Contract Law: Formation Defenses & Misunderstanding
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Formation defenses in contract law are employed to:

  • modify the terms of an existing contract to reflect current market conditions.
  • invalidate a contract after it has been validly formed due to unforeseen circumstances.
  • ensure that all parties entering into a contract fully understand its implications and legal jargon.
  • determine if a contract is enforceable at the point of its creation, even when offer, acceptance, and consideration appear to exist. (correct)

In the context of contract law, when common law courts encounter situations involving misunderstanding or mistake, their primary objective is to:

  • apply pre-existing legal principles to achieve a just outcome without fundamentally altering established law. (correct)
  • prioritize the subjective intentions of the parties involved over the objective manifestations of their agreement.
  • establish entirely new legal principles to address the novel circumstances presented.
  • disregard traditional contract law principles in favor of equitable solutions tailored to each specific case.

Raffles v. Wichelhaus, a landmark case in contract law, is often cited to illustrate which concept?

  • The necessity of including explicit clauses in contracts to cover all possible contingencies.
  • The principle that a contract may be deemed unenforceable if there is a fundamental misunderstanding regarding a material term. (correct)
  • The rule that courts will always interpret ambiguous contract terms against the drafter.
  • The importance of clear and unambiguous language in contract formation to avoid disputes.

Section 20(1)(a) of the Restatement (Second) of Contracts addresses the legal effect of misunderstanding by stating that:

<p>there is no contract if the parties attach materially different meanings to their manifestations and neither party knows or has reason to know the meaning attached by the other. (B)</p> Signup and view all the answers

Nineteenth-century English case reports, exemplified by Raffles v. Wichelhaus, are distinct from modern legal opinions primarily because they:

<p>offer a summary of the arguments presented by counsel and the judges' immediate oral decision. (C)</p> Signup and view all the answers

In historical pleading practices, a 'demurrer' served a function most analogous to which modern legal procedure?

<p>a motion to dismiss under Rule 12(b)(6), asserting that the complaint fails to state a valid claim. (A)</p> Signup and view all the answers

The procedural context of Raffles v. Wichelhaus involved a 'demurrer', which in that era was a common method to:

<p>challenge the legal adequacy of the plaintiff's claim as presented in the pleadings. (B)</p> Signup and view all the answers

Besides misunderstanding and mistake, other 'formation defenses' such as duress and misrepresentation share a common purpose, which is to:

<p>argue against the enforceability of an apparent contract right from its formation. (A)</p> Signup and view all the answers

What was the Michigan Supreme Court's ultimate decision in Sherwood v. Walker regarding the sale of the cow 'Rose 2d of Aberlone'?

<p>The court reversed the lower court's decision, effectively allowing the Walkers to rescind the sale due to a mutual mistake. (B)</p> Signup and view all the answers

In Sherwood v. Walker, what remedy did the plaintiff, Sherwood, initially seek from the court?

<p>Replevin, to recover possession of the cow. (A)</p> Signup and view all the answers

What did the Walkers communicate in writing to Sherwood after their initial conversation regarding the sale?

<p>A confirmation letter and an order for the cow's delivery. (B)</p> Signup and view all the answers

Why did the Walkers refuse to deliver 'Rose 2d of Aberlone' to Sherwood after the sale agreement?

<p>They learned the cow was with calf, significantly increasing her value. (B)</p> Signup and view all the answers

At the time of the agreement, what belief did both Sherwood and the Walkers share about 'Rose 2d of Aberlone' that influenced the sale price?

<p>She was barren and unable to breed. (B)</p> Signup and view all the answers

What was the significance of the cow's weight (1,420 pounds) in the context of the Sherwood v. Walker case?

<p>It was used to calculate the final sale price based on the agreed-upon price per pound. (A)</p> Signup and view all the answers

How does R2d § 20, as noted in the introduction, relate to the Sherwood v. Walker case?

<p>It addresses situations where a misunderstanding occurs, and neither, both, or only one party is aware of it. (A)</p> Signup and view all the answers

What was the plaintiff's primary argument in Sherwood v. Walker?

<p>Title to the cow had passed to him, and he was entitled to possession. (C)</p> Signup and view all the answers

In Sherwood v. Walker, what evidence did the defendants present to support their claim that the contract should be voided?

<p>Evidence that both parties believed the cow was barren, which was a mutual mistake that went to the substance of the agreement. (B)</p> Signup and view all the answers

What specific instruction did the Walkers give to George Graham regarding the delivery of 'Rose 2d of Aberlone'?

<p>To refuse delivery of the cow to Sherwood. (D)</p> Signup and view all the answers

What phrase did the original text use, summarizing the parties' beliefs about the cow's reproductive capabilities at the time of sale?

<p>'Supposed to be barren as breeders' (C)</p> Signup and view all the answers

How did Sherwood initially contact the Walkers to begin negotiations for purchasing cattle?

<p>He visited their business in Walkerville after learning they were importers and breeders of polled Angus cattle. (C)</p> Signup and view all the answers

What specific action did Sherwood take to demonstrate his readiness to complete the purchase of 'Rose 2d of Aberlone'?

<p>He tendered $80 to Hiram Walker and demanded the cow. (D)</p> Signup and view all the answers

What role did George Graham play in the events of Sherwood v. Walker?

<p>He was an employee of the Walkers responsible for delivering the cow. (B)</p> Signup and view all the answers

What was the cost of Rose 2d of Aberlone and what would she have been worth if not barren?

<p>Cost $850, Worth $750-$1,000 (D)</p> Signup and view all the answers

In the context of business valuation, what is the most critical factor in determining the value of an asset like Rose the cow?

<p>The net present value of the stream of positive and negative cash flows the asset is expected to produce. (D)</p> Signup and view all the answers

What is the primary purpose of a warranty in a contract?

<p>To allocate risk between the parties by providing assurance about the condition of the subject matter. (D)</p> Signup and view all the answers

In the context of Sherwood v. Walker, what happens to warranties at the 'closing' of a contract if not otherwise specified?

<p>They terminate, unless the contract explicitly states that they survive. (B)</p> Signup and view all the answers

What was the significance of Hiram Walker building his distillery on the Canadian side of the Detroit River?

<p>He anticipated Prohibition in the United States. (C)</p> Signup and view all the answers

In the hypothetical 1890 case regarding the sale of a mine, what is the most relevant precedent based on the information provided?

<p>Sherwood v. Walker (B)</p> Signup and view all the answers

In Wood v. Boynton, what was the central issue that led the plaintiff to seek the return of the stone she sold?

<p>The plaintiff was unaware of the stone's true value at the time of sale. (A)</p> Signup and view all the answers

Considering the information about Rose the cow, which of the following would NOT be considered an operating cost when calculating her net present value as a business asset?

<p>Original purchase price of Rose (C)</p> Signup and view all the answers

How did Hiram Walker strategically use the law requiring alcoholic beverage manufacturers to label their product with their country of origin?

<p>He turned it into an advertising advantage by promoting the perceived superiority of 'Canadian Club' whiskey. (C)</p> Signup and view all the answers

In the context of the historical use of demurrers, what was the primary consequence of a case being dismissed 'with prejudice'?

<p>The plaintiff was barred from refiling the same claim. (D)</p> Signup and view all the answers

How did the practice of sustaining demurrers 'with leave to amend' change the legal landscape?

<p>It transformed the demurrer into a tool for delay rather than a means of avoiding the merits of a case. (C)</p> Signup and view all the answers

In the context of warranties, what is the implication if a contract for the sale of goods includes a warranty that survives the closing?

<p>The seller remains liable for breaches of the warranty even after the exchange of consideration. (A)</p> Signup and view all the answers

What is the function of a demurrer to the answer, as opposed to a demurrer to the complaint?

