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Reproduced with permission of the author and 52 American Journal of Comparative Law (Spring 2004) 433-468

Mistake in Contract Formation

James Gordley [*]

  1. Error in Substance
    1. The Intractability of the Problem
      1. Error in characteristics deemed to be essential in ordinary dealings
      2. Error in the determining motive
      3. Mutual mistake
      4. Error in the manifestation of assent
      5. Error in basic assumption
      6. Allocation of risk
    2. A Solution
      1. The formulations of Ghestin and the Mazeauds
      2. The formulations of Bartolus, Baldus, and the late scholastics
      3. A rationale
      4. A kindred solution
      5. Exceptions
        (1)  Unilateral mistake, culpable mistake
        (2)  Assumption of risk
        (3)  Found property
  2. Error in Motive
    1. The Consensus
    2. Dissenting View
    3. Solution
  3. Conclusion

A contract would not be binding if it could be repudiated later by a party who found it to be disadvantageous. But the point of a contract is that each party can obtain something of more value to himself than the performance he promises in return. The law reconciles these considerations by providing that sometimes a party who has made a mistake will obtain relief, and sometimes he will not. As we will see, the classical formulation of when he can obtain relief is when he has made a mistake as to the "substance" of the performance for which he is contracting. According to the classical formulation, he cannot obtain relief when he has merely made and error in "motive," that is, in his reasons for wanting that performance. The formula "error in substance" has been rejected or reinterpreted by many jurists because, if it neglects the parties' motives for contracting, it seems irrelevant to what they were trying to accomplish. Thus, they have tried take the parties' motives into account, either by reformulating the concept of an "error in substance" or by rejecting it. At the same time, they have insisted that a mere error in the motive of a party does not matter. The result, as one might expect, has been confusion. We will first examine the efforts that have been made to distinguish the mistakes that warrant relief from mere errors in motive. We will show that these efforts can succeed if we adopt the approach of certain modern French jurists which corresponds to that of older ones who wrote in the Aristotelian tradition. We will then show -- paradoxically it might seem -- that there are cases in which a mistake in motive by one party should nevertheless warrant relief.

I. ERROR IN SUBSTANCE

According to the Roman jurist Ulpian, "[i]t is obvious that there must be consent in a purchase and sale." He then considered "whether there is a good sale if there is no mistake as to the identity of the thing (in corpore), but there is in regard to its substance (in substantia). Among his examples were copper sold for gold or lead sold for silver. At one point, he referred to such an error as one in [page 433] "essence" (oúoía).[1] It is not at all clear what he meant by these terms. Nevertheless, they have passed into modern continental codes. In France, an error warrants relief if it is in substance (substance),[2] in Italy, if it is "essential"(essenziale),[3] in Germany, if it is in a characteristic "regarded in commercial dealings as essential" (die im Verkehr als wesentlich angesehen werden).[4] Similar terms were once used by American courts. In the famous case of Sherwood v. Walker, the court said a contract was void because the error was one in "substance" rather than "in some quality or accident."[5] Similarly, in England, Lord Blackburn said, in dicta, that English law was the same as civil law: relief would be given for an error in "substance,"[6] and this language was quoted favorably by Lord Warrington and Lord Atkin in Bell v. Lever Brothers, Ltd.[7] Lord Atkin added, in dicta, that a contract is void if the mistake concerned a quality that made the object "essentially different;"[8] Lord Thankerton said the mistake must concern a quality that is "essential."[9] Notwithstanding these remarks, as we will see, English courts have been less generous than others in giving relief.

Most modern jurists have not found the word "substance" helpful in describing when relief should be given. Yet they have had difficulties formulating any alternative rule to describe when relief should be given. I believe this problem is solvable. It will be helpful, however, to begin by surveying the difficulties that jurists have encountered in attempting to solve it.

A. The Intractability of the Problem

1. Error in characteristics deemed to be essential in ordinary dealings. -- The 18th century jurist Robert Pothier said the error must concern "the quality of the thing that the contracting parties had principally in view and which constitutes the substance of the thing."[10] Borrowing from Pothier, the drafters of the French Civil Code said that to warrant relief, the error must be in "substance."[11] The leading 19th century jurists Charles Aubrey and Charles Rau explained such an error in much the same way as Pothier. A party was mistaken as to "properties which, taken together, determine [page 434] [a thing's] specific nature and distinguish it according to common notions from things of every other species."[12] Today, French and Italian jurists refer to this approach as the "objective theory"[13] although few of them endorse it. A version of it passed into the German Civil Code which speaks of a characteristic "regarded in commercial dealings as essential."[14]

The trouble with this approach is that many distinctions are drawn among objects by ordinary people or in commercial dealings, but people do not usually spend time deciding which of these distinctions amounts to a difference in "essence." Even if they did, we need an account of why such differences are supposed to matter.

2. Error in the determining motive. -- The leading 19th century jurist François Laurent rejected the approach of Aubry and Rau. He claimed that what mattered was the importance of the quality in question to the parties. If a party would not have contracted if he had known the truth, then he could obtain relief. A similar position was taken by the 19th century German jurist Ferdinand Regelsberger.[15] Some French and Italian jurists take that position today. The error must concern a quality the parties had principally in view,[16] one which led them to contract,[17] one which was the "determining" motive.[18] French and Italian jurists refer to this approach as the "subjective theory."[19] But it does not take much effort to see the problem with it. Any time a party wants to escape from a contract, he has made some mistake absent which he would not have contracted. As we have already seen, nearly all modern jurists agree that an error in motive does not warrant relief. I agree that many errors in motive do not. But often a party would not have contracted but for an error in motive. [page 435]

3. Mutual mistake. -- Realizing that the "subjective theory" goes too far, some French jurists have modified it by requiring, not only that a party would not have contracted had he known the truth, but also that both parties know that the characteristic in question was that important.[20] According to the new Dutch Civil Code, relief can be given "if the other party in entering into the contract has based himself on the same incorrect assumption as the party in error."[21] Similarly, in Anglo-American law, the traditional rule is that, for relief to be given for a mistake in a characteristic of the performance, the mistake must be mutual in the sense that it must be made by both parties.[22] The endeavor here is to draw a boundary line between errors in motive that do not warrant relief and those errors that do. But French critics of this approach have pointed out that mutuality is not a good boundary. Relief should not be given merely because the other party knows about the other party's purposes or believes that the contract will serve them. For example, a sale of land cannot be avoided if both parties knew that the buyer intended to pay for it with money he inherited, and, in fact, he inherited nothing.[23] Anglo-American jurists recognize that the mere fact that a mistake was mutual does not warrant relief. The Second Restatement of Contracts requires that the mistake also concern a "basic assumption" of the parties.[24] But the Anglo-Americans do not explain the relevance of mutuality any better than the French. The Second Restatement of Contracts proposes that relief be given when a mistake is unilateral only if the other party had no reason to know of the mistake and enforcement would be "unconscionable."[25] There is no requirement that enforcement be unconscionable in the case of a mutual mistake. According an official Comment, the reason for the difference is that "if only one party is mistaken, avoidance of the contract will more clearly disappoint the expectations of the other party than if he, too, is mistaken."[26] I don't see why that should be so. Even if it were so, if one accepted the Restatement's approach, relief should not depend on whether a mistake was mutual or unilateral [page 436] but on whether a party's expectations were more clearly or less clearly disappointed. Moreover, jurists have traditionally said that relief is given because an error may vitiate consent. Since the consent of both parties is necessary to make a contract, it is not clear why the relief given the party who erred should depend on what the other party happened to know or believe.

4. Error in the manifestation of assent. -- In the 19th century, the great German jurist Friedrich Karl von Savigny became convinced that if one allowed relief to turn on the how important a mistake was to a party, there would be no stopping point. He concluded that the reasons for which a party contracted were irrelevant. All that mattered was his final decision. Relief should be given only when the final decision which he made mentally did not match the outward expression of this final decision, that is, when the party's will (Wille) did not match his declaration (Erklärung) of his will.[27] Versions of this approach became widely accepted in Germany,[28] and one eventually passed into the German Civil Code. Section 119(1) of the Code provides that a person's declaration of will can be avoided when he made an error in its "content" absent which he would not have made the declaration.

In the United States, Oliver Wendell Holmes took an approach which was actually similar even though he subscribed to an "objective" theory of contract in which the will of the parties was not supposed to matter. According to the objective theory, the law attached consequences to what they said and did outwardly irrespective of what they willed. Holmes claimed that relief should be given for mistake only if the parties contradicted themselves outwardly. One party might be speaking of one object and the other party of another . Or a party might say he wanted "these barrels of mackerel" when there was no such object because the barrels contained salt.[29]

The trouble with either Savigny's or Holmes' approach is that it cannot handle some of the classical cases in which relief for mistake is given. For example, copper is sold as gold. Or a party says he wants "these barrels" thinking they contain mackerel when really they contain salt.

Holmes thought such a party should get relief but he could not explain why. He concluded, in a famous phrase that he used more than once, that "the distinctions of the law are founded on experience, not on logic."[30] In other words, Holmes' distinction was not founded on logic. [page 437]

Savigny's response was to claim that some characteristics are so bound up with a thing's identity that even a party who says he wants "this ring" has in effect said he wants "this golden ring." These were the characteristics by which a thing was classified as a thing of a certain type according to "conceptions dominant in actual commerce."[31] A similar approach has been taken in recent times by Werner Flume and Sir Guenter Treitel. Flume rejects the idea that a person who points to a ring or says "this ring" is merely indicating "a 'something' defined by space and time. ..." He has a picture (Vorstellung) of the object and "grasps it as having a certain composition."[32] Treitel believes that "[s]ome particular quality may be so important to [the parties] that they actually use it to identify the thing.[33] Nevertheless, such a solution seemed to many of Savigny's contemporaries to contradict his own principles. If the significance of a characteristic to the parties matters, then we are back to considering the parties' motives. If not, then the significance of the characteristic according to commercially dominant concepts should not matter either. Similarly, Flume's critics have pointed out that one cannot take a party's offer to buy a certain object to be an offer to buy only an object that matches his expectations. Of course, he believes that the milk he is buying is not sour, but that does not mean when he says he wants to buy "this carton of milk" he means "this carton of not sour milk."[34] Moreover, this approach has all the difficulties described earlier of trying to determine which characteristics of an object deemed to be essential in commercial dealings. People engaged in commerce do not ordinarily decide which of them should count as "essential."

Other German jurists,[35] among them Bernard Windscheid, concluded that Savigny's solution to the case of gold sold as copper contradicted Savigny's own principles. Windscheid accepted it, faute de mieux, as an explanation of the Roman texts which were still in force [page 438] in parts of 19th century Germany.[36] It passed into 119(2) of the German Civil Code which gives relief for a mistake concerning characteristics "regarded in commercial dealings as essential." In recent times, jurists such as Konrad Larenz have acknowledged, as Windscheid did, that relief for such a mistake is really relief for an error in motive, and therefore is an exception to the general principle that an error in motive doesn't warrant relief.[37] He did not explain why their should be such an exception or how to determine which characteristics are essential in commercial dealings.

