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On the opposite page.For each question 49-54, mark one letter (A, 8, C or D) on your answer sheet for The answer you choose. Types of Mistake The word mistake is generally used in the law of contracts to refer to an erroneous belief - 'a belief that is not in accord with the facts.' To avoid Confusion, it should not be used, as it sometimes Is in common speech, to refer to an improvident Act, such as the making of a contract, that results From such an erroneous belief. Nor should it be Used, as it occasionally is by courts and writers, to Refer to a situation in which two parties attach Different meanings to their language. An erroneous belief is not a mistake unless it Relates to the facts as they exist at the time the Contract is made. A poor prediction of events that Are expected to occur after the contract is made is Not a mistake. The law of mistake deals only with The risk of error relating to the factual basis of Agreement - the state of affairs at the time of Agreement. It does not deal with the risk of error As to future matters. Cases of poor prediction are Dealt with by the doctrines of impracticability and Frustration, which are thought to be more suited to Adjusting the relationship between the parties Under their agreement. In some cases, however, the line between a Mistake as to an existing fact and a poor Prediction as to a future event is hard to draw, Especially when the parties have extrapolated From existing facts to set their expectations as to Future use. Leasco v. Taussig is an example. In February 1971, Taussig, who had been an officer at Leasco's subsidiary MKI, made a contract with Leasco to buy MKI. In May, however, he sought To avoid the contract on the ground that the parties had erred in estimating MKI's pre-tax earnings for The period ending with September 1971 as $200,000. In fact the company lost $12,000, and Taussig argued the parties had shared a mistake as to the existing fact 'that they were dealing with a company which would earn $200,000 in the fiscal year ending September 30, 1971.' The court, However, held that this was merely a poor Prediction as to a future event. Therefore, each Party bore a risk that the earnings might not be as estimated, and each was bound even though, 'as it Turned out, one party got a better bargain than anticipated.' A similar issue was presented by Aluminum Co. of America v. Essex Group. Under a 16-year Contract made in 1967, ALCOA was to convert Alumina supplied by Essex into molten aluminum. The contract price provisions contained an Escalation formula, one portion of which was Based on the Wholesale Price Index - Industrial Commodities (WPI). By 1979, it had become Apparent that the WPI was not keeping pace with The sharp rise in the cost of energy to ALCOA, and the company stood to lose some $60 million over The contract term. ALCOA sought relief for Mutual mistake. The trial court found that the Parties had chosen the WPI to reflect changes in ALCOA's non-labor costs after a careful Investigation showed that the WPI had, over a period of years, tracked ALCOA's non-labor cost Fluctuations without marked deviations. In this, Date: 2015-12-11; view: 896
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