I. DOCTRINE OF MISTAKE
GENERAL IDEA: A mistake creates a defect in the bargaining process, Ks are all about volition and free will, parties make a choice about whether to enter into agreement or not and we hold the parties to their choices – but of course the assumption is that the choice was an informed choice, a valid choice, if the choice was made on the basis of mistake then that choice was not a valid choice. A K is all about the free will of choice a K made based on a mistake is not a free will of choice & therefore we do not want Ks that were not based on free choice to be enforced.
· If we make it too difficult to get out of then people will be scared to enter into Ks that might contain mistakes.
· Mistake fits in with the avoidance doctrines.
o Duress à not entering into a K willfully because you did so under duress.
§ Same theory here, if a K was made under duress we do not enforce it because the K was not valid – so if you entered into a K that had a mistake the K should not be enforced because it was not valid choice.
o Unconscionability (Procedural) à if the choice was not informed and free choice than we presume that the K should not be upheld.
· Not the same thing as a misunderstanding, which is a matter of interpretation, the parties attach different meanings to the same language of the K.
· Mistake of fact also differs from mistake of expression – they understood the facts but the way it was written different was wrong.
o Mistake is not about language, it is about facts.
o The parties language may be entirely clear but the parties agreement is based upon an underlying error with respect to the facts
o HYPO: agree to buy property in Malibu and want to build a Club Med, you buy this property and a string of natural disasters make the property uninhabitable – not considered a mistake and therefore you cannot make rescind the K because mistake goes to the facts when the parties make the K not here something happened after the parties made the K.
MISTAKE OF FACT
A mistake is abelief that is not in accord with the facts at the time the parties made the K.
Equitable doctrine that can make a K voidable by 1 of the parties & can be the basis for rescission.
MUTUAL MISTAKE àBoth parties of the K make the same mistake: occurs when both parties share the same erroneous beliefs as the facts exist when the K is made.
· §152 When Mistake of Both Parties Makes a K Voidable:
o Where a mistake of both parties at the time a K was made as to a basic assumption on which the K was made has a material effect on the agreed exchange of performances, the K is voidable by the adversely affected party unless he bea
that the coin in question was genuine and authentic when they entered into the K.
o Holding: Negligent failure to recognize the mistake does not prevent you from voiding the K – does not preclude rescission, still considered a mutual mistake as both parties believed that the coin was genuine.
o As to caveat emptor – the buyer did not know there was a risk, assumption of the risk only applies if the parties should have known that there was a question of risk – both parties did not know that there was a risk, each party genuinely believed that the coin was genuine
o UCC does apply, however there is no mistake provision in the UCC and therefore the common law provisions still apply.
· CASE: Sherwood v. Walkerà when 2 parties enter into a K and later find that the K was based on a mutual mistake the K is a basis for rescission.
Facts: P contracted to buy a cow from D, both parties thought cow was barren. After the K is formed, D wants to rescind because they find out that the cow is with calf and thus is worth much more. P sues D for replevin (for the cow)