<p>It asserts that the defendant's response does not present a valid defense, entitling the plaintiff to the requested relief. (A)</p> Signup and view all the answers

In the hypothetical case of the mine sale, what is the critical issue that the court must address based on the provided 'Findings of Fact'?

<p>Whether the presence of <em>any</em> iron ore, regardless of commercial viability, fulfills the contract's requirements. (A)</p> Signup and view all the answers

In Raffles v. Wichelhaus, what was the central disagreement between the plaintiff and the defendant?

<p>The specific ship named 'Peerless' that was intended for the cotton's arrival. (C)</p> Signup and view all the answers

What general legal principle discussed can be applied to both Sherwood v. Walker and Wood v. Boynton?

<p>The requirement of mutual assent and understanding of the subject matter in contract formation. (B)</p> Signup and view all the answers

What argument did the plaintiff's counsel, Milward, make in support of the demurrer to the defendant's plea in Raffles v. Wichelhaus?

<p>The contract was for cotton arriving on a ship named 'Peerless,' and the specific ship was irrelevant as long as it bore that name. (A)</p> Signup and view all the answers

If a contract stipulates that a warranty survives the closing, and it is later discovered that the warranted condition was false at the time of the sale, what recourse does the buyer typically have?

<p>The buyer can seek damages from the seller for breach of warranty. (B)</p> Signup and view all the answers

What key factor must be accurately forecast to determine the value of assets like Rose; apartment buildings; copyright-protected song, or patented process?

<p>Revenues, their timing, operating costs, and the appropriate discount rate. (D)</p> Signup and view all the answers

Pollock, C.B.'s analogy of purchasing goods in warehouse A versus delivering them from warehouse B, suggests what about contract law?

<p>A contract is only valid if the exact terms, including location of goods, are strictly adhered to. (A)</p> Signup and view all the answers

In Raffles v. Wichelhaus, what was Mellish's (defendant's) argument for why the plea should be upheld?

<p>The existence of two ships named 'Peerless' created a latent ambiguity, allowing parol evidence to clarify the parties' intentions. (D)</p> Signup and view all the answers

What was the Michigan Supreme Court's decision on Sherwood v. Walker?

<p>There is no indication of which side the Courts sided with. (D)</p> Signup and view all the answers

What was Sherwood's occupation?

<p>Gentleman Farmer (A)</p> Signup and view all the answers

What legal principle did the defendant successfully invoke in Raffles v. Wichelhaus by arguing the existence of two ships named 'Peerless'?

<p>Lack of consensus ad idem, meaning there was no meeting of the minds. (A)</p> Signup and view all the answers

How does the ruling in Raffles v. Wichelhaus relate to the modern interpretation of contract law concerning ambiguity?

<p>It demonstrates that courts will consider extrinsic evidence to resolve ambiguities and determine the parties’ true intentions. (B)</p> Signup and view all the answers

Consider a scenario where a contract specifies delivery of goods 'ex SS Titan' but both parties had different ships with that name in mind. Applying the precedent set by Raffles v. Wichelhaus, what is the likely outcome?

<p>The court will likely find the contract unenforceable due to a lack of mutual understanding, provided that the differing intentions can be demonstrated. (B)</p> Signup and view all the answers

What is the most significant difference between the historical use of demurrers and the modern equivalent under FRCP 12(b)(6)?

<p>Demurrers could lead to dismissal with no chance to refile, while FRCP 12(b)(6) often allows for amended pleadings. (B)</p> Signup and view all the answers

If a modern attorney repeatedly files unsuccessful FRCP 12(b)(6) motions late in the legal process, what ethical concern might arise?

<p>Abuse of process for using legal procedures primarily to cause delay or harassment. (D)</p> Signup and view all the answers

In the context of contract law, what does 'consensus ad idem' fundamentally require for a valid agreement?

<p>A meeting of the minds, where both parties agree to the same thing in the same sense.. (A)</p> Signup and view all the answers

How might a modern court assess a claim similar to the one in Raffles v. Wichelhaus differently, considering the availability of broader discovery tools?

<p>The court would likely use discovery to investigate the pre-contractual communications and understanding of each party. (A)</p> Signup and view all the answers

What is the most accurate summary of the enduring lesson from Raffles v. Wichelhaus for contract drafters?

<p>Exercise extreme care in drafting contracts to avoid ambiguity and clearly define all material terms. (B)</p> Signup and view all the answers

What was the primary reason the plaintiff sought to reclaim the stone from Boynton?

<p>She learned the stone was a diamond and worth more than she sold it for. (C)</p> Signup and view all the answers

Under what circumstances can a vendor typically rescind a sale and regain title to the sold item?

<p>If the vendee is guilty of fraud in procuring the sale, or if there is a mistake in the identity of the item sold. (B)</p> Signup and view all the answers

Why did the court rule against the plaintiff's attempt to reclaim the stone?

<p>There was no evidence of fraud or mistake regarding the identity of the stone during the sale. (A)</p> Signup and view all the answers

What was Boynton's reaction when the plaintiff first offered to sell him the stone?

<p>He offered a small sum, stating he would keep it as a specimen, but she initially refused. (B)</p> Signup and view all the answers

What did the plaintiff claim she believed the stone to be before selling it?

<p>A topaz (D)</p> Signup and view all the answers

What is the significance of the evidence presented after the sale and purchase of the stone?

<p>It had very little, if any, bearing on the main point of the case. (B)</p> Signup and view all the answers

Consider a hypothetical where Boynton had paid $500 for the stone believing it was a diamond, but it turned out to be a topaz. According to the text, could Boynton have rescinded the sale based on mistake?

<p>No, because the text suggests that the sale could not be rescinded on the grounds of mistake alone. (C)</p> Signup and view all the answers

What was the plaintiff's primary legal argument for reclaiming the stone?

<p>Tendering the purchase money with interest and demanding the stone's return revested the title in her. (C)</p> Signup and view all the answers

What detail does the text provide about the stone's physical characteristics?

<p>It was about the size of a canary bird's egg, nearly straw color, and worn pointed at one end. (D)</p> Signup and view all the answers

According to Boynton's testimony, what was his state of knowledge regarding uncut diamonds at the time of the purchase?

<p>He had seen cut diamonds, but had never seen an uncut diamond and had no idea the stone was a diamond. (D)</p> Signup and view all the answers

What was the initial context in which Boynton encountered the stone?

<p>It was in a box with a pin and a broken sleeve-button when the plaintiff asked him to mend the pin. (A)</p> Signup and view all the answers

If the court had found evidence of fraud on Boynton's part, what would have been the likely outcome?

<p>The sale could have been rescinded, and the plaintiff would have regained title to the stone. (C)</p> Signup and view all the answers

What does the text imply about the importance of investigation prior to selling an item?

<p>Sellers bear the responsibility to investigate an item's value; failure to do so doesn't invalidate a sale if no fraud is involved. (B)</p> Signup and view all the answers

What action did the plaintiff take before starting the legal action?

<p>She tendered $1.10 to the defendants and demanded the return of the stone. (B)</p> Signup and view all the answers

Why is the concept of 'mistake as to the identity of the thing sold' important in this case?

<p>It relates to whether the seller and buyer understood they were dealing with the same object. (C)</p> Signup and view all the answers

In the case of a sale where the seller later discovers the item was far more valuable than the agreed-upon price, under what circumstances could the seller potentially rescind the sale, according to the provided text?

<p>If the seller can prove that the buyer falsely claimed to have information suggesting it was a valuable item, while knowing it was not. (C)</p> Signup and view all the answers

What is the primary factor that prevents a seller from rescinding a sale when the sold item is later found to be of much greater value?