5. Error in basic assumption. -- In the 17th century, Hugo Grotius suggested that the rule governing mistake should be the same as the one governing changed circumstances. The question should be whether the "promise is founded on the presumption of some fact that is really otherwise."[38] An approach like this has been particular popular in the United States. Despite his admiration for Holmes, Samuel Williston did not adopt his approach but said that relief should be given for mistake when a party were mistaken as to a "fundamental assumption."[39] A modified formulation of his view passed into the First [40] and Second Restatements of Contracts. According to the Second Restatement, to invalidate a contract, a mistake must concern "a basic assumption on which the contract was made."[41] The Second Restatement adopts the same formulation to describe when relief is given for impracticability.[42] Most recently, this approach has been taken by Melvin Eisenberg. He believes that a shared mistaken tacit assumption that is material justifies giving relief to the adversely affected party.[43] The difficulty with this approach is to explain what is meant by a basic or a tacit assumption. This phrase could refer to the importance of a belief to the parties.[44] But then we are back to a "determining motive" test which we have already seen is inadequate. Anyone who wants to escape from a contract -- must have been mistaken about something so important that he would not have contracted if he had known the truth. Alternatively, to speak of a mistake in a basic assumption could refer to an event in the mind of a party: he took something for granted and acted on it. Eisenberg and [page 439] Farnsworth use the example of a person who takes it for granted that the floor exists and will support him.[45] But it is hard to see why a person should obtain relief because he took something for granted. Surely, the mere fact that such an assumption was made should not be enough to warrant relief. Many losing contracts are made by people who did not question their assumptions about the durability of the market for mainframe computers, or the capacities of the equipment they bought, or the tastes of the friends for whom they purchased presents. Moreover, the propensity to question one's assumptions varies from one person to the next. It would be odd to deny relief to the timorous and grant relief to the sanguine.

According to Eisenberg, such mistakes differ from "evaluative mistakes," which do not warrant relief. "Mistaken factual assumptions differ from evaluative mistakes both because they do not concern evaluations of future states of the world and because they are made by an actor who is, by hypothesis, not well-informed."[46] But then we are no longer talking about a mistaken assumption as a psychological event. We are talking about how well informed a party happened to be about the present state of the world. I have trouble understanding this distinction and why it should matter. One of Eisenberg's examples of an evaluative error is the decision whether to spend a vacation on a cruise or skiing. One of his examples of an error of a mistaken assumption is the case of Griffith v. Brymer [47] in which the parties contracted for a flat suitable for viewing the coronation procession of King Edward VII not knowing that the king was sick and the procession had been canceled. It seems to me that either of these mistakes could have been made by a well-informed or an ill-informed party depending on what information was available at the time the mistake was made, information that could concern the present or the future.[48] Moreover, it is hard to see why an ill-informed decision warrants relief while a well informed one does not.

6. Allocation of risk. -- Yet another approach to the doctrine of mistake, which has also been applied to the doctrine of changed circumstances, is to formulate general principles that describe how the law allocates risks to the parties to a contract. p.S. Atiyah has said, [page 440] the questions of the law governing mistake, "are, in the last analysis risk-allocation questions."[49] The problem that then arises is how to allocate the risk.

For Atiyah, that question seems to be one of interpreting the contract. He does not clearly explain how, by interpretation, one can allocate a risk which, by hypothesis, the parties did not allocate themselves.

For the German jurist Ernst Kramer, the problem is also one of risk allocation. He believes that the party who made the mistake should bear the consequences unless the other party either caused him to err or knew of his error.[50] Although Kramer does not state it expressly, his principle for allocating risk seems to be that a person is responsible for risks that arise from his own conduct even if he is not at fault. Thus the party who errs is responsible for that error, however innocently it was made, unless the other party caused the error to be made or to persist, however innocent that party may have been Similarly, according to the new Dutch Civil Code, relief should be given if the error in "imputable to information given by the other party."[51] The trouble with his approach is that it is not clear why this is a sensible way for the law to allocate risk. In contract law, risks are usually allocated according to the intent of the parties. In tort law, they are usually allocated according to fault. When a party is held strictly liable, it is not merely because his conduct created a risk but usually because it created an abnormal risk.[52] Kramer's solution to the problem of mistake thus entails a novel principle of risk allocation, and one that needs a defense.

Partisans of the law and economics movement such as Richard Posner have a clearer principle of risk allocation. The risk should go on the party who is best able to bear it. That is where the parties would have placed the risk had they thought of it themselves.[53] As I have said elsewhere [54] and as will be seen later in this Article, much can be learned from this approach. But it is not easy to see how to apply it to the problem of mistake. It is one thing to say that if a party consents to a contract, the risks incident to the transaction should fall upon him if he can bear them most easily. It is another to [page 441] assign risks to someone who can best bear a risk but who, because he was mistaken, may never have consented to do so. The difficulty is exemplified by a hypothetical case put by Posner and expunged from subsequent editions of his casebook. It is based on Sherwood v. Walker,[55] described earlier, in which a prize breeding cow, presumed sterile (according to the majority) was pregnant at the moment of the sale. According to Posner, we should regard the contract as the sale of a cow, and then ask which party could best bear the risk that the cow was fit for breeding or fit only to be sold for beef.[56] The implication of this approach would seem to be that if someone bought "Bossy," thinking Bossy was a cow, and Bossy turned out to be a horse, we should regard the contract as the sale of an animal, and then ask who could best bear the risk of what sort of animal. Presumably, if "Bossy" turned out to be a tractor, a sports utility vehicle, or a Piper Cub we should say the contract was for the sale of a thing and ask the same question. If we do so, we will not merely be forcing a party to assume the risks ancillary to a contract to which he did consent. He will have to accept a performance to which he never consented because he happens to be in a better economic position than the other party to face the consequences. That cannot be right.

B. A Solution

We will begin by analyzing a situation in which, because of a mistake, the performance is unsuitable, not only to the purposes of the party who is to receive it, but to the purposes of parties in general who would otherwise have contracted for such a performance. One way the performance might be unsuitable is that it could not be used to achieve the purposes of anyone who contracted for it. For example, in Griffith u. Brymer,[57] one party rented a flat for a day believed to be suitable for viewing the coronation procession of King Edward VII. Neither party knew that the king was sick and the procession had been canceled. Thus the flat was unsuitable for the purposes of any party renting it for the day. Another way a performance can be unsuitable for the purpose of anyone who contracts for it is that is that he would use it for that purpose even though to do so would be physically possible. He would use it for a different and more valuable purpose. For example, in Sherwood u. Walker,[58] a cow which would have been worth a great deal if she could be bred was sold on the assumption that she was sterile -- or at least, that is how the majority of the court characterized the transaction. The cow was in fact pregnant at [page 442] the moment of the sale. While it would still be possible to slaughter the cow, no one would have done so.

The claim that relief should be given in the first of these cases is not original. A similar suggestion has been made by some contemporary French jurists. As we will see, they were rediscovering the solution that the certain medieval jurists had drawn from Aristotle. This solution had been adopted by the late scholastics, a school of jurists writing in the 16th and early 17th centuries whose members were self-consciously trying to synthesize Roman law and the moral philosophy of Aristotle and Thomas Aquinas. We will describe this solution, why it applies in this and certain kindred-situations, and why it must sometimes admit of exceptions.

1. The formulations of Ghestin and the Mazeauds. -- These French jurists have said that relief should turn on whether the parties erroneously believed that a performance would be suitable for the purpose envisaged by the person in error. Here they draw a distinction. Sometimes the performance will not serve this purpose for reasons that are peculiar to the person in error while at other times it will not serve for reasons that are general and have to do with the performance itself. Jacques Ghestin, now a leading jurist, explained in a thesis written in 1962:

"[a]n error in the suitability of an object [to an end] remains an error in the object. No doubt, the characteristics of the object are evaluated in relation to the end sought by the victim of the error. But this end is never considered independently of the object itself."

As Messieurs Mazeaud and Mazeaud observe, "from the moment that the thing presents in itself this usefulness or this possibility of utilization which constitutes its substantial quality it matters little that the contracting party cannot use it as he hopes for reasons that are personal and foreign to the contract although another person could have done so. The apartment ... remains apt for habitation even if the employee who bought it cannot use it because he has been transferred [like] the house which he has bought for his retirement at the time he retires even though he dies first."[59] In all the cases which we will examine, the inappropriateness of the object for the end pursued is inherent in the object, [and] it does not result from the personal situation of the person in error. The qualities of the object are only appreciated in light of the end pursued, but this end is only [page 443 considered in relation to the qualities of the object. The two elements are inseparable."[60]

For Ghestin and the Mazeauds, then, the critical question is, so to speak, the purpose for which an object is bought and sold. An error as to the suitability of the object for this purpose is an error as to the object itself. It is to be distinguished sharply from an error which makes the object suitable for the purposes of a particular buyer as distinguished from buyers in general.

2. The formulations of Bartolus, Baldus, and the late scholastics. -- This approach is much like one which certain medieval jurists and the late scholastics took centuries ago drawing on the philosophy of Thomas Aquinas and Aristotle. As mentioned earlier,[61] the Roman jurist Ulpian had said that a sale is invalid when the parties make an error in "substance." In the 14th century, Bartolus of Saxoferrato and Balus degli Ubaldi read an Aristotelian meaning into the words "substance" and "essence." Their interpretation 'was followed by the late scholastics.

In Aristotelian philosophy, what a thing is depends upon its substantial form or substance as distinguished from its accidents. A plum tree has one substantial form; a lion has another. A thing can change "accidents" such as its height and weight and still be the same kind of thing, but if it loses its substantial form it is no longer a plum tree or a lion. A thing's essence is the concept of a thing that one forms in one's mind which corresponds to its substantial form. When one has grasped the essence of a thing, one understands what it is.[62]

It was a short step to the conclusion that a contract was void for an error that went to the substance or essence of the performance contracted for. In Aristotelian terms, a person who made such an error was not getting what he contracted for. Thomas Aquinas concluded that a contract of marriage was void if a party made a mistake that went to the essence of the relationship.[63] Bartolus and Baldus concluded that Ulpian's text was speaking of an error in substance or essence in the Aristotelian sense.[64]

Bartolus pointed out, however, that what mattered was the substance or essence of an object considered, not on the natural level, but from the standpoint of its suitability for its use. On the natural level, according to Aristotle, the inorganic world was composed of four elements, earth, air, fire and water, each with its own essence. That did not mean that if a party bought land too uneven to farm, there was no mistake in essence since what he received was "earth." [page 444]

"[O]ne and the same thing is taken in different ways according a difference in the way it is considered as will now be seen. A field may be considered with regard to its matter, which is earth, and then if a river makes a channel through it, it does not cease to be earth, and so the earth remains something of the same kind. It can also be considered as earth suitable for the driving (agi) of animals, that is, earth on which animals are led and can labor, an it is from this use that 'field' (ager) receives the name which is proper to it. ... Taken in this way it loses its proper form [if the river makes channels through it]. It is much the same with the wine."[65]

That approach made good Aristotelian sense. For Aristotle and the scholastics, the essence of a man-made object is determined by its purpose. As Bartolus himself said, man-made things "take their substantial form from some aptitude which they have toward a certain end for which they were made by their maker."[66] A house is a building configured so one can live in it.[67] A chair is a piece of furniture configured so one person can sit on it. The field is not a man-made object, but according to Bartolus, it should be regarded the same way. What determines its essence is the purpose to which it is suitable. A field is land suitable for plowing. In the early 17th century, this approach was taken by the late scholastic Leonard Lessius. He called the purpose which determines the "species" of a thing its "principal causa" or immediate end. An error in this principal causa radically vitiates consent. He distinguished it from the "secondary causa" or motive that a person might have for acquiring an object. As we have seen, he thought relief should also be given for error in motive but such an error did not vitiate consent.

