alleges a Breach by the other party Alleges an excuse Condition precedent, mistake, frustration 6
7
Regret Contingencies So the choice is between breach and excuse When should the event give rise to liability by one of the parties See last day on least-cost risk-bearing 7
8
Force Majeure Clause A party is not liable for failure to perform the party's obligations if such failure is as a result of Acts of God (including fire, flood, earthquake, storm, hurricane or other natural disaster), war, invasion, act of foreign enemies, hostilities (regardless of whether war is declared), civil war, rebellion, revolution, insurrection, military or usurped power or confiscation, terrorist activities, nationalization, government sanction, blockage, embargo, labor dispute, strike, lockout or interruption or failure of electricity or telephone service, or change in government regulations which makes performance of obligations under this contract impracticable. 8
9
Regret Contingencies Force majeure clause Why no least cost risk avoiders here? 9
10
Regret Contingencies Force majeure clause Why no least cost risk avoiders here? No one can efficiently reduce the risk 10
11
Regret Contingencies Force majeure clause Why no least cost risk avoiders here? No one can efficiently reduce the risk No one is better able to evaluate risk (unlike Stees?) 11
12
Regret Contingencies Force majeure clause Why no least cost risk avoiders here? No one can efficiently reduce the risk No one is better able to evaluate risk (unlike Stees?) Risk not diversifiable 12
13
Kinds of Mistakes Misunderstandings and Mistakes Which party is mistaken? About what are they mistaken? 13
14
Kinds of Mistakes Misunderstandings and Mistakes 14
15
Restatement §20. Misunderstandings (1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and (a)neither party knows or has reason to know the meaning attached by the other; or (b)each party knows or each party has reason to know the meaning attached by the other. 15
16
Restatement §20. Misunderstandings (1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and (a)neither party knows or has reason to know the meaning attached by the other; or (b)each party knows or each party has reason to know the meaning attached by the other. 16
17
Kinds of Mistakes Misunderstandings and Mistakes Misunderstanding: The event can be seen as something which goes to whether there was mutual assent as to any agreement 17
18
Kinds of Mistakes Misunderstandings and Mistakes Misunderstanding: The event can be seen as something which goes to whether there was mutual assent as to any agreement Mistake: There was assent to an agreement but the event puts an end to it. 18
19
Kinds of Mistakes Misunderstandings and Mistakes Misunderstanding: The event can be seen as something which goes to whether there was mutual assent as to any agreement Mistake: There was assent to an agreement but the event puts an end to it. And the difference is? 19
20
Kinds of Mistakes Misunderstandings and Mistakes Misunderstanding: The world is as we think it is, but we have not agreed Mistake: The world is not as we think it is 20
21
Misunderstandings Raffles v. Wichelhaus at 694 21 Peerless IPeerless II
22
Misunderstandings Raffles v. Wichelhaus Was there any way to enforce this? 22
23
Misunderstandings What if both had meant the same ship? 23
24
Misunderstandings What if both had meant the same ship? Illustration 1: There is a contract, and it is immaterial whether they know about the other ship 24
25
Misunderstandings What if objectively it was clear that the contract referred to a particular ship, but one party is mistaken? 25
26
Misunderstandings (1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and (a)neither party knows or has reason to know the meaning attached by the other; or (b)(b) each party knows or each party has reason to know the meaning attached by the other. 26
27
Misunderstanding What if one party is mistaken and the other party knows of his mistake? 27
28
Restatement §20(2) Unilateral Misunderstanding (2) The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if (a) that party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party; or (b) that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party. 28
29
Misunderstandings Mutual and Unilateral Misunderstandings: What is the logic behind the distinction? 29
30
Information-forcing rules Where the absence of information may impose costs, and one party can cure the problem more easily than another, legal rules may give the informed party the incentive to reveal the information: Unilateral errors Fitness for purpose Fraud through concealment 30
31
Mutual and Unilateral Mistake 31
32
Mutual Mistake: Restatement 152 Where a mistake of both parties at the time of contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in 154. 32
33
Two kinds of Mutual Mistake Common Mistake: Both parties make the same mistake: Bargaining over a ship that has sunk “Mutual Mistake”: Parties at cross- purposes: I sell you Rose 2d and you think you’ve bought Rose 3d 33
34
Two kinds of Mutual Mistake Common Mistake: Both parties make the same mistake: Bargaining over a ship that has sunk “Mutual Mistake”: Parties at cross- purposes: I sell you Rose 2d and you think you’ve bought Rose 3d Mutual mistakes and misunderstandings 34