<p>The absence of fraud or warranty in the original transaction. (B)</p> Signup and view all the answers

In the context of contracts, what does the choice between a fixed-price and a cost-plus contract primarily determine?

<p>The allocation of risk associated with unforeseen project costs. (D)</p> Signup and view all the answers

Why are courts generally unwilling to allow contractors to exit fixed-price contracts due to unforeseen difficulties or increased costs?

<p>Because it would undermine the agreed-upon terms and risk allocation of the contract. (B)</p> Signup and view all the answers

In the scenario involving the sale of apples (Problem 9-2), what factor is crucial in determining whether the contract could be voided due to mistake?

<p>Whether both parties believed the apples were of little value due to the siege. (B)</p> Signup and view all the answers

What is the underlying premise of modern mistake law regarding contracts?

<p>Parties typically do not intend to assume the risk of mutual factual mistakes that significantly alter the contract's core terms. (D)</p> Signup and view all the answers

In a situation where a contractor encounters unexpected difficulties while working under a fixed-price contract, what is the likely outcome regarding payment?

<p>The contractor must absorb the additional costs, as they assumed the risk. (C)</p> Signup and view all the answers

Referring to the apples scenario (Problem 9-2), which of the following analyses aligns with R2d §§ 152, 154 regarding mutual mistake?

<p>The contract is voidable by the seller because both parties shared a mistaken belief about a basic assumption on which the contract was made. (A)</p> Signup and view all the answers

In the context of contract law, what does 'risk allocation' refer to?

<p>The assignment of responsibility for potential gains or losses resulting from uncertain events. (C)</p> Signup and view all the answers

If, in the apples scenario (Problem 9-2), the government's offensive was a 'bold and totally unexpected' event after the contract was made, how would this likely affect a claim of mistake?

<p>It would weaken the claim of mistake, as the parties' beliefs at the time of contracting were accurate. (B)</p> Signup and view all the answers

Under UNIDROIT articles 3.4 and 3.5, relating to mistake, what would be the key consideration in the apples scenario (Problem 9-2)?

<p>Whether the mistake was of such a nature that it would be unreasonable to enforce the contract. (D)</p> Signup and view all the answers

Why might a contractor choose a cost-plus contract over a fixed-price contract?

<p>To avoid the risk of unforeseen cost increases. (B)</p> Signup and view all the answers

In the context of contract law and mistake, what does it mean for a party to 'assume the risk'?

<p>To be aware of a potential problem but proceed with the contract anyway. (B)</p> Signup and view all the answers

What is the typical effect of choosing a fixed-price contract over a cost-plus contract on the overall price charged for a service?

<p>Fixed-price contracts usually result in a higher overall price to account for potential risks. (A)</p> Signup and view all the answers

Which of the following best describes the role of courts when contracts do not explicitly allocate risks?

<p>Courts allocate the risk in a way they believe the parties would have intended had they considered it. (C)</p> Signup and view all the answers

Which contract type is generally preferred when a client has a strict budget constraint?

<p>Fixed-price contract, because it provides cost certainty. (A)</p> Signup and view all the answers

Why might a company developing a new weapons system for the government prefer a cost-plus contract over a fixed-price contract?

<p>To avoid the risk of incurring substantial losses due to unforeseen costs or technical challenges. (B)</p> Signup and view all the answers

What is a primary criticism of cost-plus contracts, especially in the context of government projects?

<p>They lack incentives for contractors to control costs, potentially leading to budget overruns. (B)</p> Signup and view all the answers

How do governments attempt to mitigate the disadvantages of cost-plus contracts?

<p>By developing variations that include incentives for meeting budget goals. (A)</p> Signup and view all the answers

What is 'shopping the bid,' and why is it generally frowned upon?

<p>When a customer discloses a bid from one contractor to another, seeking a lower offer; it's viewed as unethical. (B)</p> Signup and view all the answers

How has the development of Internet-based price comparisons affected consumers?

<p>It has lowered the cost and effort required for comparison shopping, benefiting consumers through increased competition and lower prices. (D)</p> Signup and view all the answers

What is a key advantage of a cost-plus contract regarding project modifications?

<p>It allows for straightforward adjustments to the project scope, with costs easily added as changes occur. (B)</p> Signup and view all the answers

Why does the Department of Defense often use cost-plus contracts for weapons systems procurement?

<p>To maintain flexibility in incorporating technological improvements as the project progresses. (D)</p> Signup and view all the answers

What is a significant risk that clients take when legal work is billed on an hourly basis?

<p>The risk that the matter will require more time than initially estimated, driving up the total cost. (C)</p> Signup and view all the answers

What is a primary concern about lawyers working on a fixed-fee basis?

<p>They may be less likely to thoroughly investigate and address all potential issues. (C)</p> Signup and view all the answers

How does pricing legal services like 'widgets' affect the legal profession?

<p>It creates an incentive to provide standardized, efficient services at a lower cost. (C)</p> Signup and view all the answers

In the ALCOA v. Essex case, what was the purpose of including a component in the pricing formula that increased in proportion to ALCOA's average hourly labor cost?

<p>To compensate ALCOA for increases in the cost of labor expended on the aluminum conversion process. (B)</p> Signup and view all the answers

In the ALCOA v. Essex case, what was the intended purpose of the "net income" component of the pricing formula?

<p>To compensate ALCOA for its capital investment, management, and overhead costs. (D)</p> Signup and view all the answers

In the context of government contracts, what is the primary purpose of requiring contracts to be awarded on the basis of sealed bids?

<p>To prevent or reduce favoritism and corruption in the contract awarding process. (C)</p> Signup and view all the answers

What is the main reason legal clients are increasingly pushing for fixed-fee arrangements instead of hourly billing?

<p>They want more predictable costs and to avoid the risk of escalating hourly charges. (D)</p> Signup and view all the answers

What is a key consideration courts balance when evaluating releases of personal injury claims?

<p>The desire to promote quick and economical dispute resolution versus protecting vulnerable individuals from exploitation. (B)</p> Signup and view all the answers

In the context of contract law, what does the term 'repeat players' typically refer to?

<p>Parties who have extensive experience and knowledge in a particular type of transaction. (A)</p> Signup and view all the answers

California Civil Code § 1542 alters the standard approach to general releases by stating what?

<p>A general release does not apply to unknown claims if knowledge of those claims would have materially affected the settlement. (B)</p> Signup and view all the answers

What is the typical legal outcome when a person signs a release believing their injury will heal, but it unexpectedly does not?

<p>The release is generally enforceable because the mistake concerns a future outcome, not a present fact. (C)</p> Signup and view all the answers

In Anderson Brothers Corp. v. O’Meara, what remedy did the appellee, O’Meara, initially seek from the court?

<p>Rescission of the sale of the dredge or, alternatively, damages. (C)</p> Signup and view all the answers

In Anderson Brothers Corp. v. O’Meara, what was the ultimate outcome regarding the rescission of the sale?

<p>The court denied rescission but awarded O’Meara damages. (D)</p> Signup and view all the answers

What specific purpose was the dredge in Anderson Brothers Corp. v. O’Meara designed to serve?

<p>To perform submarine trenching necessary for burying pipelines underwater. (C)</p> Signup and view all the answers

In Anderson Brothers Corp. v. O’Meara, why did Anderson Brothers Corporation decide to sell the dredge?

<p>Construction was not completed in time for the job it was intended for, and it was never used by the company. (C)</p> Signup and view all the answers

How did O’Meara become aware of the availability of the dredge in Anderson Brothers Corp. v. O’Meara?

<p>Through an advertisement in a magazine. (C)</p> Signup and view all the answers

In Anderson Brothers Corp. v. O’Meara, what specific characteristic did O'Meara seek in a dredge that influenced his decision to purchase it?

