Should the sale be rescinded on grounds of mutual mistake?

LAW101 Chap 17 Interactive Activity

Case A #6:

Estate of Martha Nelson v. Carl Rice and Ann Rice, 12 P.3^d 238, 2000 LEXIS APP 159 (2000)

FACTS: The personal representatives of the plaintiff’s estate hired an appraiser to appraise personal property in preparation for an estate sale. The appraiser told the representatives that she was no judge of fine art and that they would have to hire an additional appraiser if she found any fine art. She did not report finding any fine art, and relying on her silence, the representatives priced and sold two oil paintings at $60. The defendant came to the sale and bought he paintings. Although he had bought and sold some art before, he was not an educated purchaser and had made no more than $55 on any art that he had previously sold; he had bought many paintings that ended up being forgeries. He assumed that the paintings were not originals, given their price and the fact that professionals were managing the sale, but he liked the subject matter of one and the frame of the other. Once home with the paintings, he compared their signatures to those in a book of artists’ signatures and thought they looked like those of Martin Johnson Head. As he had done with other art, he sent photos of the paintings to Christie’s in New York, which confirmed the signatures and offered to auction the paintings for him. The auction netted the defendant $911,000. After finding out what happened, the estate sued the defendant buyer, alleging that the contract should have been rescinded on the grounds of mutual mistake and unconscionability.

The trial court granted summary judgement in favor of the defendant and the plaintiff appealed.

Issue:

1. Should the sale be rescinded on grounds of mutual mistake?
2. Should the sale be rescinded on grounds of unconscionability?

Holding:

1. No, facts do not meet the elements of a mutual mistake and therefore defendant should win on this issue.
2. No, the sale should not be rescinded on grounds of unconscionability and therefore defendant should win on this issue.

Reasoning:

1. A party seeking to rescind a contract on the basis of mutual mistake must prove all of the following elements: (i) a basic assumption about the subject matter of the contract, (ii) a material effect on the agreement, an adverse effect on the party who did not agree to bear the risk of mistake at the time of the agreement. Courts will not void contracts for reason of mutual mistake if even one of those conditions is missing.

In this case, the first condition [was/ was not met]. The Estate had ample opportunity to discover to what it was selling (hired professionals to conduct the sale) and failed to do so. The Estate should bear the risk of this mistake.

2. The second question is to determine if this contract should be rescinded on the basis of unconscionability. Unconscionability arises when one party has so much more bargaining power than the other that she dictates the terms of the agreement. This kind of agreement is called an adhesion contract.

Here, the transaction [involved no negotiations / involved negotiations]. The Estate dictated the terms of the agreement by naming a price for each of the paintings. The defendant paid the asking price. This was merely a bad result for the Estate and not an adhesion contract.

Case A #7

Okes v. Arthur Murray, 212 So.2d 906 (1968)

Facts: Audrey Vokes was a 51-year-old widow who wanted to become an “accomplished dancer.” She was invited to attend a “dance party” at JP Davenports’ School of Dancing, an Arthur Murray franchise. She subsequently signed up for dance classes, at which she received elaborate praise. Her instructor initially sold her eight half-hour dance lessons for $14.50 each, to be used one each month. Eventually, after being continually told that she had excellent potential and that she was developing into a beautiful dancer – when, in fact, she was not developing her dance ability and had no aptitude for dance – she ended up purchasing a total of 2,303 hours’ worth of dance lessons for a total of $31,090. When it finally became clear to Vokes that she was not developing her dance skills, in part because she had trouble even hearing the musical beat, she sued Arthur Murray. Her case was initially dismissed by the trial court. She appealed to the appellate court.

Issue: In this case, is trade “puffing” considered a misrepresentation of a material fact, which could be actionable in fraud.

Holding: Yes, this “puffing” [was/was not] a misrepresentation of a material fact and is actionable as fraud, therefore the plaintiff wins.

Reasoning: Generally, when a tradesman engages in puffing to promote its services, it is not considered actionable as fraud. In this case, however, it was apparent to Defendant that the expenses Plaintiff was undergoing were not justified by her abilities, and his puffing became fraudulent when he caused her to make expenditures in reliance of non-existent abilities.

The court considers the notions of fraud and misrepresentation and makes the finding that, for a misrepresentation to be actionable, it must be a question of fact. In this case, although the instructors opined as to Plaintiff’s dancing ability, they did not tell her the whole truth. The large expenditures that Plaintiff made, in pursuit of her “progress”, were not justified by the fact that she was not improving. Thus, the court found that there was a factual question, to be determined, regarding the Defendants’ misrepresentation, and reversed, allowing Plaintiff a new trial.