35
Restatement §20. Misunderstandings (1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and (a)neither party knows or has reason to know the meaning attached by the other; or (b)each party knows or each party has reason to know the meaning attached by the other. 35
36
Mutual Mistake: Restatement 152 Where a mistake of both parties at the time of contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in 154. 36
37
Unilateral Mistake: Restatement 153 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 154, and the effect of the mistake is such that enforcement of the contract would be unconscionable, or the other party had reason to know of the mistake or his fault caused the mistake 37
38
Unilateral Mistake: Restatement 153 Again, an information-forcing rule 38
39
Mutual Mistake: Restatement 152 Where a mistake of both parties at the time of contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in 154. 39
40
What is a basic assumption? 40 An error as to substance (More recently), an error which has a material effect on the exchange value of the contract
41
What is a basic assumption? 41 An error as to substance Essence vs. mere quality
42
Error as to Substance: Sherwood v. Walker at 694 42
43
Error as to Substance: Sherwood v. Walker at 694 43 Hiram Walker T.C. Sherwood
44
Error as to Substance: Sherwood v. Walker at 694 44 Hiram Walker Rose
45
Another Hiram Walker product 45 Hiram Walker Canadian Club
46
46
47
47
48
48
49
Aberlone, Rose of By Brainerd Currie 49 In many a hypothetical With characters alphabetical, In many a subtle and sly disguise There lurks the ghost of her sad brown eyes. That she will turn up in some set of facts is Almost as certain as death and taxes: For students of law must still atone For the shame of Rose of Aberlone.
50
Sherwood v. Walker 50 What is a “basic assumption” in 152- 53?
51
Sherwood v. Walker 51 What is a “basic assumption” in 152- 53? Substance of the thing vs. quality or accident A barren cow is substantially a different creature than a breeding one
52
Sherwood v. Walker 52 What is a “basic assumption” in 152- 53? Substance of the thing vs. quality or accident Error in substantibus: the “whole substance of the agreement” or “the very nature of the thing”
53
Sherwood v. Walker 53 Barren Cow So what is Rose’s essence: “cowness” or “barren cowness” Fertile Cow
54
Sherwood v. Walker 54 Barren Cow So what is Rose’s essence: “cowness” or “barren cowness” Fertile Cow
55
Mutual Mistake Restatement § 152: “Has a material effect on the agreed exchange” Comment c: resulting imbalance is so severe that he cannot fairly be required to carry it out Is that the case here? 55
56
Sherwood v. Walker 56 Did the mistake have a material effect on the exchange of performances? [(1420-50)*0.055 =] $75.35 vs. about $875
57
Sherwood v. Walker 57 Barren Cow Assumption of risk: Should this have been a matter of breach? Fertile Cow
58
Sherwood v. Walker 58 Barren Cow Assumption of risk: Was Walker in a position to know the condition of the cow? Fertile Cow
59
Sherwood v. Walker 59 Barren Cow The dissent: if either party had superior knowledge … certainly the defendants had such advantage Fertile Cow
60
Qu. Backus v. MacLaury p. 709 60 What should the court hold?
61
Qu. Backus v. MacLaury p. 709 61 No mistake: Buyer realized the calf might be sterile and took the risk
62
Restatement 154: Assumption of Risk 62 A party bears the risk of mistake when the risk is allocated to him by agreement of the parties, or 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 the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.
63
Restatement 154: Assumption of Risk 63 A party bears the risk of mistake when the risk is allocated to him by agreement of the parties, or 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 the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so. Which way does this cut in Backus?
64
Mutual Mistake: Restatement 152 Where a mistake of both parties at the time of contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in 154. 64
65
“As is” clauses Messerly at p. 706 Can an “as is” clause oust the doctrine of mistake by virtue of an assumption of risk under Restatement § 154? 65
66
Unilateral Mistake: Restatement 153 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 154, and the effect of the mistake is such that enforcement of the contract would be unconscionable, or the other party had reason to know of the mistake or his fault caused the mistake 66
67
Unilateral Mistake: Class A: Unconscionability 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 154, and the effect of the mistake is such that enforcement of the contract would be unconscionable, or the other party had reason to know of the mistake or his fault caused the mistake 67
68
Unilateral Mistake: Class B: Nondisclosure 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 154, and the effect of the mistake is such that enforcement of the contract would be unconscionable, or the other party had reason to know of the mistake or his fault caused the mistake 68
69
Anderson v. O’Meara 699 69 Seller sells submarine trenching equipment
70
Anderson v. O’Meara 70 Buyer thinks he’s buying a Sweep Dredge
71
Anderson v. O’Meara 71 The District Court found a mutual mistake. Why did the Circuit Court disagree?