<p>A dredge capable of digging wide canals to provide access to offshore oil well sites. (B)</p> Signup and view all the answers

In Anderson Brothers Corp. v. O’Meara, who inspected the dredge on behalf of O’Meara before the purchase agreement was finalized?

<p>An employee of O'Meara named Kennedy who was familiar with engines but knew nothing about dredges. (D)</p> Signup and view all the answers

In Anderson Brothers Corp. v. O’Meara, what actions did O’Meara take after the dredge arrived at his warehouse in Louisiana?

<p>He executed a chattel mortgage in favor of Anderson Brothers and a promissory note. (C)</p> Signup and view all the answers

In Anderson Brothers Corp. v. O’Meara, the court’s decision to deny rescission but award damages suggests what?

<p>Anderson Brothers breached some warranty or made misrepresentations, but the breach was not substantial enough to warrant rescission.. (C)</p> Signup and view all the answers

What was a unique aspect of the dredge’s design in Anderson Brothers Corp. v. O’Meara?

<p>It was specifically designed to cut a narrow trench in areas with submerged rocks and logs. (C)</p> Signup and view all the answers

What was the significance of the testimony from the naval architect in Anderson Brothers Corp. v. O’Meara?

<p>It established the industry standard of designing dredges for specific purposes, and modifying them as needed (B)</p> Signup and view all the answers

What was the primary claim made by the appellee in their initial complaint against the appellant?

<p>Breaches of expressed and implied warranty and fraudulent representations regarding the dredge's capabilities. (D)</p> Signup and view all the answers

What was the appellant's assertion regarding the appellee's intended use of the dredge?

<p>The appellant believed the appellee intended to use the dredge within its designed capabilities for trenching. (A)</p> Signup and view all the answers

What was the key difference identified by the naval architect between a trenching dredge and a sweep dredge?

<p>A sweep dredge is meant for a wide channel, needing different design elements compared to a trenching dredge which is for narrow trenches. (C)</p> Signup and view all the answers

How did the district court initially rule regarding the issue of mutual mistake?

<p>The court concluded that the parties were mutually mistaken about the dredge's capabilities, entitling the plaintiff to damages. (C)</p> Signup and view all the answers

What was the appellant’s main argument against the district court's finding of mutual mistake?

<p>The appellee's mistake was unilateral, as the appellant knew the dredge's limitations. (B)</p> Signup and view all the answers

What specific remedy did the appellee seek in the lawsuit?

<p>Rescission of the contract and restitution of all money expended, or damages for breach of warranty and fraud. (A)</p> Signup and view all the answers

What did the district court determine regarding the appellee's request for rescission of the contract?

<p>The court denied rescission, but awarded damages based on mutual mistake. (B)</p> Signup and view all the answers

What action did the appellee take after the appellant rejected the offer to contribute to the modification costs?

<p>The appellee filed a lawsuit seeking damages and rescission of the contract. (B)</p> Signup and view all the answers

Which warranty did the appellant explicitly provide in the bill of sale?

<p>A warranty of title and freedom from encumbrances. (D)</p> Signup and view all the answers

How did the appellee's counsel initially attempt to resolve the dispute before filing the lawsuit?

<p>By proposing that the appellant contribute financially towards the cost of converting the dredge. (A)</p> Signup and view all the answers

What was the significance of the date on the bill of sale?

<p>It established the beginning of the warranty period. (C)</p> Signup and view all the answers

What was the total amount of damages the appellee initially sought in the lawsuit?

<p>An amount exceeding $29,000, representing payments made and expenses incurred. (B)</p> Signup and view all the answers

What role did Gier's assumption play in the events leading to the lawsuit?

<p>Gier's assumption led to a misunderstanding about the appellee's intended use of the dredge. (B)</p> Signup and view all the answers

How did the court address the unpaid balance on the note given for part of the purchase price?

<p>By cancelling the note and chattel mortgage, effectively forgiving the debt. (A)</p> Signup and view all the answers

What was the market value of the dredge on the date of sale, as determined by the district court?

<p>$24,000. (B)</p> Signup and view all the answers

In cases of unilateral mistake, what standard do courts typically apply when determining whether to void a contract?

<p>Unconscionability, demanding a high degree of unfairness to justify voiding the contract. (C)</p> Signup and view all the answers

What is the primary function of representations and warranties in a contract?

<p>To allocate potential risks and uncertainties between the parties involved. (B)</p> Signup and view all the answers

Which of the following best describes the legal remedy available to a party if a statement warranted in a contract proves to be false?

<p>The party can recover the cost to correct the untrue facts, the difference in value, or actual damages. (A)</p> Signup and view all the answers

If a statement in a contract is deemed a representation (not a warranty) and it turns out to be untrue, what legal recourse does the injured party have?

<p>They may rescind the contract, recover consideration paid, or pursue damages for breach or tort. (D)</p> Signup and view all the answers

In complex contracts like Asset Purchase Agreements, where are representations and warranties typically located?

<p>Consolidated in dedicated sections to clearly outline the factual assurances. (B)</p> Signup and view all the answers

What is the key difference between a representation and a warranty in contract law?

<p>Representations can give rise to tort claims like fraud, in addition to contract claims, unlike warranties. (B)</p> Signup and view all the answers

An insurance company uses a standard release form. Several courts are misinterpreting the release to exclude injuries unknown to the signer at the time of signing. What is the most effective strategy for the company to revise the release form and ensure it covers unknown injuries?

<p>Include a definition of 'release' that explicitly covers both known and unknown injuries, waiving all related claims. (C)</p> Signup and view all the answers

Why might a court be hesitant to enforce a general release that broadly covers 'all known and unknown injuries'?

<p>Because of concerns that the releasor did not understand they were waiving rights to future claims. (A)</p> Signup and view all the answers

Which revision to a standard release ('Releasor releases all claims') would most likely ensure the release covers injuries unknown at the time of signing?

<p>Explicitly stating that the release includes claims 'whether now known or unknown, suspected or unsuspected'. (D)</p> Signup and view all the answers

In the ALCOA case, the court sided with ALCOA, partially referencing Sherwood v. Walker. What was the primary reason for the court's decision?

<p>The court determined that the faulty formula was a mistake regarding a present fact, not a future event. (B)</p> Signup and view all the answers

Imagine you're redrafting a release form. Which of the following additions would most effectively clarify the intent to release claims for unknown injuries?

<p>Adding language that the release applies even if the releasor later discovers facts different from what they now believe. (B)</p> Signup and view all the answers

What was Essex's argument against ALCOA's claim of mutual mistake in the contract?

<p>The mistake was about a future event (the formula working), not a present fact, and thus not grounds for relief. (D)</p> Signup and view all the answers

Why did the court reject Essex's argument that ALCOA assumed the risk by not including a provision to limit losses?

<p>The court believed that the risk seemed too small to ALCOA, making a specific provision unnecessary in their view. (D)</p> Signup and view all the answers

How did the 1973 oil embargo impact the ALCOA and Essex contract?

<p>It caused electricity prices to rise dramatically, increasing ALCOA's production costs beyond what the pricing formula accounted for. (D)</p> Signup and view all the answers

In the Jaynes v. Louisville & Nashville Railroad case, what legal principle guides the court's consideration of Clinchfield's motion for summary judgment?

<p>The validity of a release attacked in a FELA case is governed by federal law, which recognizes mutual mistake as a ground for voiding a release. (A)</p> Signup and view all the answers

According to the Jaynes v. Louisville & Nashville Railroad case, what constitutes a sufficient condition to avoid a release?

<p>A mutual mistake by both parties regarding the nature of the injury. (A)</p> Signup and view all the answers

What key factor did the court consider when determining whether there was a genuine issue of material fact regarding mutual mistake in Jaynes v. Louisville & Nashville Railroad?

