A sales contract is an agreement between a seller and buyer. The contract states the terms of engagement and period that a transaction took place and it is signed when a product is transferred from the seller to the buyer (Twomey, 2013) A mutual mistake of fact refers to the unexpected issues that make a contract irrelevant due to the changes that affect the terms of engagement between the seller and buyer. Contract law refers to the guidelines that regulate the behavior of parties interested in doing business (Chirelstein, 2013). This essay examines a case study that outlines the nature and application of the mutual mistakes policies in a contract law.
Josh Hartly and the car dealer are innocent and thus not responsible for the damage that may occur if the contract is rescinded. Both Josh and the sales person enter into this contract knowing that the manufacturer still supplies the 3.2 liter engine cars. They understand the fuel consumption concerns of the 3.9 engine and that is why Josh does not want it. This situation is common in most businesses, especially after a tight financial period. Most companies adjust their manufacturing preferences to suit the existing economic situations.
The manufacturer failed to inform the car dealer that the 3.2 and 3.9 liter engines are no longer manufactured. Therefore, Josh and the car dealer knew that this brand was still on the market. However, the car dealer was also wrong because he was supposed to confirm the availability of the 3.2 liter engine before allowing Josh to sign the sales contract. Also, Josh is not out of the hook because he assumed that the car dealer stocks the 3.2 liter engines.
Rescinding a contract because of mutual mistake of fact
Josh and the car dealer have the right to rescind the contract because it does not meet the terms stipulated in it. First, Josh’s concern is about getting a fuel-efficient vehicle that can offer the comfort and convenience he wants. Therefore, he chose a smaller engine capacity that would save his fuel costs.
Josh did not know that the manufacturer stopped manufacturing his preferred engine capacity. He signed the contract out of ignorance and this means that he did not have the latest information about his preferred brand of car. Therefore, it is prudent to rescind the contract because it does not meet the stated requirements.
Secondly, the car dealer signed the contract based on the information he had from the manufacturer. He was not aware of the fact that the manufacturer had stopped producing the 3.9 and 3.2 engine capacities. Therefore, he did not sign the contract knowing that it was going to fail.
The principle of mutual contract stipulates that all parties involved should willingly and knowingly enter an agreement (Prince & Crystal, 2013). The car dealer did not hide any information from Josh and this means that he acted in good faith despite the nullity of the contract.
Both Josh and the car dealer did not seek information from the manufacturer regarding the available car engine sizes before signing the contract. They are responsible for the collapse of the agreement because of their negligence. The contract was signed based on wrong information regarding the available car engines. The manufacturer was not at fault not to inform the car dealer of the changes in manufacturing car engine sizes. Therefore, there was a mutual mistake of fact and the contract should be rescinded.
Ethical and unethical acts
The car manufacturer and dealer acted unethically because they failed to communicate on time. Evidently, due diligence was not followed during the signing of the contract. The car manufacturer should have communicated early and informed the dealer of the changes in the new car engines. However, the manufacturer did not communicate and this made the dealer sign a contract for a product that did not exist.
The car dealer acted based on the previous manufacturer’s standards and assumed that the 3.2 engines still existed. Josh is also to blame for not confirming that the 3.2 engines were available. Therefore, all these parties acted unethically and this warrants the cancelation of the contract.
Application of the Uniform Commercial Code (UCC)
This code allows parties the flexibility to meet local circumstances that may affect the legality and application of the terms of a contract (Knapp, 2012). It gives the manufacturer, car dealer and Josh the freedom to rescind the contract because of the changes that affect its application. Moreover, it modernizes the contract law and allows for exceptions in this case that involved unintentional misinformation of the parties involved.
Winners and losers
All the three parties involved will incur losses if the contract is rescinded. Josh might have taken a loan or sold his old car to buy the new one. The costs incurred in meeting the car dealer and visiting several yards add to his list of expenses. He might be forced to buy the 3.5 engine car that will not save his fuel costs.
The car dealer may lose a potential future customer because Josh will not trust him again. His reputation as a reliable car dealer may be tainted. Lastly, the car manufacturer may not make good sales because other customers like Josh may decide to buy smaller engine vehicles.
It is not strange to rescind a contract because the law provides exceptions that allow parties to change their minds. However, the parties involved in a contract should be careful and use the latest available information to make decisions. Rescinding a contract may have negative impacts on the future of the parties involved depending on the losses they make.
Chirelstein, M. (2013). Concepts and Case Analysis in the Law of Contracts: Concepts and Insights. Minnesota: Foundation Press.
Knapp, C.L. (2012). Rules of Contract Law 2012-2013 Statutory Supplement. New Jersey: Prentice Hall.
Prince, G.G. & Crystal, N.M. (2013). Problems in Contract Law: Cases and Materials. New York: Wiley.
Twomey, D.P. (2013). Business Law: Principles for Today’s Commercial Environment. California: South-Western College Publishers.