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Case: Donovan v. RRL Corporation1
Facts: Brian Donovan, in the market for a used car, spotted a newspaper ad for a local Lexus dealer
listing a sapphire blue Jaguar XJ6 Vanden Plas for $25,995. Jaguars of the same year and mileage cost
about $8,000 to $10,000 more than the auto at the Lexus agency. Brian and his wife went to the dealer
and attempted to purchase the car for the listed price. The dealer refused; it had paid $35,000 for the
Jaguar and intended to sell it for about $37,000. The price in the newspaper ad arose from the
newspaper’s typographical and proofreading errors, although the Lexus dealership had failed to review
the proof sheet before the ad went to press. Brian sued. The trial court found that unilateral mistake
prevented enforcement. The appellate court reversed, and Donovan appealed to the state's highest
court.
Issue: Did the Lexus dealer’s mistake entitle it to rescind the contract?
Decision: Yes, the mistake entitled the dealership to rescind.
Reasoning: The price is a "basic assumption" of a contract. A significant mistake about that price may
permit one party to rescind an agreement. The injured party must show that the error is so severe that it
would be unfair to enforce the bargain.
Measured by this standard, the Lexus dealership's price error was a material mistake. A sales price of
$25,995 would require the dealer to sell the Lexus for $12,000 less than it intended. That is a 32%
error, creating a bonanza for Donovan and a large loss for the seller.
Donovan argues that a dealer is able to monitor its ads and must be strictly held to the terms that it
publishes. However, if a court were to enforce this rule, it would mean that a dealer who inadvertently
advertised a $75,000 car for $75 would be stuck with the bargain. That is too harsh.
There is no evidence that the Lexus dealership knew of the misprint or intended to mislead customers.
Nothing indicated that the dealer routinely permitted such errors to appear in the press. It was the
Daily Pilot that made the mistake. The dealership should not suffer a large loss because of that error.
The judgment in favor of the dealership is affirmed.
Question: I thought an advertisement was merely an invitation for an offer. Why did this
advertisement create an offer?
Question: The dealer could have caught this serious typo by proofreading the ad before the paper
printed it. Did the court take that into account?
Answer: The court took it into account but was not persuaded, holding the fact that one might
Question: What would be the result if the court adopted the plaintiff’s argument and enforced this
contract?
Answer: Persons in the dealer’s position would be deemed to have assumed the risk of all
typographical errors in advertisements. For example, the court states, if an automobile dealer
Duress
If one party makes an improper threat that causes the victim to enter into a contract, and the victim had
no reasonable alternative, the contract is voidable.
1 26 Cal.4th 261, 27 P.3d 702, 109 Ca. Rptr.2d 807 Supreme Court of California, 2001.
You Be the Judge: In re RLS Legal Solutions, L.L.C.2
Facts: Amy Maida sued her employer, RLS Legal Solutions for various claims relating to her job. RLS
asked that the case be dismissed because Maida had signed an arbitration agreement. Maida had signed
the contract but argued it should not be enforced because she had signed it under economic duress. At
trial, she testified she did not find the agreement acceptable and explained what happened after she
refused to sign it:
After I refused to agree to this arbitration clause, I was told that my payroll checks would not be
direct deposited into my account until I signed the agreement and that I would not be paid until I
signed the agreement. I had received my paychecks by direct deposit for three years. .. I needed my
paycheck to meet my financial responsibilities since I am a single family income household
provider. I had no way to pay my mortgage, vehicle note, car and homeowner's insurance as well as
any household bills.
RLS did in fact stop the direct deposit payment of Maida's salary but after she signed the agreement
paid her by a manual check. Maida eventually received every pay check to which she was entitled. The
trial court refused to dismiss the case or order arbitration, and RLS appealed.
You Be the Judge: Did Maida sign the arbitration under economic duress?
Holding: Judgment for Maida affirmed. The court found economic duress. It declared:
The evidence was sufficient to support a determination that RLS withheld Maida's compensation
for work already performed for the purpose of obtaining her agreement to arbitrate employment
disputes, and that the withholding of her compensation for work already performed defeated
Maida's free agency. On this record the trial court reasonably could have found the restraint was
imminent and Maida had no means of protection from the threat. These facts differ from those in In
re Halliburton because here the withholding of payment was for work already performed, and was
not "merely [premising] continued employment on acceptance of new or additional employment
terms." Even if she was not entitled to continued employment, payment was due for work already
performed, and RLS was not legally entitled to condition that payment on her signing an agreement
to arbitrate.
Question: What did RLS do that Maida claimed was economic duress?
Answer: RLS wanted employees to agree to arbitrate all employment-related disputes. Maida
Question: What is RLS’ argument?
Question: I can see why it would be duress not to pay her at all but she received everything to
which she was entitled. Why did the court rule for Maida?
Answer: Because it was economic duress to withhold her sole means of support to force her agree
Undue Influence
If a party enters into a contract as a result of undue influence, the contract is voidable. To prove undue
influence, the injured party must demonstrate:
• A relationship between the two parties either of trust or of domination, and
• Improper persuasion by the stronger party.