<p>Whether both Mr. Jaynes and Clinchfield's claim-agent mistakenly assumed that the plaintiff had suffered no serious or permanent injury. (A)</p> Signup and view all the answers

What inference does the court draw from the modest settlement amount in Jaynes v. Louisville & Nashville Railroad?

<p>It supports the conclusion that both parties believed the injury was minor and not likely to result in long-term complications. (D)</p> Signup and view all the answers

In the ALCOA case, what was ALCOA's primary motivation for entering into the contract with Essex?

<p>To guarantee a profitable outcome through Mr. Greenspan's pricing formula. (A)</p> Signup and view all the answers

In contrast to ALCOA's motivation, what was Essex's primary incentive for entering into the agreement?

<p>To ensure a reliable source of aluminum for its wire manufacturing business. (B)</p> Signup and view all the answers

In Jaynes v. Louisville & Nashville Railroad, what specific evidence suggested that Mr. Jaynes and Clinchfield's claim-agent assumed Mr. Jaynes had suffered no serious or permanent injury?

<p>Clinchfield's physician had released Mr. Jaynes to return to work only 10 days before the release was signed. (A)</p> Signup and view all the answers

Which event does the text suggest had a significant impact on contract law, potentially producing more cases than any other single event?

<p>The 1973 oil embargo. (D)</p> Signup and view all the answers

In the ALCOA case, Essex began selling some aluminum for profit rather than using it to make wire. What was the primary reason they were able to do this?

<p>Aluminum prices rose dramatically due to increased electricity prices, creating a financial incentive for Essex to sell the raw material. (A)</p> Signup and view all the answers

What does the court's citation of Sherwood v. Walker in the ALCOA case suggest about the nature of the mistake?

<p>The mistake fundamentally altered the substance of the agreement, making it essentially a different contract than intended. (B)</p> Signup and view all the answers

What was Mr. Greenspan's role in the ALCOA contract?

<p>He developed the pricing formula intended to ensure profitability for ALCOA. (A)</p> Signup and view all the answers

Which of the following best describes the central legal issue in the case regarding the sale of the cow?

<p>Whether a mutual mistake about a fundamental characteristic of the cow (fertility) invalidated the sale agreement. (A)</p> Signup and view all the answers

According to the majority opinion, what is the critical difference that determines whether a mistake invalidates a contract?

<p>Whether the mistake is about a quality of the item, rather than the substance of the contract. (D)</p> Signup and view all the answers

Why did the dissenting judge, Sherwood, disagree with the majority opinion?

<p>He argued that the cow's unexpected fertility was simply a lucky find for the buyer, not a basis to void the contract. (C)</p> Signup and view all the answers

In the context of contract law, what does the term 'rescind' mean, as it is used in the majority opinion?

<p>To cancel or revoke the contract, returning both parties to their original positions. (A)</p> Signup and view all the answers

What analogy does the majority opinion use to highlight the difference between a barren cow and a breeding cow?

<p>The difference between an ox and a cow capable of breeding and giving milk. (D)</p> Signup and view all the answers

How does the case of Rose 2d of Aberlone illustrate the concept of business valuation?

<p>It shows how an asset's value is directly tied to its ability to generate future income. (B)</p> Signup and view all the answers

What would happen if the mutual mistake related to whether the cow was with calf or not for just one season?

<p>It might still be a good sale. (D)</p> Signup and view all the answers

What key assumption did both parties make that influenced the sale agreement, according to the majority opinion?

<p>The cow was incapable of breeding. (A)</p> Signup and view all the answers

What principle of contract law does the majority opinion invoke when discussing the buyer's right to refuse or avoid a contract?

<p>The right to refuse based on mistake of a material fact. (A)</p> Signup and view all the answers

In the context of the case, what is the significance of the cow being 'the identical animal' they thought she was?

<p>It highlights that the mistake was not about the cow's physical identity, but about her inherent capabilities. (A)</p> Signup and view all the answers

If the court had found that the mistake was only about some quality or accident, then what would happen to the contract?

<p>The contract would remain binding. (B)</p> Signup and view all the answers

What is the 'dividing line' that the judge mentions is not easily discerned?

<p>The distinction between mistakes that affect the substance of the contract versus mere qualities. (D)</p> Signup and view all the answers

Referencing Kennedy v. Panama, etc., Mail Co., what key consideration determines if a mistake or misapprehension voids a contract?

<p>Whether the mistake affects the core substance of the agreement or only a material point. (C)</p> Signup and view all the answers

How does the text apply the principle that 'where a horse is bought under the belief that he is sound...the purchaser must stand by his bargain'?

<p>It contrasts this situation with the cow case, where the mistake went 'to the whole substance of the agreement'. (C)</p> Signup and view all the answers

What specific instruction did the court NOT give the jury in the original trial, which the appellate court found to be an error?

<p>To decide if the cow was sold based on a mutual understanding that she was barren and to rule in favor of the defendants if that understanding was incorrect. (A)</p> Signup and view all the answers

In the context of contract law, what is a key factor considered by Texas courts when unilateral mistake is asserted as grounds for relief?

<p>The diligence exercised by the mistaken party in connection with the transaction. (A)</p> Signup and view all the answers

According to the passage, a court of equity may not grant relief for a mistake when:

<p>The party seeking relief failed to exercise due diligence to gain knowledge of the facts. (C)</p> Signup and view all the answers

In this case, the appellee's claim for relief from the sale was weakened by the fact that:

<p>The appellee sent an unqualified employee to inspect the dredge before purchase. (D)</p> Signup and view all the answers

In the context of the passage, what is the significance of the appellee's failure to inquire about the appellant's past or intended use of the dredge?

<p>It indicates a lack of due diligence in ascertaining the dredge's suitability for the appellee's purpose. (D)</p> Signup and view all the answers

The court suggests that if the appellee had taken certain actions prior to purchasing the dredge, he might have:

<p>Discovered the dredge's limitations or had grounds for a misrepresentation claim. (D)</p> Signup and view all the answers

According to the passage and the R2d, what condition must exist for a unilateral mistake to render a contract voidable?

<p>Enforcement of the contract would be unconscionable, and the other party had reason to know of the mistake or is responsible for it. (A)</p> Signup and view all the answers

What does the Restatement (Second) of Contracts suggest about the severity of imbalance required to void a contract due to mutual mistake?

<p>The imbalance must be so severe that it would be unfair to require the mistaken party to perform. (D)</p> Signup and view all the answers

What does the passage mean when it uses the term "unconscionable" in the context of contract law?

<p>A contract that is so unfair or one-sided that no reasonable person would agree to it. (B)</p> Signup and view all the answers

According to the definition attributed to Hume v. United States, what characterizes an unconscionable bargain?

<p>A bargain that no sensible, undeluded person would make, and no honest, fair person would accept. (A)</p> Signup and view all the answers

The passage highlights the concept of 'due diligence' in contract law. What does 'due diligence' generally entail for a potential buyer?

<p>A reasonable effort to gather information and assess the suitability of a purchase. (C)</p> Signup and view all the answers

The court's decision to reverse and remand the case suggests that the appellate court:

<p>Disagreed with the trial court’s application of legal principles to the facts. (D)</p> Signup and view all the answers

In situations involving mistake in contract law, what general principle does the passage emphasize regarding a party's responsibility?

<p>Parties have a responsibility to exercise reasonable care and diligence to protect their own interests. (C)</p> Signup and view all the answers

What is the most accurate definition of "material effect" on the agreed exchange of performances?

<p>An imbalance so severe that the disadvantaged party cannot fairly be required to carry out the contract. (C)</p> Signup and view all the answers

Based on the details in the notes and questions section, which of the following scenarios is most likely to result in a voidable contract due to mistake?