3. A rationale. -- In the 16th century, the theologian Cajetan had asked the question, why a party who failed to keep a promise should be liable if the promisee had not changed his position in reliance on the promise. The majority of the late scholastics, followed by the 17th century founders of the northern natural law school, Hugo Grotius and Samuel Pufendorf, had answered that sometimes the promisor would want to transfer immediately a right to the promisee to require performance.[68] Why, then, would one party want the other to be locked into the deal they have made. As Melvin Eisenberg has noted, he may want to lock in a favorable bargain.[69] That party may be afraid that the other party will renege, no longer wishing to [page 445] contract or to contract on the same terms.[70] In return for the promisor's agreement to be locked in, the promisee will give something in return: he will contract on terms more favorable to the promisor or agree to be locked in himself.

One can imagine two reasons why the promisee would want to lock in a favorable bargain. He might regard the performance he is to receive as unique, as one he is not likely to receive elsewhere at the same price. Alternatively or in addition, he might regard the price the parties agree upon as especially favorable.

Neither of these reasons apply in the situation we are discussing. If the promisee wished to lock in the right to a performance which he thought was of unique value to himself, the reason would be that he believed some characteristics of that performance increase its suitability to whatever purpose he is pursuing. In our situation, however, because of a mistake, the performance is not suitable for this purpose. Therefore, these characteristics, even if they do exist, will not increase its suitability.

Moreover, a party wished to lock in a price, the reason would be fear of receiving a less favorable price later on. The price the parties willingness to agree on a price will therefore depend on the price they expect others will offer. What others will offer depends on the suitability of the performance to their purposes. In our situation, because of a mistake, the performance is not suitable for those purposes. Since the contracting parties based their estimate on a use to which the performance could not or would not be put, they could have picked an appropriate price only by coincidence.

As noted earlier, Eisenberg has observed:

"a bargain promisor must explicitly or implicitly evaluate: (1) the relation between his own preferences (including his values and his tastes) and the performances due from him and to him under the contract; (2) the expected value to him -- that is, the personal, or subjective, value -- of those performances; and (3) the expected market, or objective, value of those performances."[71]

To make the first two of these decisions, a party must consider what goal he wants to pursue and how the performances he will give and receive contribute or detract from that goal. To make the third, he must consider what buyers in general will pay for the performance which will depend on the contribution the performance can make to accomplishing their objectives. If the performance is unsuited both to his objectives and to those of others, both of these decisions are [page 446] vitiated. Thus, relief should be given for the reason the late scholastics would have given: there was no meaningful consent.

In such cases, modern courts have generally given relief. For example, American courts have done so when land was sold as a housing site and legal regulations kept the buyer from building a house,[72] or as a site for a mobile home park and legal regulations prohibited installation of septic tanks.[73] They have done so when unimproved desert was sold for the cultivation of jojoba, and both parties mistakenly believed there was sufficient water.[74] American and German courts have given relief when land was sold for a building site and legal regulations kept one from building at all.[75] A German court gave relief when a football club paid 40,000 DM for a player not knowing he had been involved in a scandal and could not play.[76] A French court did so when an establishment was sold as a "clinic" which, because of a servitude, could only be used as a maternity hospital.[77]

England is an exception. English courts have enforced a contract for the sale of oats to a horse trainer mistakenly believed they were old oats, which he could use, rather than new ones, which he could not.[78] They enforced one for the sale of 300 bales of Calcutta kapok, "Sree brand," which neither party realized contained cotton and was therefore useless to the buyer.[79] They enforced a contract to buy beans which both parties mistakenly thought were "fereroles."[80] Lord Atkin said in dicta that relief should be denied to a party who buys an unfurnished house mistakenly believing it to be inhabitable.[81] The reason is not that the English state the rule differently than anyone else. As we have seen, they ask whether a mistake is substantial or essential. The reason seems to be fear. As Lord Atkin said: "Nothing is more dangerous than to allow oneself liberty to construct for the parties contracts which they have not in terms made by importing implications which would appear to make the contract more businesslike or more just."[82] He did not explain why it is not even more dangerous, in cases of doubt, to let a less businesslike and less just construction prevail. Be that as it may, if the results in English cases are based on a fear of meddling rather than a conception [page 447] of what result is just, it should not trouble us that they contradict the results elsewhere.

4. A kindred situation. -- In the situation just described, the performance is unsuitable both for the purposes of the party who was to receive it and for those of parties in general. Sometimes, however, a performance has characteristics which suit it generically for the purpose for which parties in general would pay for it. Nevertheless, depending on these characteristics, it may be suited to the purposes of one party and not to those of another. Size 8 shoes will not fit a person who wears size 11. A housing site that suits the plans of one buyer will not suit that of another. A painting that one person likes may not suit another. Moreover, no one would pay for a quarter acre plot or an imitation Ming vase what he would pay for a two acre lot or an original.

Performances such as these may be suitable to one person's purposes and not another for two different reasons. First, independently of the price, the performance that suits one person may not suit another. Even if shoes, or plots of land, or paintings could be bought at the same price, the size 11 does not fit, the configuration of the land may thwart the buyer's building plans, or a painting may not please him. Second, the reason a performance is not suitable is because, if it is appropriately priced, a person will not buy the more expensive one, since he doesn't want to spend so much money, or the less expensive one, since he has the money to spend and wants more than a small parcel or an imitation art work.

In such cases, if the contract is allowed to stand, one or both of two unfortunate consequences will follow. One party may end up with a performance that is not suitable for his purposes: shoes of the wrong size, land with the wrong configuration, an imitation vase. Or one party will pay a price that is inappropriately high or low compared with the price that some party would pay for the land or the vase if both parties knew the truth.

In such cases, the contract should not stand. Suppose first that a party has ended up with a performance that does not suit him. It may be that the party who is to make the performance contracted in order to lock in what he perceived as a favorable price. As just mentioned, however, the price may be inappropriately high or low because of an error. Here, as before, had the truth been known, the buyer or seller would not have been able to lock in such a price. Elsewhere, I have explained why, in my view, the law should respect the parties' decision to lock in a price.[83] The risks that the market price will change must be run by someone. By agreeing on a price, the parties allocate that risk. Here, however, if the parties are held to [page 448] the price on which they agreed, they will be subject to an additional risk -- the risk of being mistaken as to what price goods of this sort would command on the market at that time. There is no reason why they should be subject to that additional risk.

In other cases, the price might have been the same if the performance had been sold to a party who was not in error. Size 11 shoes sell at the same price as size 9. The parcel that confounds one party's building plans may suit another's. Works by different artists may be comparably priced. In these cases, it must be admitted that if the contract is invalid, the seller loses the advantage of having locked in the specific price to which the buyer agreed. We thus face our choice between two unpleasant alternatives: to deprive the seller of the benefit of his bargain or to insist that the buyer take something he cannot use. It would seem that the better alternative is not to enforce the transaction. The seller knows that the performance in question may not be suitable for all parties. He may be in the best position to ensure the buyer is properly informed. Moreover, if he wishes, he can protect himself by charging a bit more for the risk he is running.

Thus it is not surprising that modern legal systems generally give relief in cases like those described: in which an error concerning a parcel of land thwarts a buyer's plans for it, and in which the parties were in error as to the authenticity or provenance of a jewel, a work of art, or a collectable. American courts have given relief when the parties erroneously believed that at least four acres of an 18 acre parcel had a right to water for irrigation,[84] when they erroneously believed a parcel of land was large enough to accommodate five one-acre lots plus an access road,[85] when a parcel's encroachment on federal wetlands created significant restrictions on what one can build,[86] and when the buyer of a 450 foot parcel could not build where he wants because legal regulations required a 75 foot setback.[87] French courts have done so when plans to construct a nearby highway made the land they purchased inappropriate for a housing site.[88] German courts have given relief when land is sold as a housing site and the parties do not realize an entrance cannot be built on one of the streets it faces without paying 23,500 RM of street costs,[89] and when a house is sold and the parties did not realize a neighbor could build a multistory structure which blocks the view and turns access [page 449] route into a tunnel.[90] English law is less clear. Lord Atkin said by way of dictum that no relief should be given to a party who buys a roadside garage business when the city has already decided on to divert nearly all the traffic that passes the garage.[91] But as noted earlier,[92] Lord Atkin himself said that his reluctance to give relief came from a fear to reading into the minds of the parties what he regarded as a just result.

American courts have given relief when violins, sold as a Stradavarius, a Guernarius,[93] and a Bernardel,[94] were imitations, and when a coin, sold as rare, was actually a fake.[95] A French court gave relief when when pearls, sold as natural, were in fact cultured,[96] when a statue was sold as Tang dynasty and, in fact, there was no way to determine how old it was,[97] and when two chairs, described as "marquises" of the Louis XV period were, in fact, "bergeres" "adroitly reconstructed with pieces from the Louis XV period and following."[98] A German court gave relief when two Chinese vases, sold as modern, were in fact from the Ming dynasty, and when a painting, sold as Frank Duvenek, was in fact by Wielhelm Leibl.[99]

Again, English law is unclear. Lord Atkin said, by way of dicta, that no relief should be given if one party sells another a work of art which both mistakenly believe to be the work of an Old Master.[100] Indeed, English courts have upheld contracts in which both parties mistakenly believed the painting sold was by Constable [101] or by Munter.[102] The court reached the opposite result when tablecloths and napkins with the arms of Charles I had not been the property of that monarch, as the parties believed, but instead later copies. The court did so even though the seller had specified in the contract that "authenticity ... is not guaranteed."[103] As mentioned earlier, Lord Adkins himself believed that relief should be denied even in a case where it seemed just. He thought it safer, for some reason, to allow a seemingly unjust result to stand rather than to meddle. It is not surprising that English judges who share this concern reach results [page 450] which are different than those of judges in other countries and even in England who are less fearful.

5. Exceptions. -- Even if the mistake would otherwise warrant relief, courts and scholars have recognized certain exceptional cases in which it will not.

(1) Unilateral mistake, culpable mistake. -- Thus far we have assumed that the error was made by both parties. Suppose only one was mistaken. In one kind of case, one party knows that the other is mistaken. For example, suppose the owner of the flat overlooking the route of the procession knew that the procession has been canceled, or the buyer knew that the cow which the seller presumes to be barren is, in fact, pregnant. Such cases raise the problem of duty to disclose which is not under discussion here. I will note in passing, however, that I agree with Melvin Eisenberg and others who have written on this subject that there should be such a duty. In my view, the purpose of contract law is to enable the parties to exchange in a way that is of benefit to them both. If no one can be sure whether it will benefit them both because there is a risk that one party must assume, the terms should be fair in the same way as a fair bet. That purpose is furthered if each party must disclose information that shows that the exchange cannot benefit the other party or is not fair to him. I also agree with Eisenberg and others that there should be an exception if one of the parties has expended money or effort to acquire the information. For example, he buys land that he knows from seismic testing is likely to obtain oil. Or, having been trained as an art historian, he identifies a drawing in a shop as by an Old Master.

