TIEFER_CONTRACTSII_SPRING_2012
1. MISTAKE § 152 § 154
Class Overview
Examples for Car Sale
Were there “No-No’s”
6 Classes
Avoidance
Lenawee
(6) What performance is promised?
Paid Evidence
Interpretation
Written engine warranty
Oral Side assurances (includes transmission)
After they breach, how much does the other party get?
Remedies if the buyer breaches (now says don't want the used car)
Seller Resale, below market price.
(10) Specific Performance
Race driver—will court order
(4) If a parties work is flawed can the other cancel?
Conditions
Repudiation
If there is a rumor that the buyer is broke, can the seller reposes the car and say show me the money?
R.2d 152 When a Mistake of Both Parties Makes a K Voidable
A K is voidable by the adversely affected party if:
1. the mistake is a basic assumption on which the K was made, and
2. it has a material effect on the agreed exchange of performances
3. UNLESS he bears the risk of mistake
Beachcomber Coins, Inc. v. Boskett
Buyer (P) winner v. Seller (D)
Beachcomber is suing for a performed contract, a recession, to return to the status quo. Beachcomber wins because there was a mutual mistake of fact relating to a central.
The trail judge thought that the buyer bears the risk because it was the custom of the trade.
It is often customary for the purchaser to assume the risk, however the original sale price ($450) and the length of time for investigation (15-45 minutes), both had a mutual belief that the coin was genuine, there was no conscious doubt, therefore the contract is rescindable.
**Assumes the risk = to take it on, but only done when the parties are conscious of the doubtful fact.
Basic Assumption = a belief.
Voidable Test
R.2d 152
1. Mutual mistake of fact: basic assumption (foundational), material
R.2d 154
(152(1))—does the adversely affected party (alleged victim) bear the risk?
Voidable?
Beachcomber
It is a basic assumption that the coin is genuine (foundational)
Trade usage does not equal “As is”
Yes
Pickles v. Messerly
Yes, satisfied.
AAP bears the risk when (154(a)) “the risk is allocated to him by agreement of the parties”—“as-is” clause.
No
HYPO—No “as-is” clause
Mutual Mistake is still satisfied
Buyer does not bear risk under 154a
Yes
HYPO—Need a permit to put in a septic tank, buyer and seller assume they can, but actually cannot.
Mutual Mistake of Fact, Basic assumption, and material
A&M Land Development Co. v. Miller—Buyer bears the risk
No 154(c)—the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.
Palottine Fathers
Mutual Mistake
Caveat emptor (buyer beware) especially for business buyers (MD Case)
Buyer could have put in a warranty, the buyers lawyer wrote the K. (if you have a lawyer and they don't protect you—CE)
No
R.2d 154 When a Party Bears the Risk of a Mistake
A party bears the risk of mistake when (case by case basis)
(a) the risk is allocated to him by the agreement
(b) he is aware that he has limited knowledge with respect to the facts but treats his limited knowledge as sufficient, OR
(c) the ct finds it is reasonable to allocate the risk to him under the circumstances – the ct will usually allocate the risk to the person best able to bear it if neither party is at fault
“As is” clauses as risk allocations
1. should be truly bargained for – not boilerplate, buyer was aware of clause, and it was explicitly negotiated for
2. the mistake should be within the realm of “present condition” envisioned by the clause
3. can deal with the risk-loss provisions in the K by
Hill Sand & Gravel Co v. Palottine Fathers
Buyers P, wishes to avoid K v. Sellers D, Winner
Under R.2d 154, the buyer assumes the risk because he knows no more than the seller regarding the quality and the extent of the gravel and sand deposits on the land, it is a matter of opinion in which the buyer will take the risk. Further, the buyer should have included a clause making the agreement contingent on favorable tests of the land to be done in the future.
Lenawee County Board (Pickles) v. Messerly
P, Buyer, adversely affected party v. D, Sellers, winner
Pickles is stuck with a pile of shit on the property they purchased, but Messerly wins due to the “as-is” clause “agrees to accept same in its present condition”.
The nature of these assumptions is indicated by the fact that their invalidity change the character of the property transferred, thereby frustrating the intended use of the real estate sold. However the clause in the house sale stated “agrees to accept same in its present condition”, therefore this is an as-is clause, which assigns the buyer the assumption of risk, recession is not equitable even though the mistake of fact as to a basic assumption odes materially affect the agreed performances of the parties.
