Consider a contract for the sale of a parcel of land from seller Sandy to buyer

Question

Consider a contract for the sale of a parcel of land from seller Sandy to buyer Benny at a price of $14,500, where the sale price reflects Benny’s reservation price. After the sale is complete, the local government announces plans to build a highway near the property, which raises its value to $100,000. Sandy sues to have the contract invalidated on the grounds of mistake.

Suppose at trial it is revealed that Benny knew the land would only have been worth $5,000 if the highway had not been approved. Given that the sale price was $14,500, what was Benny’s assessment of the probability the highway would have been built when the contract was initially signed?

0.1

0.145

0.5

0.9

How should the court rule with respect to Sandy’s cause of action to invalidate the contract?

a. The mistake was mutual; therefore, the contract should be invalidated.

b. The mistake was mutual; therefore, the contract should not be invalidated.

c. The mistake was unilateral; therefore, the contract should be invalidated.

d. The mistake was unilateral; therefore, the contract should not be invalidated.

Explanation / Answer

Given that the sale price was $14500 and the price of land after plans to build the highway is $100,000, the assessment of the probability the highway would have been built is : 14500/100000 = 0.145.

It is also said that Benny, the buyer knew that the land was worth $5000. This means that he was deliberately paying a higher price to Sandy who was undervaluing the land and it was a unilateral mistake on part of the seller for which the seller Sandy should be compensated. Therefore, the court's rule should be in favour of the seller Sandy where,

c. The mistake was unilateral; therefore, the contract should be invalidated.

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