In a second kind of case, one party does not know that the other is mistaken. For example, the buyer purchases a cow he has discovered to be pregnant by manual inspection not knowing the seller believes her to be barren. Because the cow is less distinguished than the one in Sherwood v. Walker, the price is not so different as to make the seller's beliefs obvious. Or, for example, a farmer buys nitrites to use as fertilizer not knowing that they are chemically pure and hence more expensive than ordinary nitrites. He agrees to pay the high price because he is using nitrites for fertilizer for the first time and does not know how much they usually cost.

If the parties were contracting to lock in a price, then a court should give relief. A price which is too low or too high because of the one-sided mistake should be treated in the same way as if it were too low or too high because of a two-sided mistake. I believe the court should also give relief even if one of the parties was trying to lock in a performance he thought to be specially advantageous: for example, some unique features of the cow. Admittedly, this purpose will be defeated if he cannot enforce the contract. If our analysis is correct, [page 451] however, the seller did not give meaningful consent to the price. Therefore, he should not be bound. Suppose that one party wrote a letter offering to buy a house in England for $400,000, and because of an ink smudge on the dollar sign, the owner of the house thought he was offering 400,000. Surely there would be no contract if the owner accepted even though the buyer may have been trying to lock in specially advantageous characteristics of the performance. I don't see why the result should be different if a seller is mistaken about what he is selling.

I must admit, however, that modern legal systems supposedly deal with this problem quite differently. Traditionally, Anglo-American law required that the mistake be mutual. Thus the mistaken party would never get relief. According to some French and Italian jurists, relief will be denied if the mistaken party was at fault for not knowing the truth.[104] German law allows the non-mistaken party to recover for any harm he has suffered by changing his position in reliance.[105] Nevertheless, while jurists state these rules with assurance, the case law is sparse. Nearly all the cases I have found [106] deal with fault of a different kind: the courts refused to come to the aid of a party who did not read the contract he signed [107] or, in some cases, a recorded zoning restriction.[108]

(2) Assumption of risk. -- In the cases we have discussed so far, the party to receive a performance believed at the time he contracted that the performance would answer to his purposes. Suppose, however, that he is unsure. According to the Second Restatement, "[a] party bears the risk of a mistake when ... he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient. ..."[109] I am not too sure what it means to treat one's knowledge as "sufficient," but, in my view, only sometimes should a party should be denied relief because he knew of a risk.

The reason is that, in addition to the two reasons we have discussed, there is one further reason why a party might want a promise to be binding in advance of performance. There may be uncertainty [page 452] as to what the characteristics of the performance are. The promisee is willing to take a chance on whether the performance has the characteristics that he desires. He may pay a lower price because of the uncertainty. In any event, he took his chances and the promisor did not. It would be unfair to allow the promisor to reclaim the performance if it proves to be as desirable as the promisor hoped. It would be allowing the promisor to renege on a contract that was like a fair bet.

With these considerations in mind, we can distinguish two kinds of cases. First, there are cases in which the buyer has his own purpose in mind for the property. There is uncertainty as to whether the performance is suitable for that purposes. Nevertheless, other parties would be able to use it for their own purposes and no extra price was paid by the buyer in the hope that he could use it for his own. If the buyer contracts in order to lock in a price, courts should refuse relief. A French court refused to give relief when a house was sold to a buyer who wanted to use it both as a house and as a studio for cabinet making. He knew that a servitude on the property permitted only residential use but decided to take his chances.[110] In a similar case, a German court refused relief when the buyer, hoping to build a vacation home, bought land he knew was zoned to exclude houses.[111] In these cases, the sellers presumably were trying to lock in a price. But the buyer's uncertainty did not affect the price. The price reflected what others would pay assuming that they, unlike the buyer, would be buying the property for a legally permissible use.

In other cases, however, the uncertainty concerns the use to which any buyer would put the property. Here, in my view, we should distinguish cases in which the parties have, in effect, made a bet as to what the property could be used for from cases in which one party -- perhaps negligently -- simply failed to check to see if he was mistaken. In cases when a party failed to check, very likely, he thought the risk was too remote to bother. Very likely, then, the risk was not reflected in the price. Such a case is therefore like those discussed earlier in which one party was at fault for making the mistake. It may be that the other party wanted to lock in a price, but if the reason the contract would otherwise be binding is so he could do so, and if the mistake makes that price inappropriate, a court should give relief. The result should be the same here if a party's failure to check on the possibility of mistake makes the price inappropriate.

Some courts have ignored this distinction. One court upheld the sale of what both parties took to be a genuine antique Parker A-l shotgun which was in fact a fake. The buyer had called a gunsmith who expressed doubts as its authenticity and explained how, by dismantling the gun, he could see if it was genuine. The buyer was [page 453] unable to dismantle it himself, and the seller would not let him take it to someone who could. The court said he had bought knowing of the risk.[112] Similarly, a court upheld the purchase for $60, at an estate sale, of two oil paintings by a famous artist which the buyer resold for $1,072,000. An appraiser had told personal representatives of the estate that she could appraise personal property but not fine art. The court concluded that they had assumed the risk the art would be by a famous artist.[113]

Other courts have arrived at what I regard as a more reasonable result. One refused to uphold the contract for a home site when the buyer couldn't build the house he planned because a significant portion of it was located on a flood plain. The lower court had denied relief on the grounds that he should have hired an engineer.[114] Another court gave relief when a house was sold and neither party knew that the boundary of the property ran under its eaves although both parties were unsure of where the boundary was and the buyer could easily have checked.[115]

In cases like these, the parties have not, in effect, placed a bet on whether the paintings are by a famous artists, the gun is a fake Parker A, the house cannot be built on the site, or the boundary runs beneath the eves. Rather, they have neglected a precaution that would have alerted them to these possibilities. There may or may not have been sufficient uncertainty to have warranted the precaution. In either case, the fact that they went ahead without taking the precaution suggests that, very likely, the price did not reflect these possibilities. Given what we said in discussing fault, the court should have given relief for mistake in all four cases.

In contrast, sometimes the characteristic in question is one which would affect the suitability of the performance to all parties, and the contract is like a bet as to whether the performance has that characteristic or not. It may be like a bet in several different ways.

Sometimes one party believes that a certain test or procedure will reveal whether the performance has some desirable characteristic. The other is either unwilling or unable to perform the test himself. The degree to which the contract price reflects the possibility that it has this desired characteristic depends on the likelihood that it does and the expected expense of the test. If the test is sufficiently expensive and the characteristic sufficiently unlikely, it may not be reflected in the price at all. The contract should still be upheld because the buyer, at least, is betting that the test will be worthwhile, and he should get the benefit if he wins. [page 454]

Sherwood v. Walker may actually have been such a case. The majority thought that the buyer had also assumed the prize breeding cow was barren and had purchased her for beef. Nevertheless, Eisenberg notes that the buyer was a gentleman rancher, not a butcher, and so, very likely, wanted to see if she could be bred. If that was so, I agree with Eisenberg that the contract should have been upheld even though, as Eisenberg suggests, the cow was sold by the pound and so may have been sold at the price of an ordinary beef cow.[116]

In other cases, the parties both entertained a significant doubt as to the characteristics of a performance and the price was presumably adjusted accordingly. Thus one German court upheld the sale of an experimental medical device -- an "ultrasound" apparatus -- when the buyer knew it was uncertain what if any illnesses it could cure.[117] A French court upheld the sale of a painting which the seller's expert believed to be "school of Guardi," when the seller, to be on the safe side, had sold at a reduced price and labeled it, correctly, a "Venetian landscape, genere of Marieschi."[118] An American court upheld the sale of a rock the seller had found and sold to the buyer, a jeweler, as a specimen. Neither party knew it was an uncut diamond.[119]

In still other cases, the parties themselves have indicated how uncertainty is to be resolved, for example, by saying that property is sold "as is." Courts have respected such clauses.[120]

Finally, there are cases in which, so to speak, everyone is or would be mistaken at the time a contract is made. In an American case, a painting was sold as by Bierstadt. The court denied relief when later, art historians began expressing doubt and experts accepted the view that the painting was by Key.[121] Something similar seems to have happened in a French case. In 1933, a painting was sold as "attributed to Fragonard." In the 1980's, after it had been recognized that the painting truly was by Fragonard, the seller tried to reclaim it. The court said that "in 1933, in buying or in selling a work attributed to Fragonard, the contracting parties had accepted the risk as to the authenticity of the work."[122] The court's opinion may seem conclusory. Had it invalidated the contract, the parties would not have accepted that risk. In that event, however, the result, however, would have been that every time a painting was upgraded, so to speak, in the eyes of experts. a chain of contracts would fall like dominos as far back as the available evidence will go. To avoid that [page 455] result, courts must say that the buyer and seller, in effect, make a bet as to whether everyone is wrong at the time they contract. If the buyer and seller know that, then price will reflect the risk that everyone is wrong.

(3) Found property. -- There are cases in which one piece of property is found concealed in another. In one American case, a safe was sold with a locked compartment which the seller had not opened. The buyer, who had paid $50 for the safe, found $32,207 in the compartment. The court said the money belonged to the buyer. In my view, cases like these have less to do with the law of contract than with the law governing finders of property. That branch of law deals with a problem that I find almost insoluble: when an object is found, does it belong to the finder or the owner of the land on which it was found? What if the land is leased or the finder is an employee? I will merely note here that the find does not prevent the property from being suited to the purpose for which it was sold. One can still use the safe as a safe.[123]

II. ERROR IN MOTIVE

A. The Consensus

Thus far we have discussed two situations. In one, because of a mistake, the performance is unsuitable, not only to the purposes of the party who is to receive it, but to the purposes of parties in general who would otherwise have contracted for such a performance. In a second, the performance has characteristics which suit it, generically, for the purpose for which parties in general would pay for it. Nevertheless, depending on these characteristics, it may be suited to the purposes of one party and not to those of another. These are the cases in which, as we have seen, courts have commonly given relief under rules that require that the parties make an error in "substance."

In analyzing both types of cases, we attempted to distinguish cases in which a party deserved relief because of the reasons for making a binding contract from cases in which he simply changed his mind. Indeed, when a party simply changes his mind, courts and [page 456] commentators are generally agreed relief should not be given. A party has made what is commonly called an "error in motive."[124] Textbook examples are a friend who buys a wedding gift and then learns that the engagement has been broken,[125] a man who buys a new refrigerator and then learns that a family member has just done so or that his wife hates the color,[126] a merchant who orders goods and then discovers that he already has them in stock,[127] a person who contracts for a cruise and later would prefer to go skiing,[128] an employee rents a vacation house and then finds out he will not be given a vacation,[129] a basketball club which signs on a player and later decides that he is expendable,[130] a licensee of the right to exploit a film who expects it to be a blockbuster when it turns out to be a flop,[131] a person who sells a valuable object falsely believing that he needs the money,[132] and a person who buys property falsely believing he will inherit the money he needs to pay for it.[133] A performance has become unsuitable or less suitable for the purposes of the party who is to receive it. Nevertheless, the performance is no less suitable for the purposes of other parties who would have been willing to pay for it.

