Mistake and misunderstanding - Next Generation Bar Exam

1. When may a contractor avoid a bid based on a clerical computation error?

   When the error is material and the recipient knew or should have known of it, before substantial reliance. An obvious error cannot be snapped up by a recipient who had reason to know it was a mistake.

2. What must a party show to avoid a contract for its own unilateral mistake?

   The mutual-mistake elements plus either unconscionable enforcement or the other party's knowledge or fault. Courts are more reluctant to relieve unilateral mistakes because the other party's expectations deserve protection.

3. When parties attach different meanings to a term and only one knows of the other's meaning, whose meaning controls?

   The meaning of the party who did not know of the difference. The party with knowledge is bound by the meaning it knew the other attached.

4. Why does a mistake about market value usually not support avoidance?

   Value is a matter of judgment whose risk the parties assume. Mistake doctrine protects against errors about basic facts, not bad bargains.

5. A seller sells a small stone for $1 when both parties know they do not know what it is. It proves to be a diamond. On what ground may the seller not avoid the sale?

   The seller bore the risk by proceeding with known limited knowledge. Conscious ignorance about the stone's nature places the risk of mistake on the seller.

6. When does a party bear the risk of a mistake?

   When the contract allocates it, when the party knowingly proceeds with limited knowledge, or when the court reasonably assigns it. Proceeding with known limited knowledge is often called conscious ignorance.

7. What is the effect of a mutual mistake that satisfies the elements?

   The contract is voidable by the adversely affected party. The party who benefits from the mistake cannot avoid.

8. When parties attach different meanings to a material term and neither knows or has reason to know of the other's meaning, what is the result?

   Neither meaning controls, so the parties form no contract. Neither meaning can be attributed to both parties, so there is no mutual assent.

9. Both parties believe a cow is barren and price her accordingly, but she is with calf and worth ten times more. What may the seller do?

   Avoid the contract for mutual mistake. Fertility was a basic assumption of the sale and the mistake fundamentally changed the exchange.

10. What must an adversely affected party show to avoid a contract for mutual mistake?

    Both parties were mistaken about a basic assumption that materially affects the exchange, and it did not bear the risk. The mistake must concern a fact existing at formation, not a prediction about the future.

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