2 2005 WL 171381 Texas Court of Appeals, 2005.
Case: Sepulveda v. Aviles3
Facts: When Agnes Seals was 80 years old a fire damaged the ten-unit New York City apartment
building she owned and lived in. Seals was unable to care for the property and David Aviles, a 35-year
old neighbor, convinced Seals to sell him the building, promising to care for her for the rest of her life.
She sold Aviles the building for $50,000, taking $10,000 down and agreeing to be paid the remainder
over time. Aviles located a lawyer, Freedman, who Seals had never met before to represent her at the
closing. Three years later Seals died. Her will left her estate to the Sepulvedas, but the building had
been her principal asset. The Sepulvedas sued Aviles, asking the court to set aside the sale of the
building, claiming that Aviles had used undue influence to trick Seals into a sale that was not in her
interest. The jury found that Aviles had not used undue influence, and the Sepulvedas appealed.
Issue: Did Aviles use undue influence to obtain the apartment building?
Decision: Yes, Aviles used undue influence.
Reasoning: The jury's verdict was completely at odds with the evidence. A social worker testified that
at the time of the sale, Seals was traumatized by the fire, housebound, and utterly dependent on others
for her daily needs. Sister Lachapelle, a second neutral witness, confirmed this. They both stated that
Aviles promised to take care of Seals if she would sell him the building. At the closing, Seals was
represented by a lawyer she had never met before, recommended to her by Aviles.
A medical expert testified that in his opinion, Seals suffered from severe Alzheimer's disease at the
time of the sale. Aviles testified that at the time of the sale, Seals was coherent and lucid, but the expert
testimony is far more persuasive than Aviles's self-serving, lay opinion.
At trial, Aviles admitted that he made unfettered use of Seals's funds and credit cards. In a particularly
brazen example, he wrote Seals monthly checks for payment on the house, and then had her endorse
the checks back to him. Aviles deposited the checks in his account, having effectively paid nothing for
the house. The sale was a sham.
Aviles clearly and repeatedly used undue influence to bring about the sale and then avoid his payments
for the building. The jury's verdict that there was no undue influence was based on a wildly
unreasonable interpretation of the evidence. The case is reversed and remanded for a new trial.
Question: Why is the appellate court reviewing the sufficiency of the evidence?
Answer: The jury held in favor of Aviles and Sepulveda moved to set aside the jury’s verdict on the
Question: What evidence did the jury rely on?
Question: What evidence contradicted that testimony?
Answer: Expert medical testimony that Seals had dementia and a social worker’s testimony that 16
Question: Was there other evidence that tipped the appellate court in Seals’ favor?
Multiple Choice Questions
1. Kerry finds a big green ring in the street. She shows it to Leroy, who says, “Wow. That could be
valuable.” Neither Kerry nor Leroy knows what the ring is made of or whether it is valuable. Kerry
3 762 N.Y.S. 2d 358, 308 A.D.2d 1 New York Supreme Court, Appellate Division, 2003.
sells the ring to Leroy for $100, saying, “Don’t come griping if it turns out to be worth two
dollars.” Leroy takes the ring to a jeweler who tells him it is an unusually perfect emerald, worth at
least $75,000. Kerry sues to rescind.
(a) Kerry will win based on fraud.
(b) Kerry will win based on mutual mistake.
(c) Kerry will win based on unilateral mistake.
(d) Kerry will lose.
Answer: D. Kerry will lose, based on conscious uncertainty. If Leroy knew the ring was valuable,
2. Veronica has a beer and then makes a contract. She continues drinking, and her blood alcohol level
eventually rises to.09, which is just above her state's threshold for drunk driving. She makes a
second contract while in this condition. Veronica's first contract is ___________________, and her
second contract is __________________.
(a) valid; valid
(b) valid; voidable
(c) voidable; voidable
(d) voidable; void
3. Jerry is so mentally ill, that he is unable to understand the nature and consequences of his
transactions, but he has not been adjudicated insane. Penny has been adjudicated insane, and a
court has appointed a guardian to handle her affairs. Jerry's contracts are _____________, and
Penny's contracts are ______________.
(a) valid; valid
(b) valid; voidable
(c) valid; void
(d) voidable; voidable
(e) voidable; void
4. Angela makes a material misstatement of fact to Lance which he relies on it when he signs Angela's
contract. Fraud exists if Angela made the misstatement
(a) Intentionally
(b) recklessly
(c) carelessly
(d) A and B only
(e) A, B, and C
Answer: D.
5. Scarborough's Department Store opens for business on a busy shopping day just before Christmas. A
hurried clerk places a sign in the middle of a table piled high with red cashmere sweaters. The sign
reads, "SALE – 100% Cashmere - $0.99 Each." The sign, of course, was supposed to read "$99
each."
This is a ___________ mistake, and customers ______________ be able to demand that
Scarborough's sell the sweaters for 99 cents.