Melvin Eisenberg refers to cases of the type just discussed "evaluative mistakes." He defines them as "cases in which a well-informed and capable actor who made a contract comes to believe that his choice to make the contract was mistaken due to a change in his preferences or a change in the subjective or objective value of the performances due under the contract."[134] He believes that they "should not provide a basis for relief from a contract."[135] One reason he gives [page 457] is that that "in many cases the risk that a contracting party has made an evaluative mistake is the very risk that the other party has bargained for. In effect, such contracts normally are fair bets. ..."[136] Another is that "the whole point of a promise is to commit yourself to take a given action in the future even if, when the action is due to be taken, all things considered you do not wish to take it."[137]

Jurists who have considered this problem have agreed on this proposition for most of history. While common lawyers did not consider this problem until the 19th century,[138] civil lawyers have done so since the time of ancient Rome. When Roman jurists described the errors for which a party should obtain relief, none of their examples is what we would call an error in motive.[139] According to the jurists who commented on Roman law in the Middle Ages, a party who had made an error in causa, which means purpose or motive, could withdraw from a contract only if the error was induced by fraud.[140]

B. A Dissenting View

We will now suggest, however, that certain errors in motive warrant relief. This position was taken in the early 17th century, by Leonard Lessius, a leading late scholastic jurist. His position was adopted by the founders of the northern natural law school, Grotius and Pufendorf. We will examine their position, and then see that they were right. If we understand when they were willing to give relief for error in motive, we will see that they were not claiming that a party could escape his contract simply because he found it disadvantageous.

Lessius defended his conclusion with an argument that he and his contemporaries had borrowed from Thomas Aquinas. Aquinas had used it to explain a doctrine which common lawyers today call changed and unforeseen circumstances and Germans call Wegfall der Geschäftsgrundlage. This doctrine had been invented by the medieval canon lawyers and then borrowed by the medieval Roman lawyers. The canon lawyers concluded that in every promise, "this condition is always understood: if matters remain in the same state."[141]

In the 13th century, Aquinas had explained this doctrine by drawing on Aristotle's concept of equity. According to Aristotle, since laws are enacted to serve a purpose, circumstances can always arise [page 458] in which the purpose will be thwarted if one obeys the law.[142] The lawmaker would not have wished the law to be binding under those circumstances. Aquinas concluded that an oath, vow, or promise is binding only under circumstances in which the promisor would have intended to be bound had these circumstances been called to his attention.[143] The late scholastics adopted this explanation of the doctrine, and the northern natural lawyers borrowed it from them.[144]

Lessius argued that an error in causa or motive could warrant relief for the same reason. As Aquinas had said, promises are binding only under the circumstances in which the promisor had intended to be bound. "The reason," Lessius said, "is that a promise only has force because of the will and intention of the promisor...; therefore it cannot bind beyond that intention as expressed or as prudently interpreted."[145] Drawing on Aquinas' analogy, he explained that promises are like laws. However absolute their wording, laws "do not obligate in those cases in which the legislator expressly or by interpretation wished to except, and a promise is a sort of particular statute which one freely imposes on oneself."[146] But "no one intends to abide by a contract in such a way that he cannot withdraw even if he only contracted because of a great error. ..."[1477 Lessius concluded that a party who was led to promise a gift by an "error in motive" should be able to withdraw because the "normal and tacit intention of the parties is to be regarded." While acknowledging that in a contract of exchange both parties must consent, he claimed that the most reasonable conclusion is that a promise to exchange can be revoked if the party who made such an error is not at fault and the positions of the parties have not changed (res ... est integra). If their positions have changed, then that party can still revoke but the other can claim compensation for any damage he has suffered.[148] The views of Grotius and Pufendorf were similar though less precisely expressed. For example, Grotius spoke of an error in the "unique" motive for contracting without explaining whether he meant more that any motive without which one would not have contracted.[149]

One might think that if Lessius, Grotius, and Pufendorf were right, a contract would never be binding beyond what we would call a [page 459] person's reliance interest. Anyone could withdraw from a contract provided he compensated the other party for any harm he suffered by relying on it. After all, anyone who wishes to withdraw must have made some error absent which he would not have contracted -- if only the error of thinking that he wouldn't change his mind. As Eisenberg said, "the very point of a promise is to commit oneself to take a given action even if, all things considered, one does not wish to take the action at the time it is supposed to be taken."[150]

Nevertheless, Lessius, Grotius, and Pufendorf rejected the position that executory contracts are not binding beyond a person's reliance interest.[151] That position had been defended in the 16th century by Cajetan, at least when the promise was to make a gift. He argued that the person promised a gift was no worse off if the promise was broken unless he had changed his position in reliance on the promise. Therefore no injustice was done as long as the promisor compensated him for any harm he had suffered by changing his position.[152] Lessius responded that if Cajetan were right, the same must be said of promises to exchange. Moreover, it was a fallacy to assume that, absent reliance, the promisee was no worse off when an executory promise was broken. That was to assume that at the moment the promise was made, the promisee had not acquired a right to the performance. If he were promised a gift, surely he acquired such a right upon delivery. But there was nothing magic about the moment of delivery. If the parties so intended, the promisor could confer such a right on the promisee at the moment they contracted. If so, failure to perform deprived the promisee of that right.[153]

Lessius' insight, then, was that if the parties so intend, the promisor can give the promisee a right to require performance, not merely a right to compensation for a change in position. Even then, however, the promisor is not bound under circumstances in which the parties would not have wished him to be had they considered those circumstances. Therefore, he is sometimes not bound because of an error in motive.

C. A Solution

Lessius did not explain why the parties would want to make an arrangement that binds the promisor, not merely to compensate the promisee who relies, but to perform or pay the value of the promised performance. To put the question in modern terminology, why would [page 460] the contracting parties want an arrangement that protects the expectation interest and not merely the reliance interest of the promisee?

As we have seen, Melvin Eisenberg has identified a reason the parties might want an arrangement which protects the promisee's expectation interest. A party may want to lock in a favorable bargain.[154] In return for the promisor's agreement to be locked in, the promisee will give something in return: he will contract on terms more favorable to the promisor or agree to be locked in himself. A party might want to lock in the bargain for two reasons: because of the special qualities of the performance he is to receive, or because he wants to lock in what he believes to be a favorable price.

We can now go back to Lessius. His idea was that the parties might or might not have intended an arrangement in which, as we would say, the promisor was liable for the promisee's expectation interest and not merely for his reliance interest. Even if they intended such an arrangement, sometimes, if the promisor was under an error in motive, he still might not be liable for the promisee's expectation interest.

Having identified the reasons why the promisee would want such an arrangement, we can be more specific about the implications of Lessius' approach. We know that the promisee wanted a promise from the promisor. We should determine whether the reason the promisee wanted the promise from the promisor was for one of the reasons just described: to avoid difficulties of proving reliance damages, or to lock in a performance of particular value to him, or to lock in a price. If not, and we cannot see any other reason the law should respect for holding the promisor bound, he should not be bound beyond the promisee's reliance interest. If there is such a reason, his liability should be commensurate with it.

With these considerations in mind we can see why a court usually will not grant relief to a party who has made an error in motive. Suppose that a promisee wanted to lock in a performance because of its unique qualities. For example, suppose that the buyer of a house wanted to lock the right to the house because of characteristics that make it specially valuable to him. Suppose that the seller had plans to move to a different house and regrets having contracted when his plans fall through. He may also value the unique qualities of the house, Nevertheless, there is no way that a court could tell to whom the house is most valuable. The seller cannot have the right to the house simply because he once owned it. He should not stand in a different position than anyone else who finds it especially attractive. It is not surprising that a court would not give relief. Next, suppose that a promisee wanted to lock in a price. He might be trading on [page 461] what I have referred to elsewhere as a perfect market in which the price for which a commodity will sell at a given time is known by all potential buyers and sellers.[155] A party who contracted on such a market might discover he has made an error in motive. For example, a farmer who sold a certain quantity of corn to a dealer might acquire more pigs and decide he would rather keep the grain and feed it to them. Or the grain dealer might decide that he cannot afford the corn without overextending his business. If the market price has moved in favor of the party who was mistaken in his motives, that party could withdraw without paying any damages. He will not wish to do so, of course: the farmer could purchase corn elsewhere for less than he is selling the corn he raised, and the dealer could resell at a profit. If the market price has moved against the mistaken party, however, then there are two reasons why he should not be able to withdraw. To allow him to do so is, in effect, to allow him to renege on a bet he has lost. If markets work as economists say they do, the party who gains if a price moves in his favor could just as easily have lost if they had moved the other way. When parties contract to lock in the price in what I have called a perfect market, they have, in effect, bet on which way the market will move. As we have just seen, if the market moves in favor of the mistaken party, he will not be withdrawing from the contract. He will profit. It would be unfair to allow him to withdraw if the market price moves against him.

In what I have called an imperfect market, neither party is sure of what others will pay for what he is thinking of buying and selling. An example is the housing market, where neither party is sure whether he can get a better deal elsewhere. Once again, however, the promisee has reneged on a bet. In an imperfect market, each party is betting that the price he is offered is better than any he will find if he waits and shops around. If the promisor had realized after the contract was made that he had offered $100,000 less for a house than other people would, he would not have defaulted. He would have resold at a profit. He should not be able to default if he agreed to buy the house for $100,000 more than others will pay for it.

It is not surprising, then, that usually a court will protect the expectation interest of the promisee when the promisor has made an error in motive. For example, an American court did so when a party bought a dredge built for use in trenching in the mistaken belief that it could perform sweep dredging.[156] A French court did so when a buyer bought a fabric sold as "cloth for furniture" (tissu d'ameublement) and found it insufficiently strong to use for [page 462] clothing.[157] So did a German court did so when the buyer purchased land to sell it to a particular third party who then refused to buy.[158]

Nevertheless, if our approach is correct, we cannot accept, as a universal proposition, that error in motive does not matter. Eisenberg, as noted earlier, gave two reasons why it should not. The first is perfectly sound. "Many bargains are motivated by the parties' differing estimates of the objective value of the performances due under the contract. In effect, such contracts normally are fair bets. ..."[159] As we have noted, that is one of the reasons a promisee might want to lock in what he regards as a favorable price. If he contracted in order to lock in either the price or the value of a unique performance not easily available elsewhere, he should have the benefit of his bargain. But he may not have contracted in advance to lock in either the price or the performance. He may have simply wished to allow time for the goods to be ordered or made or to reserve a place in line. If so, while he should have to compensate a promisee who changed his position, there is no reason he should be compelled to do more. On the other hand, if the promisee did contract to lock in a unique performance or a price, still, the considerations that led to the making of the promise to be made should circumscribe the remedy for its breach. If the promisee contracted for a unique performance not readily available elsewhere, then the promisor should be compelled to perform. If the promisee contracted to lock in a price, the promisor should be compelled to pay him the difference between the contract and the market price. But if the performance is readily available on the market and the contract price and market price are the same, why should the promisor be compelled to perform? Eisenberg's first reason no longer applies. His second reason is that "the very point of a promise is to commit oneself to take a given action even if, all things considered, one does not wish to take the action at the time it is supposed to be taken." But if the very point of the promise is to allow the promisee to lock in a given performance or a given price, then the promise does not lose its point as long as the promisee gets this benefit. Moreover, the point of the promise may be to allow the promisee time to obtain goods or to make them or to perform a service without fear that he lose by doing so. If so, the promise does not lose its point as long as he is compensated for any loss he suffers.

