Misrepresentation, Mistake, Fraud, Etc.

Hypotheticals of the day:

1) S is an amateur gem collector at a gem collectors' convention who has a basket full of stones with a sign in front saying "$15 each." B is a professional jeweler with years of experience. As B rummages through the basket, he finds a stone, looks at it closely, and says, "$15??!" S thinks to himself, "oh shit, this asshole is going to try to bargain with me."

"Well, that's not the nicest looking stone in the basket. I'll give it to you for $10," says S.

B takes out two wrinkled $5 bills and pays. The stone turns out to have been the world's largest sapphire and is worth 3 million dollars. Can S get the stone back?

What if S and B both thought that the stone was a diamond worth $1,000, but it turned out to be a topaz worth only $5. Or it turned out to be a flawed diamond? Can B get his money back after he's paid for it?

Some rules/principles to guide us:

Sherwood v. Walker: If there is a mistake about a material fact and both parties are mistaken at the time the contract is executed, then the contract may be avoided. If there is a mistake about the value of the item, then there is no relief, so long as value is a subjective belief about what the price should be given all the facts that either are known or could be known.

Lawson v. Citizens & Southern Nat'l Bank: "Where material facts are accessible to the vendor only, and he knows them not to be within the reach of the diligent attention, observation and judgment of the purchaser, the vendor [of real estate] is bound to disclose such facts and make them known to the purchaser."

Whenever there is a fraudulent transaction under which the aggrieved party would have a tort action for deceit, the aggrieved party may elect to avoid the transaction and claim restitution. However, even if there is no viable tort action for deceit, the transaction may still be voidable if certain elements of misrepresentation or non-disclosure are proved. In other words, there are lower standards for voiding the contract than there are for recovering damages on a tort claim for fraud.

In an unintentional misrepresentation, voidability usually requires that the misrepresentation be about a material fact. A fact is material whenever the misrepresentation would be likely to affect the conduct of a reasonable person or if "the maker of the representation knows that the recipient is likely to regard the fact as important" although a reasonable person would not.

Where the misrepresentation is intentional, the misrepresented fact does not need to be objectively material; rather, it is a subjective standard that has more to do with whether the deceived party was induced by the misrepresentation, rather than whether any reasonable third party would have been induced by the misrepresentation. In this way, it is much easier to satisfy the materiality element for an intentional misrepresentation.

UCC: An affirmation, statement, opinion or commendation as to the value of the goods does not create a warranty on the seller.

An opinion does not count as a representation, but there are a number of exceptions/factors that make this principle less powerful: "1) where there is a relationship of trust and confidence between the parties, 2) the representor is or claims to be an expert 3) the representor has superior access to knowledge."

Laidlaw v. Organ: In a bargaining transaction there is generally no duty to disclose information.
Exceptions to this rule:
1) statutory regulations (specific situations in which the information can only be obtained by extremely expressive means and the non-disclosure took the form of false or misleading statements).
2) Concealment: intentional hiding of the truth through positive action is not allowed.
3) partial disclosure: leaving out important details of a disclosure is fraudulent.
4) When a true statement becomes no longer true, there is a duty to disclose that the statement is no longer true.
-Historical view: "A sound price warrants a sound commodity." (implied warranty if the item sold doesn't end up reflecting its price)
-Less historical view: caveat emptor
-Modern view: Older view prevails for "latent defects in consumer transactions and single family housing," whereas caveat emptor remains in place for commercial realty and transactions between merchants.
5) Nature of the transaction: Suretyship and insurance require broad duties of disclosure.
6) Relationship between the parties: "Whenever one party to a transaction justifiably believes the other is looking out for his or her interests, a duty of disclosure arises."

2) S owns a tract of land that has a market value of $50,000. B has private knowledge that a developer plans to build a mall across the street that will make the land worth $500,000. B makes a contract to buy the land from S, to be closed on November 15th. On November 14th, the plans to develop the mall are made public. Can S rescind the contract?

What if the plans are made public on November 16th. Can S recover the land?

Two Tort Problems

Problem 1: I am driving my car and negligently cause my car to veer off the road. I am injured in the ensuing accident. During my subsequent medical care, the doctor negligently exacerbates my injuries. Could the doctor claim that I was contributorily negligent?

If my car accident is caused by another driver's negligence, then that driver is liable for any subsequent injuries I suffer as a result of negligent medical care. The reasoning for holding the negligent driver liable for the doctor's negligence is that negligent medical care is a foreseeable consequence of causing injury to someone. At the same time, there are undesirable consequences if doctors are not held liable for their negligent care when the patient’s negligence is responsible for being in the hospital. We do not want doctors to be more careful with patients who did not cause their injuries.

If another driver is liable for all of my ensuing injuries, doesn’t that remove the incentive for the doctor to exercise full diligence?

