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Mistake, Impracticability, and Frustration of Purpose

a. An Error in Judgment Does Not Qualify as a Mistake

A party cannot escape a disadvantageous or regrettable contract resulting from poor judgment. Say, for example, that a buyer of a plot of land purchases it in the belief that it is worth more than the asking price, but then finds that this is untrue. Or a buyer of stock believes wrongly that the company is undervalued and the stock is considerably more valuable than its price. If these parties were to be allowed to avoid their obligations simply because they had judged wrongly, no transaction could be secure. Although this distinction can be drawn in principle, it is not always a simple matter to distinguish an error in judgment from a mistake of fact. Judgments are usually based on fact, and less obvious cases could require some unraveling.

  A famous old case and a more modern one illustrate the subtle distinction between a mistake of fact and of judgment. In Sherwood v. Walker, 33 N.W. 919 (Mich. 1887) a cattle breeder, believing a highly pedigreed cow to be infertile, sold it as a beef cow for a fraction of its value. Before delivery, the seller discovered the cow to be pregnant and he refused to deliver it to the buyer. The buyer sued to compel delivery but the court allowed the seller to avoid the contract for mistake. The majority and dissenting opinions differ on whether the belief that the cow was infertile should be treated as a mistake. The majority thought that it was, but the dissent felt that the cow’s ability to breed was really a question of judgment. In the dissent’s view, neither party knew for sure that the cow was infertile. The seller gambled that it was, and the buyer that it was not. The buyer’s judgment was right and he should not be deprived of the fruits of his successful speculation.

  Firestone & Parson, Inc. v. Union League of Philadelphia, 672 F. Supp. 819 (E.D. Pa. 1987) involved the sale of a painting attributed to Albert Bierstadt, the celebrated nineteenth-century landscape painter. At the time of the sale, art experts regarded the painting as Bierstadt’s and the parties had no reason to believe otherwise. As a result, it was sold for $500,000. Several years after the sale, scholarly research revealed that the painting was not by Bierstadt. As a result, it was worth only a tenth of what was paid for it. The buyer sued for avoidance of the contract. The suit was dismissed because the statute of limitations had run. However, the court discussed the claim of mistake and suggested that even had the buyer sued in time, the contract would not have been avoidable. The value and authorship of a work of art, based on expert opinion, is more a matter of judgment than of fact.

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