Often the proposition that an error in motive does not matter will not affect the result a court reaches. If the promisee has contracted for a unique performance, the promisor will be compelled to perform. If the promisee has contracted to lock in a price, the promisor will have to pay him the difference between market and contract or [page 463] contract and market price. Unfortunately, courts have said that error in motive does not matter when the promisor's performance was not unique and prices did not change. Even when prices did not change, the promisee can still recover damages if he is a "lost volume" seller. He would have made an additional sale if the promisor had not defaulted. He could then have ordered an additional product from his supplier and pocketed the difference between the price the manufacturer charges him and the price he charges his customers. He can also recover if he has excess capacity and could have pocketed the difference between the contract price and his variable costs. If the approach we are defending is correct, the cases which allow him to recover were wrongly decided.

An illustration is the American case, Neri v. Retail Marine Corp.[160] A customer agreed to buy a new boat of a specified model at a certain price from a retail dealer. Before the boat was delivered, he tried to rescind the sale because he needed hospitalization and surgery. Four months after the boat was delivered to the dealer by the manufacturer it was sold to another customer at the same price. The court held that the dealer could recover the difference between the contract price and the costs he had saved (or, as Uniform Commercial Code 2-708(2) puts it, his overhead plus lost profit). The court never considered the customer's motive for trying to rescind.

If the buyer's error in motive did not matter, and the seller was entitled to expectation damages, the case was correctly decided. If the approach we are now considering is correct, however, then we should ask whether promisee wanted the promise for the reasons we have described. This is not a case in which the dealer wished to lock in a unique performance. The customer's performance was to pay money. It may have been a case in which the dealer (and customer) wished to lock in the price. Even so, the price did not change. The boat was resold at the same price. If the purpose of binding the customers was to lock in the price, his liability should be commensurate with that purpose. The dealer should recover the resale minus the contract price which in this case is zero.

A German example is a case in which the defendant, who was in some unspecified branch of the automobile industry, reserved twenty-two beds in a hotel for his employees so they could attend the International Automobile Exhibition in September. He made the reservations on January 20. On January 28, he notified the hotel that he did not want the rooms because the exhibition had been canceled. The hotel did not succeed in renting the rooms to anyone else. A German appellate court allowed the hotel to recover its lost profits.[161] [page 464]

It is true that a hotel might wish a reservation to be uncancelable for a reason we have not yet considered: the difficulty of proving reliance. If a guest cancels shortly before he arrives, the hotel might have been able to give the room to someone else. It would be hard to prove, however, that those who inquired about rooms and were turned away would actually have taken them. That is why most hotels have a policy which allows cancellation a certain number of days in advance but requires full or nearly full payment thereafter. But that consideration doesn't apply here. It is hard to believe the hotel was so fully booked from January 20 to 28 that it turned away anyone. It tried and failed to rent the rooms from then until September. Nor was the hotel trying to lock in some unique performance. It may have been trying to lock in a price, but the price did not change. The hotel sued for lost profits.

Another example is a line of German cases in which a party agrees to borrow money from a bank, and tries to withdraw when the project for which he borrowed it is no longer feasible. German courts have treated the bank like a lost volume seller and held the borrower liable for its lost profits on the loan.[162] Here again, that result is perfectly reasonable if error in motive doesn't matter, and if expectation damages can be recovered for breach of contract. But these are not cases in which the bank was trying to lock in either a unique performance or in which interest rates had changed. If the bank wanted the borrower to be liable for expectation damages, it would not be for any of the reasons we have discussed.

There is, of course, an additional reason that the bank, the hotel, or the retail boat dealer might want to recover expectation damages. They might want to make money by charging customers and guests for things that they don't want. That may, indeed have been their motive, but it is one the law should disregard. A basic purpose of contract law is to enable people to get what they do want. The law [page 465] may sometimes have to compromise it, but that does not mean that the law should assist a party in thwarting this purpose.

Moreover, if that were the reason for requiring the customer or guest to pay expectation damages, the customer and the guest would never agree to do so if they both had their eyes open. We will use the Neri case to illustrate why that is so but the reasoning would be the same in the hotel and bank cases as well. If the dealer and his customer were risk averse, as most people are, the dealer could not offer the customer a price reduction sufficient to induce him to agree to pay expectation damages under the circumstances of the Neri case. It would amount to a gamble on whether some random event such as a medical problem will make the performance worth less to the customer than what he agreed to pay. Risk averse people won't gamble unless the odds of winning are tilted in their favor. They will not bet $10,000 on a coin flip unless they are offered more than $10,000 if they win. In the case we are imagining the customer would not agree to pay expectation damages unless he is offered more than the amount of the damages discounted by the probability that he will have to pay. Since the dealer is also risk averse, he will never offer that much.

That is so, I believe, even if the dealer were a monopolist who controlled the retail sale of every boat his customers could buy. Imagine the buyer indicating that he would pay $15,000 for a certain boat, and the dealer responding that he could have his choice: he could buy the boat for $15,000 or they would flip a coin and, depending on the outcome, he would buy the boat for either $17,000 or $13,000. Because the customer is risk averse, he would take the first choice and pay $15,000. To induce him to accept the second, the dealer would have to change the terms in his favor: for example, to $16,500 or $13,500 depending on the coin flip. But those terms would not interest a risk averse dealer.

If the dealer were not a monopolist, it is still easier to see how parties with their eyes open would write the contract. We can imagine a customer negotiating with two boat dealers to see where he can get the best terms. Imagine that there is an express term in the contract that requires him to pay expectation damages even if he cancels before there has been any reliance and when prices have not changed. He offers the dealer some amount -- $500 -- for the removal of that clause, and the first dealer indicates his willingness to agree. He then asks the second dealer if he will offer a better deal, and the second says he will take out the clause for $400. If the process continues, they will bid the price of removing that clause down to zero.

If this analysis is right, then error in motive does matter, and a generally accepted rule of contract law is wrong. Because the rule is generally accepted, it is not surprising to find that courts often follow [page 466] it. But because it is wrong, it is not surprising to find that sometimes, guided by their own intuitions about justice, courts give relief for error in motive without admitting that they do so. A German court gave relief, supposedly for what we call frustration of purpose, when a travel agency booked rooms in a hotel and later canceled. The court noted that travel agencies often have to book rooms before they are sure they have customers.[163] In France, a husband and wife each bought theater tickets to the same performance, neither knowing that the other was doing so. The court held that the theater had to return the price of one set of tickets.[164] In another French case, a court gave relief when a person bought insurance not realizing that his deceased mother had already insured him.[165] In an American case, a contractor hired a subcontractor to furnish concrete barriers for a highway project. The court gave relief for frustration of purpose when the government reworked the project so that it no longer included barriers.[166] In a similar case, the court gave relief when a project was reworked so it no longer required the painting and finishing that the subcontractor had been hired to do.[167]

In another American case, a father agreed to pay for karate lessons for his son. His son's doctor then determined that the boy could not take them. A clause in the contract said that the lessons could not be canceled. The court said that it would have given relief for frustration of purpose absent that clause.[168] The court might have gone further and asked why the non-cancellation clause was put in the agreement. It might have been for the legitimate reason that reliance damages would be hard to prove: for example, perhaps the course might not have been offered if fewer people signed up. Or it might have been for what we have seen is not a legitimate purpose: to charge people for what they don't want. Still, absent the clause, the boy's father would not have had to pay.

Other cases involve the status of long term contracts when one of the parties is no longer doing business and no longer needs what the other was to supply. In one German case, a man had a long term contract to buy chinchillas for breeding purposes. The seller was also to provide him with ongoing advice on their rearing. The buyer died. The court gave relief for frustration of purpose, noting that his wife and minor children would neither be able to carryon the business nor [page 467] to resell the chinchillas.[169] In a well known American case, a hotel entered into a three year contract with a golf club for hotel guests to use the golf course and the hotel to pay the club a monthly fee plus their green fees. The hotel burned down. The court held it was an implied condition of the contract that there would be guests.[170]

III. CONCLUSION

The fundamental problem, as we have seen, is when a party should be bound to a contract which is disadvantageous to him, given that the purpose of a contract is to advantage both parties. Traditionally, jurists have attempted to solve this problem by distinguishing errors in the "substance" of the performance contracted for from errors in the "motive" of the contracting party. Modern jurists have had considerable trouble distinguishing the two. As we have seen, if we take into account the reasons why parties would wish to be bound to a contract, we can make sense of the ancient concept of "error in substance." Having done so, we can see why even an error in motive can sometimes merit relief. [page 468]


FOOTNOTES

* JAMES GORDLEY is Shannon Cecil Turner Professor of Jurisprudence, School of Law, University of California at Berkeley.

1. DIG. 18.1.9.

2. Code civil art. 1110.

3. Codice Civile art. 1428.

4. Bürgerlichesgesetzbuch 119(2).

5. 33 N.W. 919, 923-24 (Mich. 1887).

6. Kennedy v. Panama Royal Mail Co., (1867) L.R. 2, Q.B. 580, 588.

7. [1932] A.C. 161, 207, 219.

8. [1932] A.C. at 218.

9. [1932] A.C. at 235.

10. ROBERT POTHIER, TRAITÉ DES OBLIGATIONS 18, in 2 OEUVRES DE POTHIER 1 (M. Bugnet, ed., 2nd ed., 1861).

11. Code Civil art. 110.

12. 4 CHARLES AUBRY & CHARLES RAU, COURS DE DROIT CIVIL FRANÇAIS 343 his (4th ed. 1869-71).

13. GUY RAYMOND, DROIT CIVIL no. 238 (3d ed. 1996); AMBROISE COLIN & HENRI CAPITANT, COURS ÉLÉMENTAIRE DE DROIT CIVIL FRANÇAIS no.38 (7th ed. 1932); 2 GEORGES RIPERT & JEAN BOULANGER & MARCEL PLANIOL, TRAITÉ ÉLÉMENTAIRE DE PLANIOL no. 199 (4the ed. 1952); 1 RODOLFO SACCO & GEORGIO DE NOVA, IL CONTRATTO 384-85 (1993).

14. Bürgerlichesgesetzbuch 119(2).

15. 1 FERDINAND REGELSBERGER, PANDEKTEN 142 (1893).

16. 2 COLIN & CAPITANT, supra note 13, at no. 38; 2 RIPERT, BOULANGER & PLANIOL, supra note 13, at no. 199.

17. 2 COLIN & CAPITANT, supra note 13, at no. 38.