My professor explains: In the case of the negligent driver who causes my injuries, that driver is held liable for all of my injuries, true. BUT, the negligent driver would then be able to bring suit against the negligent doctor for malpractice (to be reimbursed for whatever he is held liable to the plaintiff). This puts the burden on the negligent driver to prove that the doctor committed malpractice, which is a significant burden given the difficulty of proving malpractice cases. This arrangement is similar to the joint-several liability damages scheme in other torts where there are several negligent defendants, but it is easier for the plaintiff to prove the claim against one of the defendants (any of the negligent defendants can be held liable for 100% of the damages, but then that defendant can bring a counter-suit against the other defendants for reimbursement). So the doctor still is held accountable for negligence to same extent as if he/she was treating a patient whose injuries were not negligently caused. It is appropriate for the negligent driver to bear the burden of proving malpractice, because if the doctor didn’t cause the ensuing injuries, then the injuries must have been caused by the negligent driver’s original act of negligence!

In light of all this, is it appropriate for a doctor to invoke comparative fault and claim contributory negligence on a patient whose negligence caused him to be under the doctor’s foresee-ably negligent care? Why is a doctor’s negligence “foreseeable” when another negligent driver necessitates the medical treatment, but it isn’t “foreseeable” when I am the one who negligent caused the medical emergency?



Problem 2: Jack drives drunk and is killed when his car veers off the road and crashes into a tree. It is later found that the manufacturer of the car negligently designed it in such a way that the car would crumple under pressure; but for the negligent design of the car, Jack would have survived the crash relatively unharmed. Can the manufacturer claim that Jack was contributorily negligent by driving drunk? Traditionally, the law held that a plaintiff's illegal activity precluded any claim for a defendant's negligence. But under a comparative fault system, in which proportioning the negligence between the plaintiff and defendant is allowed, should this preclusion still hold?

History and the Law

We are not learning the way things are. We are learning where the law has come from. As Oliver Holmes put it, the law consists of predictions about what courts will do. This conception of law has deep implications for its study.

There are those who emphasize their attention on legal principles and analysis of the intricacies of issues that are presented by particular fact patterns. Those who subscribe to this method are pragmatists who want to learn only the information that will be on their test. Their method involves identifying material that will yield points on an exam, and, more importantly, ignoring material that will not be tested on the exam. There is much to be said for such a technique while a 1L. Grades reign supreme at this stage.

If only there was a list of material that will be tested, and a list of material that will not! In the absence of such a list, a student who wishes to only focus on tested material will have to rely on his/her ability to distinguish these two categories of information from each other. And what basis does the 1L have for distinguishing? None!

But there is something similar to this imaginary list of tested material--history. Almost all of the major principles and rules of the common law are over 300 years old, and students and academics have been grappling with the issues presented by them for at least this long. By studying the evolution and historical debates of the laws (including the study of laws that are obsolete), one gets an intuitive sense of which sorts of problems are more intractable than others. In addition, one sees the analytical tools of legal scholarship in action. More importantly, one is able to see the professor presenting problems of legal history, so that one gets an intuitive sense of which sorts of problems are of most interest to a professor.

Reading cases is not enough. Each case is a treasure trove of arguments, disputes and sub-issues, each of which is fodder for future exam questions. The key is to dig through history and collect each important issue and organize it into a functional history. The diligent reader must not be allowed to passively read each case, guess at the general jist of the issue, and copy and paste the most authoritative line of the opinion into the "reasoning" section of a brief. It does not have to take a long time, but it must be done right. There are no answers in the opinions, but there are tons of questions.

And each of these questions is worth a point on the exam. Hopefully, this blog will help me to practice articulating the questions presented in each case.

This is a piece of rope that is unrelated to the law.

Corbin v. Williston

Williston: The written agreement has a unique and powerful force of influence. To the extent that the written agreement is clear in meaning to a reasonable person, that written agreement is the superseding force that dictates the terms of the contract (to the exclusion of parol evidence to the contrary). FOCUS: The integration practices of reasonable persons acting normally and naturally.

Corbin: The written agreement only contains the unique and powerful force when the parties intend the agreement to have such a force at the time the written agreement is executed. If there is compelling evidence that one of the parties did not intend for the written agreement to be the final say on the matter, then that evidence must be considered by a jury if the evidence is sufficiently compelling. FOCUS: The intention of the parties.

The UCC § 2-202 sides with Corbin. Why? How does this section go about determining evidence of intent? Isn't the whole point of the Parol Evidence Rule to grant evidentiary weight to objective written agreements over squirrely subjective issues like intent?

Topics in Parol Evidence

When is a term "inconsistent" with the written agreement? Hunt Food v. Doliner: "In a sense any oral provision which would prevent the ripening of the obligations of a writing is inconsistent with the writing. But that obviously is not the sense in which the word is used . . . To be inconsistent the term must contradict or negate a term of the writing. A term or condition which has a lesser effect is provable."