2. MISREPRESENTATION, § 162
§ 162. When a Misrepresentation Is Fraudulent or Material
(1) A misrepresentation is fraudulent if the maker intends his assertion to induce
a party to manifest his assent and the maker
(a) knows or believes that the assertion is not in accord with the facts, or
(b) does not have the confidence that he states or implies in the truth of the
assertion, or
(c) knows that he does not have the basis that he states or implies for the
assertion.
(2) A misrepresentation is material if it would be likely to induce a reasonable
person to manifest his assent, or if the maker knows that it would be likely to induce
the recipient to do so.
4 Elements in misrepresentation:
1. Is there is a misrepresentation?—Norton Case, Bar Question
2. Materiality, important?—continental
3. Did it induce (was it the actual cause)—Continental
4. Was there justified reliance? Gross—Bar Question.
Used Car From Dealer—NO NOs
You both believe the key part is available
Mistake—dealer and buyer did not know, no representations
Mutual Mistake
Dealer “Was never in a crash”
Key: SAYS SOMETHING—makes a representation
Misrepresentation
Seller knows in crash
Key: says NOTHING, only sometimes is there a duty to disclosure, in general there is no duty to disclose
Non-disclosure
Sells a car to a 6th grader—K says—miss 1 payment and lose car + house
Doesn't matter if this is signed, car loans do not become mortgages because people take advantage
Unconscionability
If there is a disclosure of warranty, dealer also sells a flawed car and is negligent in doing so?
Can you disclaim negligence?
Public Policy
Misrepresentation
Non-disclosure
Material
Y
Y
Induce
Y
Y
Justifiable reliance
Y
Y
SOMETHING SAID
SOMETHING NOT SAID
Norton v. Poplos (Innocent Misrepresen
related to a matter material to the risk or hazard taken, the doctor did not apply for the insurance in bad-faith.
12/62
Breaks Wrist
1/63
Applies for insurance
4/63
Wrist was cleared for duty
4 Elements
Continental
Not Actionable
Misrepresentation
Actively performing his duty when he applied—but he was not.
If ashore, w/o injury, just not needed
Material
Is it important? Nope.
Induced
Normally it is the cause.
If insurer will insure injured do-nothings
Justifiable Reliance
He is a doctor—he can be relied on to know what his own medical condition is
Insurer takes no precautions
3. NONDISCLOSURE; UNCONSCIONABILITY §161
§ 161. When Non-Disclosure Is Equivalent to an Assertion
A person's non-disclosure of a fact known to him is equivalent to an assertion
that the fact does not exist in the following cases only:
(a) where he knows that disclosure of the fact is necessary to prevent
some previous assertion from being a misrepresentation or from being
fraudulent or material.
(b) where he knows that disclosure of the fact would correct a mistake of
the other party as to a basic assumption on which that party is making the
contract and if non-disclosure of the fact amounts to a failure to act in good faith
and in accordance with reasonable standards of fair dealing.
(c) where he knows that disclosure of the fact would correct a mistake of
the other party as to the contents or effect of a writing, evidencing or embodying
an agreement in whole or in part.
(d) where the other person is entitled to know the fact because of a relation
of trust and confidence between them.
*No general duty to disclosure, then exceptions
Laidlaw v. Organ (pure non-disclosure, 1812-News) Law of MD
Seller, D, vendor, victim v. P, buyer, vendee, liar, winner
Issue: whether the sale was invalid because the vendee did not communicate information which he received precisely as the vender might have hot it had he been equally diligent or equally fortunate.
Facts: sale of tobacco, in New Orleans (to go out through the Mississippi) and the British are blockading as part of the War of 1812 (great battle of New Orleans), thus at the end of the blockade the value of the tobacco goes up 30-50 per cent.
Summary: Vendor asked vendee “whether there was any news calculated to enhance the price of the article”—vendee remained silent. The news resultantly would have changed the price of the tobacco from 30-50 per cent. The P did nothing special to gain the news, anymore than the vendor would have done and thus had no duty to respond as he was not pressed by the Vendor for such information, thus he waived the disclosure by not insisting on an answer to his question. There is no duty to disclosure even material knowledge, exceptions, but no general duty.
