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: 813