Under what circumstances will a court decide that it is "natural" for a term not to be embodied in the writing?

Under what circumstances will a court decide that a written agreement is fully integrated rather than a partial integration?

Judicial Interpretation of Statutes Codifying Common Law

After quoting Oregon's statutory codification of the Parol Evidence Rule, Howell (C. J. of Oregon Sup. Ct., 1978) notes:

"This court, however, has never read the statute in such a manner, but instead has treated the statute as a codification of the common law parol evidence rule . . . Although [our] decisions may be inconsistent with a literal reading of the statute, which has been in effect since 1862, they can be justified under the general rule that statutes codifying the common law are to be construed in a manner consistent with the common law . . ."

Fascinating. What if a legislature wants to overturn judicial precedent by deliberately codifying a common law rule in a manner that is inconsistent with the precedent? A legislature must be careful in drafting a bill to make sure that it explicitly states its intent if it conflicts with judicial precedent.

Parol Evidence Rule

Mitchill v. Lath, p. 387
Ct. of App. N.Y., 1928

Relevant Facts: Plaintiff purchased land from defendant in a written contract. Prior to this written contract, defendant had verbally agreed to remove an unattractive icehouse from across the street as a condition for sale. The written contract did not mention this verbal agreement. When the defendant refused to remove the icehouse, the plaintiff brought suit in equity for specific performance. Special Term and Appellate Division allowed the suit to go forward; defendant appeals.

Oral agreements outside of the written contract must satisfy these conditions, as articulated by Andrews:

1) The agreement must in form be a collateral one;
2) it must not contradict express or implied provisions of the written contract;
3) it must be one that parties would not ordinarily be expected to embody in the writing; or put in another way, an inspection of the written contract, read in the light of surrounding circumstances must not indicate that the writing appears "to contain the engagement of the parties, and to define the object and measure the extent of such engagement." Or again, it must not be so clearly connected with the principal transaction as to be part and parcel of it.

At first, I thought that this would be the dissent's position:
But Lehman believes that since the ice house was on a different plot of land than the one in the contract, equitable relief for detriment incurred in reliance on an unenforceable promise may be available.

In fact, this turned out to be the trial court's reasoning, though it granted $8,000 in estimated land value depreciation rather than specific performance. Why didn't it grant specific performance? The most obvious answer would be that removal of the ice house would be more costly than the amount by which its presence caused the Mitchills' land to depreciate. But this seems unlikely; I doubt it would cost $8,000 in 1928 ($100,000 inflation in 2008) to remove a dinky old ice house. More likely, the court preferred to award damages because it is more difficult to oversee specific performance, and it felt compensation damages were less messy than specific performance.

On to bigger questions than idle speculation.

Parol Evidence Rule

This appears to be a principle of contracts that attempts to resolve disputes about what obligations in a contract are enforceable. In particular, the Parol Evidence Rule seeks to limit terms and conditions that were not included in the final executed contract. If a final agreement is signed, the only terms that are enforceable under that agreement are those that appear in the writing. Previous oral negotiations or proposed elements of a final writing are not enforceable in these cases.

Justice Andrews in 1928 describes it as, "a rule of law which defines the limits of the contract to be construed." Even if the parties concede that an oral agreement was made, that oral agreement is still not enforceable if there was a subsequent written agreement that did not include the orally-agreed-upon condition.

Now, the parol evidence rule does not apply if it can be shown that the oral agreement was sufficiently distinct and unrelated to the subsequent written contract. Thus, if I agree orally to sell you my car, and 5 minutes later sign a contract to mow your lawn, neither you nor I can void the oral agreement to sell the car based on the parol evidence rule. The two contracts are unrelated. This is an obvious example, but it would not take much imagination to conjure a situation in which the line between related and unrelated is more blurry.

Let's say that you and I orally agree that I will supply you with lawn ornaments at a reduced price, and five minutes later we sign an agreement that I will mow, fertilize, and maintain the general upkeep of your lawn (no mention of the lawn ornaments). Is the oral agreement to supply lawn ornaments relevant enough to the written contract that it should have been in the contract (such that its absence implies a lack of final agreement), or is it an entirely different matter that stands distinct and unaffected by the written agreement? Drawing the line in this case would depend on how much we view the supply of lawn ornaments to be a part of "the general upkeep" of one's lawn.

Topics in Law

Here, I shall discuss the implications of various problems presented by case law. In essence, this will be the training ground for me to hone my legal analysis skills. By publishing this on the cloud, I intend to motivate myself to rise to a higher level of quality and perhaps compel myself update this blog more regularly. Finally, I open the possibility for feedback from the layman.

I have not progressed far enough in my studies to be able to write an effective disclaimer, but it should be noted that the contents of this blog represent my attempts to express conflicting points of view and in no way do they represent my own views or the views of any other existing or future entity. Any resemblance to viewpoints in real life is purely coincidental.