<p>Both parties believe a service is valued at $150,000, but it is actually only worth $110,000. (D)</p> Signup and view all the answers

In contract law, what is the relationship between 'unconscionability' and a party's failure to exercise due diligence?

<p>A party's failure to exercise due diligence may weaken their claim that a contract is unconscionable. (D)</p> Signup and view all the answers

Flashcards

Formation Defenses

Defenses used to avoid contract enforcement even with offer, acceptance, and consideration.

Misunderstanding

A defense arguing parties entered a contract based on different understandings.

Mistake (in Contract Law)

A defense claiming a contract was based on an incorrect belief.

Raffles v. Wichelhaus

Case example where misunderstanding arose from ships with the same name.

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Demurrer

Legal argument that a complaint doesn't state a valid cause of action.

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Rule 12(b)(6) Motion

Modern equivalent of a demurrer, challenging the legal sufficiency of a complaint.

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Misrepresentation

A defense claiming a false statement induced someone to enter a contract

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Duress

A defense arguing a contract was entered under coercion or threat.

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Demurrer to the answer

A pleading stating the answer does not present a valid defense.

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Dismissed with prejudice

Dismissal where the case cannot be re-filed.

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Sustained with leave to amend

Dismissal allowing the plaintiff to re-file with corrections.

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Demurrer as a delaying tactic

Delaying or harassing the opponent.

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Consensus ad idem

Meeting of the minds; mutual understanding.

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Latent ambiguity

An ambiguity that arises when applying a general term to specific facts.

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Parol evidence

Evidence outside the written agreement.

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Raffles v. Wichelhaus core issue

When two parties unknowingly refer to two different things with the same name.

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Raffles v. Wichelhaus outcome

The court found the contract unenforceable due to a lack of mutual understanding.

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Raffles v. Wichelhaus contract term

The agreement stated the cotton was to arrive on the ship 'Peerless'.

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Defendant's argument in Raffles v. Wichelhaus

The defendant argued they intended the 'Peerless' sailing in October.

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Contract Formation Principle

Contract exists only if both parties agree to the same terms and understand them in the same way.

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Material Term in Contract

The specific source or location of goods can be a material term of the contract.

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Exception to Parol Evidence Rule

Rule where extrinsic evidence can be admitted to clarify ambiguities in a contract.

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Replevin

An action to recover personal property wrongfully taken or detained.

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Executory Contract

A contract where some future act must occur before it is fully executed.

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Plaintiff

The party initiating legal action.

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Defendant

The party against whom a claim or charge is brought in a court.

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Holding

The court's ultimate determination or ruling based on the issues presented.

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Misunderstanding Doctrine

A situation where parties have different understandings of a contract term.

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R2d § 20

The modern interpretation that applies when neither, both, or one party is aware of the misunderstanding.

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Mistake of Fact

A belief that is not in accord with the facts.

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Rescind

To cancel or void a contract.

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Rose 2d of Aberlone

The cow at the center of the Sherwood v. Walker case.

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Price per pound, live weight

The agreed price per unit of weight.

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Shrinkage

A deduction from the gross weight, accounting for loss during transit.

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Warranty of Title

The seller's implication that they have clear title to the goods and can legally sell them.

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Title Passed

Transfer of ownership of property from one person to another.

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Writ of Replevin

The legal process of taking possession of goods or property, after winning in court.

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Asset Valuation

The worth of an asset, determined by forecasting cash flows and discounting them to present value.

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Warranty

A statement of fact regarding the condition of the item under contract.

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Purpose of Warranties

Allocates risk by guaranteeing the state of the thing at the time of sale.

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Closing

The point when consideration is exchanged and ownership transfers.

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Warranty Termination

Unless specified, warranties end when the deal closes.

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Sherwood v. Walker

The Michigan Supreme Court case about the sale of a cow named Rose.

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Finding of Fact # 1

A mine does contain iron ore, but it does not contain sufficient ore to be commercially viable

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Finding of Fact # 2

Because the mine does contain iron ore, it is NOT different in substance from what the parties bargained for.

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Finding of Fact # 3

Both parties bargained for a mine that contained sufficient commercial grade iron ore to make the mine worth the contract price.

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Finding of Fact # 4

The buyer would not have entered into the contract if it had known the true facts

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Wood v. Boynton

Supreme Court of Wisconsin case about the sale of an uncut diamond.

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Mistake of Value

Ignorance of the true value of an item at the time of sale.

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Meeting of the Minds

Disagreement in contract law where parties have differing beliefs.

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Ethical Disclosure

A party can't enforce a deal it got through deception..

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Fairness in sale

The exchange must be fair for both sides.

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Mistake of Material Fact

Apparent consent to a contract can be refused or avoided if based on a mistake of material fact.

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Substance vs. Quality

A contract is void if there's a fundamental difference in the substance of what's bargained for.

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Mistake's Impact

A mistake fundamentally changes the nature of the agreement, affecting the core of the matter.

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Unwarrantied Condition

If parties believe a horse is sound, but it isn't, the buyer pays unless there's a warranty.

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Rose of Aberlone: Core Issue

The court thought the cow was, in essence, not what they bargained for.

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Barren vs. Breeding

A barren cow is essentially a different entity than a breeding cow.

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Breeding Ability

Mutual mistake about breeding ability changes the substance of the deal.

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Right to Rescind

The court ruled to allow the seller to rescind the agreement concerning the cow.

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Dissenting View

Dissenting judge believed the buyer simply made a better guess.

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Superior Knowledge

One party's superior knowledge doesn't nullify a contract.

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Business Valuation

Difference between liquidation value and income-generating value.

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Net Present Value

The present value of future income defines economic worth.

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Rose's Value Jump

Rose's value jumped due to her breeding potential.

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Conformity to description principle

The principle that a seller must deliver goods that conform to the contract's description.

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False assumption contract invalidation

A deal can be voided if an assumption the contract was made upon is fundamentally false.

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Unilateral Mistake & Sales

Selling an item without knowing its true value doesn't automatically allow you to cancel the sale later.

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Fraud in Sales

A reason to cancel a sale where the buyer used deception to get a better deal.

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Mistake of Identity

Canceling a sale can happen if the seller delivers the wrong item by mistake.

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Mutual Ignorance in Sales

When both the buyer and seller don't know what the item truly is.

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Tender of Purchase Price

Returning the money received (plus interest) for an item.

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Rescission of Sale

To officially cancel or undo an agreement.

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Title (Ownership)

The legal ownership of something.

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Vendor

The person who is selling something.

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Vendee

The person who is buying something.

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Fraud

Dishonest actions intended to deceive someone.

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Intrinsic Value

Worth or merit.

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Expert

A term for an expert.

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Original Agreement

The original agreement.

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Delivery

Transfer of the physical item being sold.

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Examination

Examine carefully.

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Rescission Conditions

The seller cannot rescind a sale just because the item sold turned out to be more valuable than initially thought, absent warranty or fraud.

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Value Discovery

Value assessment open to both parties doesn't automatically imply fraud if the item's true worth later exceeds the selling price.

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No Fraud, No Rescission

Without fraud or warranty, the value of the sold property compared to price isn't grounds for rescinding a sale.

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Mutual Mistake

A defense where both parties share a mistaken belief about a fundamental aspect of the contract.

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Sherwood v. Walker Analysis

Mistake analysis under Sherwood focuses on whether the mistake fundamentally alters the nature of what was sold.

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R2d Mistake Analysis

R2d §§ 152, 154 considers the mistake's effect on performance and who bears the associated risk.

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UNIDROIT Mistake Analysis

UNIDROIT articles 3.4 and 3.5 focus on 'reasonableness' and the party in error's due diligence regarding mistakes.

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Contract Function

Contracts are tools for planning and allocating risks between parties.