72
Anderson v. O’Meara 72 Was there a unilateral mistake? And of what type, in my classification?
73
Anderson v. O’Meara 73 Was there a unilateral mistake? And of what type, in my classification? Class B? Did Seller have reason to know of the use buyer would put to the dredge?
74
Anderson v. O’Meara 74 Was there a unilateral mistake? And of what type, in my classification? Class B? Did Seller have reason to know of the use buyer would put to the dredge? Evidence as to the seller’s knowledge must be “clear and unequivocal”
75
Anderson v. O’Meara 75 Was there a unilateral mistake? And of what type, in my classification? Class A: unconscionability needed
76
Anderson v. O’Meara 76 Was there a unilateral mistake? And of what type, in my classification? Class A: unconscionability needed Absence of diligence by the buyers a factor to be considered
77
Anderson v. O’Meara 77 Was there a unilateral mistake? And of what type, in my classification? Class A: unconscionability needed Absence of diligence by the buyers a factor to be considered Buyer as least-cost risk avoider
78
Duty to Investigate 78 Gartner p. 708 Did one person have a special duty to investigate?
79
Duty to Investigate 79 Jeselsohn p. 709-10 “An examination of the records in the registry of deeds would not have disclosed the mistake”
80
Duty to Investigate 80 Jeselsohn Held: mutual mistake
81
Unilateral Clerical Mistakes 81 Elsinore at 708
82
Unilateral Clerical Mistakes 82 Elsinore Does it matter that the error was only $3K on a $90K bid Restatement § 152, comment c (“an imbalance so severe that he cannot fairly be required to carry it out’)
83
Unilateral Clerical Mistakes 83 Elsinore Does it matter that the error was only $3K on a $90K bid Does it matter that the bidder notified the school board the next day?
84
Unilateral Mistakes: Irmen v. Wrzesinski at 705 84 $349 on E-Bay
85
Irmen v. Wrzesinski 85 How is this case like Laidlaw v. Organ?
86
86 George Mason School of Law Contracts II Mistake This file may be downloaded only by registered students in my class, and may not be shared by them F.H. Buckley fbuckley@gmu.edu
87
A new member in the class 87
88
Welcome Mrs. Frogale 88
89
Mutual Mistake: Restatement 152 Where a mistake of both parties at the time of contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in 154. 89
90
Unilateral Mistake: Nondisclosure 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 154, and the effect of the mistake is such that enforcement of the contract would be unconscionable, or the other party had reason to know of the mistake or his fault caused the mistake 90
91
Restatement 154: Assumption of Risk 91 A party bears the risk of mistake when the risk is allocated to him by agreement of the parties, or 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 the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.
92
What is a “basic assumption”? 92 Substance of the thing vs. quality or accident A barren cow is substantially a different creature than a breeding one
93
The Modern Trend Where a mistake of both parties at the time of contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in 154. 93
94
Alcoa 710 What was the deal? 94
95
Mutual Mistake: Alcoa What was the deal? Alcoa to convert alumina (aluminum oxide) for Essex EssexAlcoa 95 Alumina Aluminum
96
Mutual Mistake: Alcoa How was the pricing arrived at? 96
97
Mutual Mistake: Alcoa How was the pricing arrived at? 97 You can’t lose, Alcoa. Believe me!