(a) unilateral; will
(b) unilateral; will not
(c) bilateral; will
(d) bilateral; will not
Essay Questions
1. Raymond Barrows owned a 17-acre parcel of undeveloped land in Seaford, Delaware. For most of
his life Mr. Barrows had been an astute and successful businessman, but by the time he was 85
years old, he had been diagnosed as “very senile and confused 90 percent of the time.” Glenn
Bowen offered to buy the land. Barrows had no idea of its value, so Bowen had it appraised by a
friend, who said it was worth $50,000. Bowen drew up a contract, which Barrows signed. In the
contract, Barrows agreed to sell the land for $45,000, of which Bowen would pay $100 at the time
of closing; the remaining $44,900 was due whenever Bowen developed the land and sold it. There
was no time limit on Bowen’s right to develop the land or any interest due on the second payment.
Answer: The contract is voidable by Barrows's family. Barrows suffered from a mental impairment,
2. On television and in magazines, Maurine and Mamie Mason saw numerous advertisements for
Chrysler Fifth Avenue automobiles. The ads described the car as “luxurious,” “quality-engineered,”
and “reliable.” When they went to inspect the car, the salesman told them the warranty was “the
best. .. comparable to Cadillacs and Lincolns.” After the Masons bought a Fifth Avenue, they began
to have many problems with it. Even after numerous repairs, the car was unsatisfactory and
required more work. The Masons sued, seeking to rescind the contract based on the ads and the
dealer’s statement. Will they win?
3. The McAllisters had several serious problems with their house, including leaks in the ceiling, a
buckling wall, and dampness throughout. They repaired the buckling wall by installing I-beams to
support it. They never resolved the leaks and the dampness. When they decided to sell the house,
they said nothing to prospective buyers about the problems. They stated that the I-beam had been
added for reinforcement. The Silvas bought the house for $60,000. Soon afterwards, they began to
have problems with leaks, mildew, and dampness. Are the Silvas entitled to any money damages?
Why or why not?
Answer: The Silvas are entitled to damages for fraud (saying the I-beams had been added merely
4. Roy Newburn borrowed money and bought a $49,000 truck from Treadwell Ford. A few months later
the truck developed transmission problems. Newburn learned that the truck had 170,000 more
miles on it than the odometer indicated. The company admitted the mileage error and promised to
install a new transmission free. Treadwell installed the new transmission, but when Newburn came
to pick up the truck, Treadwell demanded that he sign a general release absolving the dealership of
any claims based on the inaccurate mileage. Treadwell refused to turn over the truck until Newburn
finally signed. The truck broke down again, and delays cost Newburn so much income that he fell
behind on his loan payments and lost the truck. He sued Treadwell, which defended based on the
release. Is the release valid?
Answer: No. Newburn signed under economic duress. Treadwell had no right to hold the truck,
5. Morell bought a security guard business from Conley, including the property on which the business
was located. Neither party knew that underground storage tanks were leaking and contaminating
the property. After the sale, Morell discovered the tanks and sought to rescind the contract. Should
he be allowed to do so?
Answer: Yes. There was no fraud or misrepresentation because Conley knew nothing of the tanks.
Discussion Questions
1. Sixteen-year-old Travis Mitchell brought his Pontiac GTO into M&M Precision Body and Paint for
body work and a paint job. M&M did the work and charged $1,900, which Travis paid. When
Travis later complained about the quality of the work, M&M did some touching up, but Travis was
still dissatisfied. He demanded his $1,900 back, but M&M refused to refund it since all of the work
was “in” the car and Travis could not return it to the shop. The state of Nebraska, where this
occurred, follows the majority rule on this issue. Does Travis get his money? Is this a fair result?
Answer: Yes, Travis gets his money. In most states, a minor is permitted to disaffirm a contract and
get a full refund of his money, even if he is unable to make restitution. Since restitution is
impossible here, Travis wins his money while M&M gets nothing. Mitchell v. Mizerski, 1995 Neb.
Asp. LEXIS 99 (Neb. 1995). The common law rule is intended to discourage wily hucksters from
2. Contract law gives minors substantial legal protection. But does a modern high school student need
so much protection? Older teens may have been naïve in the 1700s, but today, they are quite savvy.
Should the law change so that only younger children – perhaps those aged 14 and under – have the
ability to undo agreements? Or is the law reasonable the way it currently exists?
3. In the old Michigan case featuring Rose the Cow, the court refused to enforce the agreement. Was
this a fair result? Should bilateral mistakes create voidable contracts, or should Walker have been
required to sell the cow for $80?
4. Susan drops by Dean's garage sale. She buys a painting for $10. Both she and Dean think that the
painting is a copy of a Matisse. Later, Susan is delighted to discover that the painting is actually a
Matisse, and is worth $50,000,000. Dean hears the news, and wants the painting back. Will he get
it? Why or why not?
5. Do you have sympathy for intoxicated people who make agreements? Should the law ever let them
back out of deals when they sober up? After all, no one forced them to get drunk. Or should the law
be more lenient? Or, is it reasonable as it currently exists?