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Mistake Risk Assumption

Modern law assumes parties don't intend to bear risks of mutual mistakes that drastically change the deal.

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Fixed-Price Contract

A contract where the price is set regardless of the seller's actual costs.

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Cost-Plus Contract

A contract where the buyer pays the seller's costs plus an additional amount for overhead/profit.

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Risk in Fixed-Price

Fixed-price contracts shift the risk of increased costs to the contractor.

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Risk in Cost-Plus

Cost-plus contracts shift the risk of increased costs to the person employing the contractor.

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Fixed-Price Enforcement

Courts are reluctant to excuse fixed-price contractors based on mistake.

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Pricing and Risk

Contractors usually charge more for fixed-price contracts due to assumed risk.

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Risk Allocation

Transferring financial responsibility to the party best equipped to handle potential losses.

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Fixed-Price Incentives

Contracts provide a strong motivation effect for contractors to manage expenses effectively.

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Shopping the Bid

Act of revealing a bid to other potential contractors to get a lower price.

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Flexibility in Cost-Plus Contracts

The ability to easily incorporate changes or modifications during the project.

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Hourly Billing

Legal billing arrangement based on hourly charges.

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Fixed-Fee Legal Work

Legal billing arrangement where a lawyer charges a set amount for a defined task, no matter how long or short it takes.

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Wholesale Price Index (WPI)

Index that measures changes in prices that businesses pay for goods.

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Consumer Price Index (CPI)

Index that measures changes in prices consumers pay for goods.

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Price Escalation Clause

Contract price adjustment formula based on labor costs and wholesale prices.

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Competitive Bidding

Competition among potential providers with the goal of securing the most favorable price.

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Sealed Bids

Submitting confidential bids in a formal process where bids are opened simultaneously.

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Government Contract Regulations

Awards government contracts on the basis of sealed bids to prevent favoritism and corruption.

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Cost Plus Allows Improved Tech

Cost plus contracts allow the customer the ability to improve the technology as the project develops

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ALCOA v. Essex

ALCOA suffered losses due to rising electricity costs not covered by Greenspan's formula.

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Essex's Windfall

Essex profited by selling excess aluminum due to unexpectedly high aluminum prices.

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ALCOA's Mutual Mistake Claim

ALCOA claimed the contract was based on a mutual mistake regarding the viability of Greenspan's formula.

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Court's View of the Mistake

The court sided with ALCOA, viewing the flawed formula as a mistake of present fact.

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Mistake Regarding Future Events

A defense is not viable if the mistake concerns future events, not present facts.

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Assumption of Risk (ALCOA)

The court rejected Essex's argument that ALCOA assumed the risk of the formula failing.

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Summary Judgment

Summary judgment is inappropriate when genuine factual issues exist.

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Release (Legal)

An agreement to release a party from a claim.

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Avoiding a Release

The plaintiff sought to avoid a release, claiming a mutual mistake about the extent of his injury.

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Mutual Mistake and Releases

Mutual mistake regarding the nature of the injury can void a release, but not merely the expected healing process.

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FELA Releases & Federal Law

Federal law governs the validity of releases in FELA cases.

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Voiding a Release (FELA)

A release can be voided if there was a mutual mistake, according to federal law.

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Key Issue: Mutual Mistake

The case hinges on whether there's sufficient evidence of mutual mistake.

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Viewing Facts (Summary Judgment)

In deciding summary judgment, facts are viewed favorably to the non-moving party.

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Modest Settlement Inference

A modest settlement suggests the parties didn't understand the full extent of the injury.

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Bill of Sale

A formal document transferring ownership of property.

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Chattel Mortgage

A loan secured by personal property.

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Sweep Dredging

Dredging a wide channel.

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Trench Dredging

Dredging a narrow cut.

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Tender of Return

Returning property to the seller and demanding a refund.

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Rescission (of contract)

Canceling a contract and restoring parties to their original positions.

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Damages

Compensation for losses resulting from a breach or mistake.

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Restitution

Restoring the injured party to the position they were in before the contract.

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Counterclaim

A claim made by a defendant to offset the plaintiff's claim.

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Unilateral Mistake

Mistake by only one party to a contract

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Mistake with Knowledge

One party knows the other is mistaken.

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Voidable Contract

Makes the contract unenforceable by the mistaken party.

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Quasi-Contract

Obligations which, despite there not being a contract, the courts will enforce.

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Assumption of Risk

The act of voluntarily accepting a known risk.

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Mistake Defense

A legal argument used to invalidate a contract, claiming a misunderstanding of facts.

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Policy Favoring Releases

The principle of favoring quick and cost-effective dispute resolutions.

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Protecting Injured Parties

Protecting vulnerable individuals from exploitation in legal agreements.

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Repeat Players

Parties with extensive experience and knowledge in similar transactions.

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California Civil Code § 1542

A California law invalidating releases for unknown claims that would have significantly affected settlement.

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Mistake of Present Fact

Erroneous belief about facts as they exist at the time of contract formation.

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Mistake of Future Fact

An incorrect belief about events that may occur in the future.

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Rescission

Cancelling a contract and returning parties to their pre-contractual positions.

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Specially Designed

Suitable or adaptable for a specific purpose or requirement.

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Promissory Note

A written promise to pay a specific amount of money.

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Mistake (Unilateral)

An incorrect belief about a fact at the time of contracting.

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Unilateral Mistake Standard

The party trying to void the contract because of a mistake must prove a high standard of unfairness.

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Representations and Warranties

Statements of fact from one party to another about the contract's subject.

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Scope of Representations/Warranties

Statements relating to the character, quality, condition, title, or rights in the subject matter of a contract.

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Warranty vs. Opinion

Expressions of opinion do not create a warranty, only statements of fact do.

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Remedy for Breach of Warranty

Recover the cost to fix it, the value difference or actual damages.

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Remedy for Untrue Representation

Cancel the contract and get money back or continue and sue.

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Contract Representation Sections

Special sections in contracts that collect and express representations and warranties.

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Standard-Form Release

Release signs away known and unknown claims resulting from an incident, according to the insurance company.

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Rewriting the Release

Rewriting can make it more likely that courts will interpret it to release claims for injuries not known when the release is signed.

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Unconscionable Mistake

A defense where one party's mistake is so significant that enforcing the contract would be unfair.

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Due Diligence

The level of care a reasonable person would exercise in a similar situation; relevant when claiming unilateral mistake.

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Lack of Due Diligence

Failing to use available resources to discover facts before entering an agreement.

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Material Effect of Mistake

The R2d requires a 'material effect' for a mutual mistake to make a contract voidable.

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Imbalance in Exchange

A change in the agreed-upon exchange that is so drastic that it would be unfair to require performance.

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Opportunity to Gain Knowledge

When a party, before contracting, has the chance to learn facts but doesn't, they may not get relief for mistake.

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Inspection Before Purchase

Inspecting goods before purchase, to determine their condition and suitability.

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Relief Against Mistake

Court returns the parties to their original positions before the contract.

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Reversed and Remanded

Legal proceedings in a lower court are sent to a higher court for review.

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Unconscionable Bargain

A contract that is extremely unfair or harsh to one of the parties.

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Acting on Assumption

One party's actions can prevent them from seeking relief if they didn't try to find out about the facts.

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Study Notes

Formation Defenses: Misunderstanding & Mistake

  • Formation defenses are invoked even when offer, acceptance, and consideration are present, seeking to avoid enforcement of a contract.
  • Other formation defenses include Misrepresentation, Duress, and Unconscionability.

Common Law Approach

  • Common law attempted to resolve contract disputes stemming from misunderstanding or mistake by applying existing principles.
  • Courts aimed to achieve a just result without creating new laws.

