Contract

By:Lawyer Xu Lu – Shanghai Ganus LawDate:2018-03-08

sherwood v. walker

Facts

Sherwood (P) contracted to purchase a cow from Walker (D). Walker showed Sherwood a cow, Rose 2d of Aberlone, which he believed to be barren. Sherwood agreed to purchase the cow for $80. If the cow had been fertile it would have been worth $750 to $1000. Walker later discovered that the cow was with calf and refused to complete the transaction.

Sherwood brought suit and took possession of the cow via a writ of replevin. At trial, Walker showed that at the time of the sale both parties had believed the cow to be barren and both knew that the value of a fertile cow was much higher than that of a barren cow. The judge instructed the jury that it was immaterial whether the cow was barren. The jury returned a verdict in favor of Sherwood and Walker appealed.

Issue

Can a mutual mistake regarding the substance of the subject matter of a contract render a contract unenforceable?

Holding and Rule

Yes. A mutual mistake regarding the substance of the subject matter of a contract may render that contract unenforceable.

There is no contract if there is a difference or misapprehension as to the substance of the thing bargained for, or if the thing actually delivered or received is different in substance from the thing bargained for and intended to be sold. However, if there is merely a difference as to some quality or accident, even though the mistake may have been the actuating motive of either or both of the parties, the contract remains binding. The only difficulty in such a case is to determine if the mistake is as to the substance of the whole contract. Under prior law it has been held that when a horse is bought under the belief that he is sound, and both the buyer and seller have this honest belief, the purchaser must stand by his bargain and pay the full price unless there was a warranty.

The court held that in this case the mistake went to the whole substance of the agreement. This mistake was not about the mere quality of the cow but to its very nature, i.e. a fertile cow as opposed to a barren cow.

Disposition

Reversed and remanded with new jury instructions.

Dissent (Sherwood)

There is no pretense that the plaintiff bought the cow for beef. There is nothing indicating that he would have bought her at all only that he thought she might be made to breed. From the facts it turns out that Sherwood was more correct than the defendant as to one quality of the cow. Walker made a mistake about the quality of the cow and unless the plaintiff knew or should have known about that mistake he cannot be charged with taking advantage of the situation. The contract is valid and should be enforced.

Notes

A contractual mistake ‘is a belief that is not in accord with the facts’. See 1 Restatement Contracts, 2d, § 151, p 383. The erroneous belief of one or both of the parties must relate to a fact in existence at the time the contract is executed. The belief which is found to be in error may not be, in substance, a prediction regarding a future occurrence or non-occurrence.

Raffles v. Wichelhaus

Facts

Raffles (P) contracted to sell 125 bales of Surat cotton to Wichelhaus (D). The goods were to be shipped from Bombay to Liverpool, England on the ship “Peerless”. Neither party was aware that there were two ships names “Peerless” carrying cotton from Bombay to Liverpool, one arriving in October and the other in December.

Wichelhaus thought he had purchased the cotton arriving on the October ship, but Raffles sent his cotton on December ship. Wichelhaus refused to accept delivery of the cotton arriving on the December ship and Raffles brought this lawsuit for breach of contract.

Issues

If a latent ambiguity arises that shows that there had been no meeting of the minds, have the parties given mutual assent to contract?

Is parol evidence admissible to determine the meaning each party had assigned regarding a latent ambiguity?

Holding and Rule

No. If a latent ambiguity arises that shows that there had been no meeting of the minds, there is no mutual assent to contract.

Yes. Parol evidence is admissible to determine the meaning each party had assigned regarding a latent ambiguity.

Disposition

Judgment for Wichelhaus.

Notes

Restatement (Second) Section 20(1): If the misunderstanding concerns a material term and neither party knows or has reason to know of the misunderstanding, there is no contract. Parol evidence is admissible to determine the meanings of terms when a latent ambiguity arises later.

Henningsen v. Bloomfield Motors, Inc.

Brief Fact Summary. Plaintiffs Claus and Helen Henningsen sued Defendant Bloomfield Motors, Inc., for breach of an implied warranty of merchantability imposed by the Uniform Sales Act after Helen Henningsen was injured when the steering mechanism of the car Plaintiffs purchased from Defendant malfunctioned. Defendant asserted that the warranty had been disclaimed by the fine print on the back of the purchase contract.??

Synopsis of Rule of Law. A disclaimer or limitation of liability shall not be given effect if “unfairly procured,” that is, the consumer was not made understandingly aware of it or it was not clear and explicit.

Issue: Does an express contract agreement, printed on a standard form, eliminate an implied warranty of merchantability?

Holding: No.??Decision/Analysis: (Francis, J.)  The traditional contract is the result of free bargaining of parties who are brought together by the play of the market, and who meet each other on a footing of approximate economic equality.  From the standpoint of the purchaser, there can be no arms length negotiation on the subject of warranties.  Because his capacity for bargaining is so grossly unequal, the inexorable conclusion which follows is that he is not permitted to bargain at all.  The warranty used in this case was a standardized form designed for mass use.  It was imposed on the automobile consumer.  He could take it or leave it.  No bargaining was engaged with respect to it.  In fact, the dealer did not have authority to alter it.  The words “warranty” or “limited liability” did not appear in the fine print above the place for signature.  Could an ordinary layman realize what he was relinquishing in return for what was being granted?  In the context of the warranty, only the abandonment of all sense of justice would permit the court to hold, as a matter of law, the phrase “its obligation under this warranty being limited to making good at its factory any part or parts thereof” would signify to an ordinary reasonable person that he was relinquishing any personal injury claim the might flow from the use of a defective automobile.  The judicial process has recognized a right to recover damages for personal injuries arising from a breach of that warranty.  The disclaimer of implied warranty and exclusion of all obligations except those specifically assumed by the express warranty signify a studied effort to frustrate that protection.  The judgment in favor of the plaintiff was affirmed.

Held. No. The general rule states that, in the absence of fraud, one cannot seek relief from the terms of a contract that he fails to read before signing it. However, due to the gross inequality in bargaining positions occupied by an automobile dealer and a consumer, a disclaimer of liability will not be enforced if it is not brought to the purchaser’s attention or it is not clear and explicit. Here, Defendant did not make Plaintiffs aware of the language on the back of the purchase contract, and Defendant never addressed the language with Plaintiffs.

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