Today Finish chap 15 misrepresentation Unilateral Mistake Analysis Usually courts don t undo unilateral mistakes But in three situations contracts are not enforceable against mistaken party 1 Other party knew or should have known 2 Results in unconscionable outcome 3 Substantial inadvertent mathematical error Adhesion Contracts Take it or leave it contracts No negotiation Can be challenged for unconscionability Example Bank v Elderly Widow 250 loan for microwave to be repaid in 12 months Misses last payment 20 balance Contract terms clearly specify penalties Unconscionable Usury Unequal bargaining power Sumerel v Goodyear Defective rubber hoses for heating system despite Goodyear s warning 100 vs 30 equals 550 000 difference Court inadvertent math error and unfair for plaintiffs to take advantage Misrepresentation Four elements to analyze 1 Material fact Effect on reasonable person s decision to enter the contract 2 Intent to deceive By words By conduct By silence 3 Justifiable reliance on misrepresentation 4 Harm to collect damages but not for rescission Active Concealment Seller covers rotting floors from toilet leak Four elements 1 2 3 4 Material Intent Reliance Harm Real estate must disclose known defects Haunted House NY Caveat emptor buyer beware Obligation to disclose Stambovsky v Ackley riverfront home with ghost Misrep Material Intent Reliance Harm Court unreasonable for buyer to discover on its own Seller told the public must also tell the buyer The Watcher NJ Family purchased 1 4 million home Letters from the Watcher Kindly brought in young blood when I asked Once I know their names I will draw them to me Misrepresentation Material Intent Reliance Harm Timothy v Keetch Facts Keetches buy a horse property in Utah Bank has security interest in stallion Son of a Dun To open ranch for children who were abused Keetches get second loan from Timothys Keetches say they own stallion free and clear Timothy v Keetch Legal Analysis Keetches default on bank loan horse taken Then default on Timothys loan Timothys sue for fraud Misrep Material Intent Reliance Harm Court fraud No duty for buyers to inspect public records to verify seller s statements unless reason to suspect deceit What if Keetches were silent and Timothys never asked In Class Assignment 1 Is it possible for a buyer to be liable for contractual misrepresentation if the buyer remains completely silent about a known defect and the seller never asks about it 2 If a seller blatantly lies about an unimportant minor detail in the contract is the seller likely liable for contractual misrepresentation Next Week Chapters 16 and 17 briefly Intellectual property bonus material Graded assignment take home Review for Exam 2