Raffles v. Wichelhaus

  • This case established that if parties are discussing different things, no offer and acceptance occurs.
  • Preserved today in R2d § 20(1)(a), concerning the effect of misunderstanding.

Demurrer

  • A procedural tool similar to modern Federal Rule of Civil Procedure 12(b)(6), used to dismiss complaints lacking a cause of action.
  • Demurrers were common due to rigid pleading practices, requiring every case element to be correctly stated.
  • Initially, dismissal via demurrer meant the case could not be refiled.
  • Later, demurrers were "with leave to amend," allowing plaintiffs to file a corrected complaint.
  • Demurrers could be used for delay by defense lawyers.
  • A demurrer to the answer argues that the answer doesn't state a valid defense.

Raffles v. Wichelhaus Case Facts

  • Involved a contract for the sale of Surat cotton "to arrive ex 'Peerless' from Bombay."
  • Defendant meant a ship sailing in October; plaintiff offered cotton from a ship sailing in December.
  • The court held for the defendant, implying no agreement due to the misunderstanding.

Plaintiff's Argument

  • The specific ship was immaterial as long as it was named "Peerless."
  • "To arrive ex 'Peerless'" only meant the contract ended if the vessel was lost.

Defendant's Argument

  • The existence of two ships named "Peerless" created ambiguity.
  • Parol evidence could show the defendant meant one ship and the plaintiff another.
  • Resulted in no consensus ad idem (meeting of the minds), thus no contract.

R2d § 20

  • Captures the modern doctrine of misunderstanding: addressing situations where neither, both, or only one party is aware of the misunderstanding.

Sherwood v. Walker Case Facts

  • Relates to the sale of "Rose 2d of Aberlone," a cow believed to be barren.
  • After the sale agreement, it was discovered the cow was pregnant.
  • The seller (Walker) refused to deliver, claiming the belief in the cow's barrenness was a mutual mistake.

Court Ruling

  • The court reversed the lower court's decision, holding that the mistake went to the whole substance of the agreement.

Key Reasoning

  • If the cow was a breeder, she was worth significantly more than if barren.
  • The parties contracted based on the understanding she was incapable of breeding.
  • The mistake wasn't about a mere quality but the very nature of the thing.

Dissenting Opinion

  • The buyer was more correct about the cow's breeding capability, a fact unknowable at contract time.
  • No law justifies annulling the contract.

Valuation

  • Rose's value differential ($80 as "beef creature" vs. $750 as breeder) reflects the net present value of income generation over her life.
  • Business assets generate cash flows; when discounted, their net present value determines their value.
  • Valuation requires accurate forecasts of revenues, costs, and discount rates.

Warranty

  • A warranty is a statement of fact about the subject matter of a contract.
  • It allocates risk between parties and acts as a guarantee.
  • Breach of warranty allows the benefiting party to seek damages.
  • Warranties may terminate at closing unless specified otherwise.

Sherwood v. Walker Aftermath

  • On remand, a circuit court jury sided with Sherwood, and Walker lost Rose.
  • She had five additional calves.

Problem 9-1 (Mine Sale)

  • Analyzing a hypothetical case about a mine sale under the precedent of Sherwood v. Walker.
  • Key finding of fact that the mine contains iron ore, but not enough to be commercially viable.
  • Relevant language from Sherwood v. Walker to support the buyer's (mistaken party) case should focus on the "substance of the agreement" being affected.

Wood v. Boynton Case Facts

  • Concerns the sale of an uncut stone for $1, later found to be a diamond worth about $700.
  • Plaintiff (Wood) sued for the stone's return, tendering the original purchase price plus interest.

Court Decision

  • The court found for the defendant (Boynton), stating the sale was valid.

Reasoning

  • No fraud or unfair dealing by the buyer. Both parties were ignorant of the stone's true value.
  • No mistake as to the identity of the thing sold.

Key Point

  • In the absence of fraud or warranty, the value of the property versus the price isn't grounds for rescission.

Problem 9-2 (Apple Sale)

  • Examines a case about apples sold cheaply due to a perceived siege, which had already ended unbeknownst to both parties.
  • Requires analysis under Sherwood v. Walker, R2d §§ 152, 154, and UNIDROIT articles 3.4 and 3.5.

Modern Bases of Mistake

  • Contracts should honor parties' risk allocations.
  • Modern law assumes parties don't intend to bear the risk of a mutual mistake that materially alters deal benefits/burdens.

Fixed Price vs. Cost-Plus Contracts

  • Fixed-price contracts: Contractor agrees to a set price, bearing the risk of increased difficulty or expense.
  • Cost-plus contracts: Customer covers costs plus a fee, bearing the risk of increased difficulty or expense.
  • Fixed-price contracts incentivize contractor efficiency.
  • Cost-plus contracts allow easy deal modification but lack the incentive for cost control.
  • Fixed-price contracts facilitate competitive bidding.
  • "Shopping the bid" is when a customer discloses a bid to a second contractor and asks that contractor to beat it.
  • Hourly billing is a cost-plus model; clients bear the risk of extended time.
  • Fixed fees may incentivize lawyers to overlook problems.
  • However, fixed fees promote efficiency and selective task execution.

Aluminum Co. of America v. Essex Group, Inc. (The Alan Greenspan Case)

  • Involves a long-term aluminum conversion contract.
  • Pricing formula devised by Alan Greenspan failed due to unforeseen increases in electricity prices after the 1973 oil embargo.
  • ALCOA suffered losses as a result.

Court Decision

  • The court sided with ALCOA, citing mutual mistake regarding the viability of Greenspan's formula.
  • Risk allocation: Essex asserted that Alcoa assumed the risk by not including in the contract a provision that would have limited its losses if the formula didn’t work
  • The court didn’t buy this, either and said that ALCOA probably just believed that risk was so small that it was not worth the effort to negotiate and draft a provision covering it.

Jaynes v. Louisville & Nashville Railroad

  • Concerns a FELA case where a former employee sought to void a release based on mutual mistake about the injury's nature.
  • Courts favor quick dispute resolution but protect unsophisticated injured parties.

California Civil Code § 1542

  • A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release
  • If known by him or her must have materially affected his or her settlement with the debtor.

Anderson Brothers Corp. v. O’Meara Case Facts

  • Involves the sale of a specialized barge dredge.
  • O'Meara sought to rescind or claim damages, after buying a dredge design for trenching, for sweep dredging.

Court Ruling

  • The court reversed the district court's decision in favor of O'Meara.

Reasoning

  • No mutual mistake: O'Meara's belief the dredge was suitable for sweep dredging wasn't shared by Anderson Brothers.
  • O'Meara failed to exercise due diligence in determining if the dredge met his needs.
  • No misrepresentation or fault on the seller's part.

Unconscionable vs. Material Effect

  • R2d requires a mutual mistake to have a "material effect" on the exchange, causing severe imbalance.
  • Unilateral mistake requires a showing that enforcement would be unconscionable, i.e. extremely unfair.

Allocating Risk

  • Parties can allocate the rules of the unknown between them using representations and warranties.

Representations and Warranties

  • Are statements of fact relevant to a contract regarding its subject matter.
  • Warranties provide recourse if the facts are not as stated.

Re-Writing a Release in View of the Mistake Doctrine

  • Include language emphasizing the signer's awareness and acceptance of risks related to unknown injuries.

Lawyering Skills Problem: Drafting a Broad Release

  • Revise standard release language to explicitly cover unknown injuries, demonstrating the releasor's understanding and acceptance of this risk.

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Description

Explore formation defenses in contract law, focusing on misunderstanding and mistake. Examine landmark cases like Raffles v. Wichelhaus, highlighting the objective of common law courts in resolving such disputes. Compare 19th-century English case reports with modern legal opinions.

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