98
Mutual Mistake: Alcoa How was the pricing arrived at? 98 Essex gets a price cap of 65% of aluminum market prices— but no ceiling for Alcoa Labor costs to vary with average costs at an Alcoa plant Non-Labor costs to vary with wholesale price index
99
Mutual Mistake: Alcoa What happened to non-labor costs? 99
100
So what happened to oil prices in the late 1970s? 100
101
Mutual Mistake: Alcoa What did Alcoa expect as profits per pound of aluminum converted? 101
102
Mutual Mistake: Alcoa What did Alcoa expect as profits per pound of aluminum converted? And what was it getting in 1977 and 1978? 102
103
Mutual Mistake: Alcoa Why did Essex want the supply of aluminum? 103
104
Mutual Mistake: Alcoa Why did Essex want the supply of aluminum And what did it end up doing with the aluminum it bought? 104
105
Mutual Mistake: Alcoa Why did Essex want the supply of aluminum And what did it end up doing with the aluminum it bought? Was this prohibited by the contract? 105
106
Mutual Mistake: Alcoa Why did Essex want the supply of aluminum And what did it end up doing with the aluminum it bought? Was this prohibited by the contract? What if this had been seen as a requirements contract under 2-306? 106
107
Mutual Mistake: Alcoa Why did Essex want the supply of aluminum And what did it end up doing with the aluminum it bought? Was this prohibited by the contract? Cf. quantities on p. 712 107
108
Mutual Mistake: Alcoa What was the mutual mistake, if any? 108
109
Mutual Mistake: Alcoa What was the mutual mistake, if any? Was this an error in substantibus, as in Hiram Walker? 109
110
Mutual Mistake: Alcoa What was the mutual mistake, if any? Would the wholesale price index serve as a proxy for non-labor costs? 110
111
Mutual Mistake: Alcoa Restatement § 151: A mistake is a belief that is not in accord with the facts Was this an error of fact or a prediction about future events? 111
112
Mutual Mistake: Alcoa What there an assumption of risk? How does the court distinguish Leasco at 714? 112
113
Mutual Mistake: Alcoa What there an assumption of risk? How does the court distinguish Leasco at 735? How is it that there is an assumption of risk where there is no price adjustment clause but no assumption of risk about price changes when there is a price adjustment clause? 113
114
Mutual Mistake: Alcoa Did Alcoa assume the risk? Who drafted the contract? 114
115
Mutual Mistake: Alcoa Did Alcoa assume the risk? Who drafted the contract? The contra proferentem maxim “once sounded as a clarion call to retrograde courts to pervert agreements if they could” 115
116
Mutual Mistake: Alcoa Did Alcoa assume the risk? Essex put in a price cap on Alcoa’s services, so why didn’t Alcoa put in a cost cap? 116
117
Mutual Mistake: Alcoa Did Alcoa assume the risk? Essex put in a price cap on Alcoa’s services, so why didn’t Alcoa put in a cost cap? “They must have thought the risk too remote” 117
118
Mutual Mistake: Alcoa What do you make of the finding that, were it necessary, the court would find that the contract was unconscionable “windfall profits” at 717 118
119
Mutual Mistake: Alcoa What kind of a remedy? Why wasn’t rescission ordered? 119
120
Mutual Mistake: Alcoa What kind of a remedy? Reformation: Restatement § 155 How was the new price to be arrived at? 120
121
Mutual Mistake: Alcoa What kind of a remedy? Reformation: how was the new price to be arrived at? Is something like this what the parties really wanted all along? 121
122
Mutual Mistake: Alcoa What kind of a remedy? Reformation: how was the new price to be arrived at? Is something like this what the parties really wanted all along? The practice of foreign countries at 723 122
123
How many contracts do you think were affected by the oil crisis? 123
124
Nick Taleb’s Black Swan effects: tiny probability, high magnitude 124
125
Definition of Mistake: Restatement 151. A mistake is a belief that is not in accord with the facts 125
126
Definition of Mistake Restatement 151. A mistake is a belief that is not in accord with the facts I agree to sell you a chemical. The chemical may be legally sold at the time the contract is made, but before delivery it is made illegal. Mistake? 126
127
When is a mistake a mistake: Atlas 724 127 Atlas Corp. uranium “tailings” pile
128
When is a mistake a mistake Why is this in the Federal Circuit? 128
129
When is a mistake a mistake What was the “mistake”? 129
130
When is a mistake a mistake What was the “mistake”? That the health hazard was much greater than had been thought? That changes in the law mandate a costly clean-up? 130
131
When is a mistake a mistake What was the “mistake”? That the health hazard was much greater than had been thought Restatement § 151, comment b: Mistakes of fact include mistakes of law 131
132
When is a mistake a mistake What was the “mistake”? That the health hazard was much greater than had been thought A mistake is a mistaken belief about an existing fact: Alcoa, Restatement § 151 But there is no mistaken belief about a fact whose existence was not known. 132
133
When is a mistake a mistake What was the “mistake”? That the health hazard was much greater than had been thought Is this a sensible distinction, in terms of risk allocation? Which looks more like a mistake as to a basic assumption? 133
134
When is a mistake a mistake What was the “mistake”? Did the court get it right, in any event? 134
135
When is a mistake a mistake Qu. Impracticability under Restatement 264 “performance is made impracticable by having to comply with a domestic or foreign governmental regulation or order” 135
Similar presentations
© 2025 SlidePlayer.com. Inc.
All rights reserved.