18. Id. no. 40; 2 RIPERT, BOULANGER & PLANIOL, supra note 13, at no. 199; Jacques Mestre, Obligations et Contrats Speciaux. 1. Obligations en général, 88 REVUE TRIMESTRIELLE DU DROIT CIVIL 736, 739 (1989); 1 RODOLFO SACCO & GEORGIO DE NOVA, IL CONTRATTO 384-85 (1993); FRANCESCO GALGANO, DIRITTO PRIVATO 276 (10th ed. 1999).

19. CHRISTIAN LARROUMET, DROIT CIVIL 3 LES OBLIGATIONS LE CONTRAT no. 341 (4th ed. 1998); 2 COLIN & CAPITANT, supra note 13, at no. 40; 2 RIPERT, BOULANGER & PLANIOL, supra note 13, at no. 199; 1 SACCO & DE NOVA, supra note 13, at 384-85.

20. RAYMOND, supra note 13, at no. 236; LARROUMET, supra note 19, at no. 338.

21. Burgerlijk Wetboek art. 228(l) (c).

22. RESTATEMENT (FIRST) OF CONTRACTS 503. Allan Farnsworth notes that while that was the traditional view, courts have given relief for unilateral mistake, and not only when a mechanical error was made in compiling a bid, though that is the most frequent case. E. ALLAN FARNSWORTH, CONTRACTS 631, 635 (3d ed. 1999). He also notes that. Among his illustrations is a case in which relief was given to a buyer who mistakenly thought the parcel included land belonging to the Forest Service but enclosed by the same fence (Beatty v. Depue, 103 N.W. 2d 187 (S.D. 1960), and one in which relief was given to a seller who mistakenly listed three bags for sale instead of two. Colvin v. Baskett, 407 S.W. 2d 19 (Tex. Civ. App. 1966).

23. PAUL ESMEIN, MARCEL PLANIOL & GEORGES RIPERT, TRAITÉ PRATIQUE DE DROIT CIVIL FRANÇAIS 6 OBLIGATIONS no. 177 (1952).

24. RESTATEMENT (SECOND) OF CONTRACTS 152 (1981).

25. Id. 153.

26. Id. Comment c to 153.

27. 3 FRIEDRICH KARL YON SAVIGNY, SYSTEM DES HEUTIGEN RÖMISHEN RECHT 113 (1840-48).

28. JAMES GORDLEY, THE PHILOSOPHICAL ORIGINS OF MODERN CONTRACT DOCTRINE 190-96 (1991).

29. OLIVER WENDELL HOLMES, JR., THE COMMON LAW 310-11 (1881).

30. Id. 312.

31. 3 SAVIGNY, supra note 27, at 283.

32. WERNER FLUME, ALLGEMEINER TEIL DES BÜRGERLICHEN GESETZBUCHS 2 DAS RECHTSGESCHAFT 477 (2nd ed. 1975). His position was adopted by Dieter Medicus. DIETER MEDICUS, ALLGEMEINER TEIL DES BGB EIN LEHRBUCH no. 770 (7th ed. 1997).

33. SIR GUENTER TREITEL, THE LAW OF CONTRACT 267 (10th ed. 1999).

34. REINHARD BORK, ALLGEMEINER TEIL DES BÜRGERLICHEN GESETZBUCHS 315 (2001). Similarly, Larenz argues that the legal problem what to do when a party is in error. It is not the problem of what to do when his declaration of his will fails to match reality. KARL LARENZ, ALLGEMEINER TEIL DES DEUTSCHEN BÜRGERLICHEN RECHTS 380-81 (7th ed. 1989).

35. E.g., Ernst Bekker, Zur Lehre von den Willenserklärung: Einfluss von Zulang und Irrthum, reviewing A. SCHLIEMANN, DIE LEHRE VON ZWANGE (1861), in 3 KRITISCHE VIERTELJAHRESSCHRIFT FOR GESETZGEBUNG UND RECHTSWISSENSCHAFT 180, 188-89 (1861); Achill Renaud, Zur Lehre von Einflusse des Irrthums in der Sache auf die Gultigkeit der Kaufverträge mit Rücksicht aufv. Savigny: Der error in substantia, 28 ARCHIV FOR DIE CIVILISTISCHE PRAXIS 247, 247-54 (1846); M. Hesse, Ein Revision der Lehre von Irrthum, 15 IHERINGS JAHRBOCHER FÜR DIE DOGMATIK DES HEUTIGEN RÖMISCHEN UND DEUTSCHEN PRIVATRECHTS 62, 101 (1877).

36. BERNHARD WINDSCHEID, LEHRBUCH DES PANDEKTENRECHTS 76a (7th ed. 1891).

37. LARENZ, supra note 34, at 378-79; ERNST WOLF, ALLGEMEINER TEIL DES BÜRGERLICHEN RECHTS 480 (3rd ed. 1982).

38. HUGO GROTIUS, DE IURE BELLI AC PACIS LIBRI TRES II.xi.6. (1646).

39. SAMUEL WILLISTON & GEORGE THOMPSON, A TREATISE ON THE LAW OF CON. TRACTS 1544 (1937).

40. RESTATEMENT (FIRST) OF CONTRACTS 502 (1932).

41. RESTATEMENT (SECOND) OF CONTRACTS 152(1) (1981).

42. Id. 261,

43. Melvin A. Eisenberg, Mistake in Contract Law, 91 CALIF. L. REV. 1573, 1624 (2003).

44. RESTATEMENT (SECOND) OF CONTRACTS 152 Comment b (1981).

45. Eisenberg, supra note 43, at 1622; FARNSWORTH, supra note 22, at 624.

46. Eisenberg, supra note 43, at 1620.

47. [1903] 19 T.L.R. 434 (K.B.).

48. Eisenberg also draws a second distinction: "evaluative mistakes typically concern judgments of the value that a performance will have in a future state of the world." But here again, I not sure that is true or why it is significant. In Krell v. Henry, [1903] 2 K.B. 740, the facts were the same as in Griffith v. Brymer except that the parties contracted before the procession was cancelled. The court gave relief. Surely, the explanation of why relief was appropriate in Krell must be the same as the explanation in Griffith. Moreover, it is hard to see what constitutes a mistake as to a fact in the present as distinguished from a mistake as to the future. Suppose the king was sick when the contract was made in Krell but no one knew it yet.

49. P.S. ATIYAH, AN INTRODUCTION TO THE LAW OF CONTRACT 227 (1995).

50. Ernst A. Kramer, in FRANZ JÜRGEN SACKER, IN MUNCHENER KOMMENTAR ZUM B(JRGERLICHEN GESETZBUCH to sec. 119 no. 114 (4th ed. 2001)

51. Burgerlijk Wetboek 218(1) (a).

52. See James Gordley, Contract and Delict: Toward a Unified Law of Obligations, 1 EDINBURGH L. Rev. 345,349-52 (1997); James Gordley, Tort Law in the Aristotelian Tradition, in DAVID OWEN, ED., PHILOSOPHICAL FOUNDATIONS OF TORT LAW: A COLLECTION OF ESSAYS 131, 151-57 (1995).

53. RICHARD POSNER, ECONOMIC ANALYSIS OF LAW 104-07 (6th ed. 2003).

54. Gordley, supra note 52, at 323; James Gordley, A Perennial Misstep: From Cajetan to Fuller and Perdue to "Efficient Breach," ISSUES IN LEGAL SCHOLARSHIP, SYMPOSIUM: FULLER AND PERDUE 16 (2001).

55. 33 N.W. 919 (Mich. 1887).

56. RICHARD POSNER, ECONOMIC ANALYSIS OF LAW 73-74 (2d ed. 1977).

57. [1903] 19 T.L.R. 434 (K.B.).

58. 33 N.W. 919 (Mich. 1887).

59. 2 HENRI MAZEAUD & LEON MAZEAUD, LEÇONS DE DROIT CIVIL no. 166 (1967), quoted in JACQUES GHESTIN, LA NOTION D'ERREUR DANS LE DROIT POSITIF ACTUEL 51 (1971). The same solution is given in 2/1 HENRI MAZEAUD, LEON MAZEAUD, JEAN MAZEAUD & FRANÇOIS CHABAS, LEÇONS DE DROIT CIVIL no. 166 (1998).

60. GHESTIN, supra note 59, at 51.

61. At p. 433.

62. For a fuller description of these ideas and their influence on contract law, see GORDLEY, supra note 28, at 10-29.

63. SUMMA THEOLOGIAE Q. 41, a. 1.

64. See GORDLEY, supra note 28, at 57-61.

65. BARTOLUS DE SAXOFERRATO, TRACTATUS DE ALVEO Stricta ratione, nos. 6-7, in 10 BARTOLUS DE SAXOFERRATO, OMNIA QUAE EXTANT OPERA fo. 141r (1615).

66. Id. no. 3

67. Id. (Bartolus' example),

68. GORDLEY, supra note 28, at 73-79.

69. Melvin A, Eisenberg, The Theory of Contracts, in p, BENSON, ED., THE THEORY OF CONTRACTS NEW ESSAYS 223, 279 (2001).

70. As discussed in GORDLEY, supra note 52, at 331-332.

71. EISENBERG, supra note 43, at 1581.

72. Rancourt v. Verba, 678 A.2d 886 (Vt. 1996) (federal and state wetlands restrictions); Cour d'appel, Rouen, Mar. 19, 1968, D.S. 1969.J.211.

73. Lang v. Koziarz, 1987 Del. LEXIS 466 (1987).

74. Renner v. Kehl, 722 P .2d 262 (Ariz. 1986).

75. Gartner v. Eikill, 319 N.W. 2d 397 (Minn. 1982); BGH, 11 Feb. 111958, NJW 1958.785 (decided under 242); OLG Koln, June 25 1964, MDR 1965, 292 (dicta).

76. BGH, Jan. 13 1975, NJW 1976.565.

77. Gass. civ., 3e ch. civ., May 25,1972, JCP 1972.II.17249.

78. Smith v. Hughes, (1871), L.R. 2, Q.B. 597.

79. Harrison & Jones v. Bunten & Lancaster, (1953) 1 Q.B. 646.

80. (1953) 2 Q.B. 450.

81. Bell v. Lever Brothers, Inc., [1932] A.C. 161, 224.

82. [1932] A.C. at 226.

83. James Gordley, Equality in Exchange, 69 CALIF. L. REV. 1587, 1620-21 (1981).

84. Lesher v. Strid, 996 P.2d 988 (Ore. App. 2000).

85. Murr v. Selag, 747 P.2d 1302 (Idaho 1987).

86. Shorebuilders, Inc. v. Dogwood, Inc., 616 F. Supp. 1004 (D. Del. 1985).

87. Burggraff v. Baum, 1998 Me. Super. LEXIS 51 (1998) (he also could not use an access road but the court implies that either mistake would warrant relief).

88. Cour d'appel, Versailles, Mar. 30,1989, Rev. trim. dr. civ. 1989.739.

89. OLG Düsseldorf, June 28 1912, JW 1912, 850.

90. RG, May 31, 1905, RGZ 61, 84.

91. Bell v. Lever Brothers, Ltd, [1932] A.C. 161, 224.

92. at p. 447.

