First Principles of Business Law

8.2. The 'normal' effect of a mistaken belief on a transaction

Case-study.  While listening to the radio, A thinks he hears a report that the price of an ounce of gold has suddenly risen by $150 dollars. In fact, A has misunderstood what the reporter said: the price of gold has in fact dropped by 150 dollars. Without checking the price, A calls his broker and instructs him to sell all A's gold holdings at the best obtainable price. After the broker has carried out this instruction, A discovers that he has made a loss instead of a profit on the sale. Does A's mistaken belief provide a defence against any action brought to enforce the sale?

(a) Yes. A would not have sold the gold if he had known the price had dropped. His mistaken belief provides a defence if he is sued on the contract.

(b) No. Even if A would not have sold his gold if he had known that the price had dropped, his mistaken belief is entirely his own fault and does not provide a defence if he is sued on the contract.