Jones_ContractsII_Spring2010
i. JUSTIFICATION FOR NONPERFORMANCE:
a. Mistake, Impossibility, Impracticability, Frustration of Purpose
b. In order of determining in an essay: 1.) Mistake; 2.) Impracticability; 3.) Impossibility; 4.) Frustration of Purpose –IN ORDER TO PROVE ANY OF THESE, MUST CONSIDER PAROL EVIDENCE RULE (Section 2)
c. MISTAKE: RS 151 –A Mistake is a belief that is not in accord with the facts, this also means that there could have been some change of circumstances after the contract was made
i. It is defined further as 1.) the erroneous belief, that existed at the time of the contract, of a material fact; 2.) its shared by either or both parties; 3.) whether either assumed a risk in doing so (if yes, no recission but assumes economic loss; if no, decide what is reasonable and just, which is generally whoever can absorb the damages)
ii. UNILATERAL MISTAKE –the mistaken belief of one party
1. IN ORDER TO SATISFY UNILATERAL MISTAKE: RS 153 – The mistake must be 1.) one as to a ***basic assumption*** on which the contract was made; 2.) it must have a material effect on the agreed exchange of performances; 3.) and the mistaken party must not bear the risk of the mistake. 4.) The contract must also be found unconscionable if the parties were to fulfill.
2. IMMEDIATE GROUNDS FOR UNILATERAL MISTAKE: If one party knew or had reason to know of this unilateral mistake, there would be immediate unconscionability
3. Courts generally do not like administering this, especially with basic assumptions because a person should be reading a contract and know its terms and conditions they are to perform before signing. HOWEVER – If the burden on the mistaken party is too much to bear while the nonmistaken party is returned to the status quo if the contract is rescinded, then it is likely a court will allow rescission. (aggrieved party bearing the risk of the mistake)
4. A good way of looking at this is asking: “What are the effects of rescission and completion for BOTH parties?”
5. Lewanee County Board of Health/Pickles v. Messerly –man signs contract with provision that says “Purchaser has examined property…agrees to accept in present condition…no additional understandings,” and discovers there is a sewage problem after signing. Court held that the Plaintiff got the property, and the idea that he was to get more than he bargained for was not considered unilateral mistake. Court said that by signing, he knew of the problem because it said he examined the property. No equity because the plaintiff has the property, turning a profit from it (plaintiff’s idea in buying the property) was not bargained for in the contract, just the property itself.
6. Wil-Fred’s v. Metropolitan Sanitary District
iii. MUTUAL MISTAKE –RS 152, the erroneous belief of both parties in terms of the contract and relief is appropriate because the mistake has such a material effect on the agreed exchange of performances that it upsets the very basis for the contract.
1. In order to find mutual mistake for the ADVERSELY AFFECTED PARTY, you must look at: 1.) on what the mistake was made, it must relate to a “***basic assumption*** on which the contract was made.” 2.) the mistake must have a material effect on the agreed exchange of performances and this is proven by the pleading party. 3.) the mistake must not be one as to which the party seeking relief bears the risk, (generally the adversely affected party).
a. BASIC ASSUMPTION: Something that is agreed upon by both parties that doesn’t really have much of a shot of changing. This is not to mean anything that would vary the contract, (market conditions, financial changes) is considered a basic assumption. This also does not mean what each party contemplated to be the assumption. ***This must be found in mistake, impracticability and impossibility!!!!!***
b. Mel Frank Tool v. Di-Chem –plaintiff assumed the basic assumption was that they could store hazardous chemicals in the storage space rented by defendant. This is not a basic assumption because the basic assumption is that the defendants are providing storage space only, not storage space for hazardous anything. (the storage of hazardous chemicals was only a contemplation of the defendant)
c. Boat Hypo
iv. DEFENSES TO MISTAKE –
1. You can either establish that the party requesting relief was the risk bearing party or conscious ignorance
a. RISK BEARING PARTY, RS 154 – A party bears the risk of a mistake when
i. the risk is allocated to him by agreement of the parties, or
ii. 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
iii. The risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.
b. Conscious Ignorance
i. RS 154 -Even though the mistaken party did not agree to bear the risk, he may have been aware when he made the contract that his knowledge with respect to the facts to which the mistake relates was limited. If he was not only so aware that his knowledge was limited but undertook to perform in the face of that awareness, he bears the risk of the mistake. It is sometimes said in such a situation that, in a sense, there was not mistake but “conscious ignorance.”
ii. Painting Hypo –estate sale is being held by the executor of the estate. Buyer comes to the sale and bargains for 1k for the paintings. Executor says, ‘that’s fine, I have no idea what those paintings cost, I just want them off my hands.’ She buys them for 1k, and then discovers they are worth millions of dollars. Executor sues for mistake, mutual and unilateral –she can win because he said that he was consciously ignorant (satisfying unilateral) and that they were BOTH consciously ignorant (satisfying mutual) of the price of the paintings
d. IMPRACTICABILITY
i. RS 261 – Where, after a contract is made, a party's performance is made impracticable without his fault by the occurrence of an event, the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary. Even though a party, in assuming a duty, has not qualified the language of his undertaking, a court may relieve him of that duty if performance has unexpectedly become impracticable as a result of
the language or circumstances indicate the contrary.
a. A party's performance may be as easily affected by impracticability existing at the time the contract was made, because of some fact of which he was ignorant, as by supervening impracticability, for example, a judicial decision is handed down after the time that the contract was made giving an unanticipated interpretation to a statute enacted before that time.
b. Steps for determining Impracticability due to existing conditions
i. STILL MUST PROVE IMPRACTICABILITY UNDER THE RULES
ii. First, under the rules stated in this Section, the affected party must have had no reason to know at the time the contract was made of the facts on which he later relies.
iii. Second, the effect of these rules is to prevent a duty from arising in the first place rather than to discharge a duty that has already arisen.
e. IMPOSSIBILITY
i. When performance is rendered impossible or when supervening circumstances make performance impracticable
ii. Not only strict impossibility but impracticability because of extreme and unreasonable difficulty, expense, injury and loss involved. It must be so severe that it most likely ruins one’s livelihood
iii. It is impracticability with the element that there is literally no way the performance of the basic assumptions can be rendered because of an intervening or superseding cause
iv. Mel Frank Tool v. Di-Chem –the defendant wanted to argue that they could not perform their rent contract because a government regulation disallowing the storage of hazardous chemicals made it impossible to perform their contract. Court did not find for this because their basic assumption was to rent for storage space, NOT the storage space of hazardous chemicals. The city ordinance has nothing to do with the basic assumption of the contract, which was rent for storage. (The storage of chemicals was actually a contemplation of the defendant, not a basic assumption)
f. FRUSTRATION OF PURPOSE
i. RS 264 265 Discharge by Supervening Frustration -Where, after a contract is made, a party's principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary.
