Contracts Q Forum

[estefanchanning]

Hi all, pls advise:

A man of seemingly modest means died, leaving his nephew as his sole heir. Among the items inherited by the nephew were some old oil paintings. The nephew knew nothing about art and had no place to put the paintings in his home. He placed an ad in the paper offering to sell the paintings at a price to be mutually agreed upon. A buyer for an art gallery responded to the ad. The buyer did not identify himself as an art gallery buyer or tell the nephew that he was knowledgeable about art. Rather, he concocted a story about wanting the paintings for his country estate. The nephew, for his part, revealed his lack of knowledge about art when he told the buyer that his uncle had probably painted the pieces himself. From the signature and the style, the buyer recognized that the artist was a renowned 19th century American portrait artist. The nephew and the buyer agreed upon a price and executed a contract. However, before the nephew delivered the paintings to the buyer, or the buyer paid him, he sought to rescind the contract. The buyer insisted that the nephew deliver the paintings to him and threatened to sue for breach of contract if he did not.

Which argument would give the nephew the best basis for rescinding the contract with the buyer?


A) The nephew told the buyer that his uncle had probably painted the paintings himself.
B) The nephew did not know that the buyer was a professional buyer for an art gallery and was knowledgeable about art.
C) The buyer falsely told the nephew that the paintings were going to be used to furnish his (the buyer's) country estate.
D) The contract was still executory on both sides.

Answer:

[+] Spoiler

A. I find this odd because the buyer did not misrepresent his knowledge. Though the buyer knew that the nephew was mistaken re: the identity of the painter, I was under the impression that buyer did not have to volunteer his superior knowledge so long. Can you guys advise?

[mercury17]

i would think the anwer is A because, although a mistake by one party is usually not a reason to avoid contract, there can be a relief when the other party had reason to know of the mistake. Here, apparently the buyer had a reason to know that nephew was mistaken...

[Findedeux]

I would think the answer is D.

It's clearly not a mutual mistake.

It's also not a very sympathetic unilateral mistake because the nephew is displaying conscious ignorance; he knows he doesn't know and he doesn't care to know. Since he doesn't seem to care I would doubt this could be an "essential" element of the K or be one that he didn't bear the risk for.

The buyer doesn't misrepresent anything about the artwork. Based on the relationship of the parties the buyer is under no duty to disclose.

The unilateral mistake could form the basis for rescission, however, because the contract is executory on both sides and there is an absence of serious prejudice to the other party.

.................

1) Conscious ignorance

A party may bear the risk of a mistake, however, when she is aware at the time of the contract that she has only limited knowledge of the facts to which the mistake relates, and she accepts her limited knowledge as sufficient. Note that the risk created by conscious ignorance rests on the party being aware of her limited knowledge. Restatement (Second) of Contracts § 154.

[estefanchanning]

I would think the answer is D.

It's clearly not a mutual mistake.

It's also not a very sympathetic unilateral mistake because the nephew is displaying conscious ignorance; he knows he doesn't know and he doesn't care to know. Since he doesn't seem to care I would doubt this could be an "essential" element of the K or be one that he didn't bear the risk for.

The buyer doesn't misrepresent anything about the artwork. Based on the relationship of the parties the buyer is under no duty to disclose.

The unilateral mistake could form the basis for rescission, however, because the contract is executory on BOTH SIDES and there is an absence of serious prejudice to the other party.

.................

1) Conscious ignorance

A party may bear the risk of a mistake, however, when she is aware at the time of the contract that she has only limited knowledge of the facts to which the mistake relates, and she accepts her limited knowledge as sufficient. Note that the risk created by conscious ignorance rests on the party being aware of her limited knowledge. Restatement (Second) of Contracts § 154.

I had similar thoughts as you. Here is their explanation:

[+] Spoiler

The nephew may be able to rescind the contract on the grounds of unilateral mistake if the buyer was aware that the nephew was mistaken about the identity of the artist. Where only one of the parties is mistaken about facts relating to the agreement, the mistake usually will not prevent formation of the contract. However, if the nonmistaken party is aware of the mistake made by the other party, he will not be permitted to snap up the offer; i.e., the mistaken party will have the right to rescind the agreement. Under the facts in this choice, the buyer knows that the nephew is mistaken about the identity of the artist, which is a basic assumption of the contract for the paintings. To obtain rescission, the nephew would also have to establish that the mistake creates a material imbalance in the exchange and that he did not assume the risk of that mistake. The facts in choice (A) give him the best grounds for doing so. (B) is incorrect because the fact that one of the parties to the contract has superior knowledge about the subject matter of the contract does not by itself justify rescission, even if the other party is unaware of that fact. The buyer's knowledge or lack of it was not a basic assumption on which the contract was made and was not relied on by the nephew in making the sale. (C) is incorrect because the buyer's misrepresentation to the nephew as to how he will use the paintings does not appear to have been relied on by the nephew. Hence, the misrepresentation is not significant enough to serve as grounds for rescinding the contract. (D) is incorrect because while it is true that a contract must be executory on both sides to be effectively discharged by rescission, this fact alone will not be sufficient to effect a rescission. Rather, when only one of the parties is seeking rescission, as is the case here, that party must prove an adequate legal ground (e.g., mistake, misrepresentation, duress, and failure of consideration). In this case, as discussed above, the ground of unilateral mistake will provide the nephew with the best basis for rescinding the contract.

I hope that questions on the bar don't have us making assumptions like these...