93. Smith v. Zimbalist, 38 P.2d 170 (Cal. App. 1934) (finding a breach of warranty).

94. Bentley v. Slavik; 663 F. Supp. 736 (S.D. 111. 1987).

95. Beachcomber Coins, Inc. v. Boskett, 400 A.2d 78 (N.J. Super. 1979).

96. Cass. req., Nov. 5, 1929, D.H. 1929.539.

97. Cass., le ch. civ., Feb. 26, 1980, Bull. civ. I, p. 54 no. 66.

98. Cass., le ch. civ., Feb. 23, 1970, JCP 1970.J.16347.

99. BGH, June 8, 1988, JZ 1989, 41.

100. Bell v. Lever Brothers, Ltd., [1932] A.C. 161. 224.

101. Leaf v. Internat'l Galleries, (1950) 2 K.B. 86.

102. Harlington & Leinster Enterprises v. Christopher Hull Fine Art, (1991) 1 Q.B. 564 (although here, the seller disclaimed any expert knowledge).

103. Nicholson & Venn v. Smith-Marriott, (1947) 177 L.T. 189.

104. RAYMOND, supra note 13, at no. 237; LARROUMET, supra note 19, at no. 355; 1 SACCO, supra note 13, at 379. GIOVANNI IUDICA, PAOLO ZATTI & VINCENZO ROPP, IL CONTRATTO 782 (2001) take the opposite view. Also, according to the Second Restatement, fault does not matter. RESTATEMENT (SECOND) OF CONTRACTS 157 (1981).

105. Bürgerlichesgesetzbuch 122(1).

106. An exception may be a French case in which a party who had "experience with insurance" insured himself twice against the same risk. Cass. civ. le ch. civ., June 29 1959, Bull. civ. I, p. 267, no. 320. I can understand the court's impatience but I believe it should have given him relief.

107. Ptacek v. Wammes, 1987 Ohio App. LEXIS 5790.

108. Hartle v. United States, 22 Cl. Ct. 843 (1991), but a buyer who inquired about zoning restrictions but did not check the municipal records was held not to be negligent in Gartner v. Eikill, 319 N.W. 2d 397 (Minn. 1982).

109. RESTATEMENT (SECOND) OF CONTRACTS 154(b) (1982).

110. Cass., le ch. civ. June 13, 1967, JCP 1967.11.15290.

111. OLG, Rostock, Feb. 23, 1995, NJW - RR 1995, 1105.

112. Cydrus v. Rouser, 1999 Ohio App. LEXIS 5746.

113. Estate of Martha Newman v. Franz, 12 P.3d 238 (Ariz. 2000).

114. 632 N.E. 2d 507 (Ohio 1994).

115. Bailey v. Ewing, 671 P.2d 1099 (Idaho 1983).

116. EISENBERG, supra note 43, at 1634.

117. BGH, Dec. 181954, BGHZ 16,54.

118. Trib. gr. inst., Paris, May 7, 1975, Gaz. Pal. 1975.

119. Wood v. Boynton, 25 N.W. 42 (Wisc. 1885).

120. E.g., Lenawee County Board of Health v. Messerly, 331 N.W. 2d 203 (Mich. 1982); Cour d'appel, Riom, May 10, 1989, Rev. trim. dr. civ. 1989.740.

121. Firestone & Parson, Inc. v. Union League of Philadelphia, 672 F. Supp. 819 (E.D.Pa. 1987), aff'd without opinion, 833 F.2d 304 (3d Cir. 1987).

122. Cass. le ch. civ., Mar. 24, 1987, JCP 1989.J.21300.

123. One might think that a sale of land with minerals beneath it cannot be explained in the same way. Often one cannot use the land as a mine and still use it for the purpose that the buyer or anyone else would have had in mind at the time it was sold. In European countries such as France and Germany, the problem of which party has the right to the minerals cannot arise since the state takes title to them. In the United States, they belong to the land owner. The only justification I can think of for the American rule is that one cannot tell how much the owner benefits personally from the original use of the property. A forced sale may therefore undercompensate him. If that is so, however, then the same reason would dictate that he not be deprived of his land by the person who sold it to him because contains minerals. Another reason is, as in the Bierstadt and Fragonard cases, to avoid invalidating a long chain of contracts stretching back to the earliest identifiable seller.

124. French law: 2/1 MAZEAUD, MAZEAUD, MAZEAUD & CHABAS, supra note 59, at no 166; RAYMOND, supra note 13, at no. 241; 2 RIPERT, BOULANGER & PLANIOL, supra note 13, at no. 199. Planiol would seem to be an exception if we consider only his statement that courts should give relief for error in motive provided the other party will not suffer a great prejudice. Id. no. 185. But elsewhere he says that relief should only be given if the mistake concerned a tacit condition of the contract known to both parties. Id. no. 177. German law: LARENZ, supra note 34, at 378; FLUME, supra note 32, at 424-25; Italian law: Rosella Filippi no. 1 to art. 1429 in PAOLO CENDON, ED., CODICE CIVILE ANNOTATO CON LA GIURISPRUDENZA (1996/97); FRANCESCO GALGANO, DIRITTO PRIVATO 276 (10th ed. 1999); IUDICA, ZATTI & ROPP, supra note 104, at 78.

125. LARENZ, supra note 34, at 391. See GHESTIN, supra note 59, at 62 (a father buys a trousseau for his daughter and then the engagement is broken off).

126. IUDICA, ZATTI & ROPP, supra note 104, at 784.

127. LARENZ, supra note 34, at 391.

128. EISENBERG, supra note 43, at 1582. Eisenberg speaks, not of an error in motive, but of an error in "evaluation."

129. GHESTIN, supra note 59, at 62.

130. EISENBERG, supra note 43, at 1582.

131. Id.

132. FLUME, supra note 32, at 425.

133. RIPERT, BOULANGER & PLANIOL, supra note 13, at no. 177; GHESTIN, supra note 59, at 62.

134. EISENBERG, supra note 43, at 1582.

135. Id.

136. Id. 1583.

137. Id.

138. GORDLEY, supra note 28, at 141-46.

139. REINHARD ZIMMERMANN, THE LAW OF OBLIGATIONS ROMAN FOUNDATIONS OF THE CIVILIAN TRADITION 597 (1990).

140. Or more accurately, if he made an error in the causa finalis remota. See GORDLEY, supra note 28, at 49-57, 65-67.

141. GLOSSA ORDINARIA to DECRETUM GRATIANI to furens to C. 22, q. 2, c. 14 (1595).

142. ARISTOTLE, NICOMACHEAN ETHICS V. x 1137a-1137b.

143. THOMAS AQUINAS, SUMMA THEOLOGIAE II-II, Q. 88, a. 10; Q. 89, a. 9.

144. LEONARDUS LESSIUS, DE IUSTITIA ET IURE, CERTERISQUE VIRTUTIBUS CARDINALIS LIBRI QUATUOR lib. 2, cap. 18, dub. 10 (1628); GROTIUS, supra note 38, at II.xvi.25.2; lI.xxi.20.2; SAMUEL PUFENDORF, DE IURE NATURAE ET GENTIUM LIBRI OCTO III.vi.6 (1688); JEAN BARBEYRAC, LE DROIT DE LA NATURE ET DES GENS ... PAR LE BARON DE PUFENDORF, n. 3 to III.vi.6 (1734).

145. LESSIUS, supra note 144, at lib. 2, cap. 18, dub. 10.

146. Id. lib. 2, cap. 17, dub. 10.

147. Id. lib. 2, cap. 17, dub. 5.

148. Id.

149. GROTIUS, supra note 38, at II.xi.6; PUFENDORF, supra note 144, at III.vi.6. For a discussion, see GORDLEY, supra note 28, at 89-93.

150. EISENBERG, supra note 43, at p. 12.

151. LESSIUS, supra note 144, at lib. 2, cap. 18, dub. 2; GROTIUS, supra note 38, at II.xi.1, 3-4; PUFENDORF, supra note 144, at III.v.5-11.

152. CAJETAN, COMMENTARIA to THOMAS AQUINAS, SUMMA THEOLOGIAE II-II, q. 81, a. 8; q. 113, a. 3 (1698).

153. LESSIUS, supra note 144, at lib. 2, cap. 18, dub. 2.

154. Melvin A. Eisenberg, The Theory of Contracts, in P. BENSON, ED., THE THEORY OF CONTRACTS NEW ESSAYS 223, 279 (2001).

155. GORDLEY, supra note 83, at 1620-22.

156. Anderson Brothers Corp, V. O'Meara, 306 F.2d 672 (5th Cir. 1962).

157. Gass. corn., July 4, 1973, Bull. civ. IV, no. 238.

158. BGH, Sept. 27, 1991, NJW-RR 1992.182.

159. EISENBERG, supra note 43, at 1583.

160. 285 N.E.2d 311 (N.Y. 1972).

161. OLG Braunschweig, July 31, 1975, NJW 1976,570. Similarly, in Arizona, a resort recovered against a manufacturer who had reserved a hundred ninety rooms for a convention of representatives of dealerships, and then cancelled it because twenty percent of the dealerships were afraid to travel during the first Gulf War. 7200 Scotsdale Road General Partners v. Kuhn Farm Machinery, Inc., 909 P.2d 408 (Ariz. 1995). It was a strange case since the court seemed to think it relevant that their fears were exaggerated. The court may have been influenced by a provision in the contract charging the manufacturer if fewer people came than he expected.

162. BGH, Nov. 2, 1989, NJW 1990, 981 (borrower tries to withdraw because he can't raise the additional money needed for his project); BGH, Mar. 12, 1991, NJW 1991, 1817 (borrower's plan to purchase property falls through); BGH, Dec. 12, 1985, NJW-RR 1986, 467 (decided under 242) (borrower's plan to build single family homes is canceled when delay leads to increased costs). More recently, the Bundesgerichtshof has held that good faith requires the bank to release the buyer from the contract -- thereby allowing him, for example, to remove an encumbrance on his property -- but only if he pays seller's lost profit. BGH, July 1. 1997, BGHZ 136, 161, on which see Andreas Früh, Der Anspruch des Darlehensgeber auf Einwilligung in die vorzeitige Darlehensrückzahlung, NJW 1999, 262.

163. BGH, Nov. 24, 1976, NJW 1977, 385, 386.

164. Trib. comm. Sene, Apr. 2, 1943, Gaz. Pal. 1943.2.81.

165. Cass. req., June 6, 1932, D.H. 1932. 396.

166. Chase Precast Concrete Corp. v. John J. Paonessa Co., 566 N.E.2d 603 (Mass. 1991).

167. A. T. Switzer Company, Appellant v. Midwestern Construction Company of Missouri, 670 S.W.2d 69 (Mo. Appl. 1984).

168. Jewell v. Sports, USA, Inc., 19 Va. Cir. 19 (1989).

169. OLG Frankfort, Oct. 15, 1973, MDR 1974, 401. Although, in another case, in which a hotel had agreed to buy at least a certain quantity of beer from a brewery every year, the contract was enforced even though the hotel had ceased operating. K stands to buy beer from brewery stands even if hotel owner/buyer ceases operations. (decided under BGB 242) BGH, Feb. 27, 1985, NJW 1985.2693.

170. La Cumbre Golf & Country Club v. Santa Barbara Hotel Co., 271 P. 476 (1928).


Pace Law School Institute of International Commercial Law - Last updated August 4, 2005
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