Question

Ronald agrees to sell to Jill, for $150, a 150-acre parcel of land in the desert. They both believe the land to be worthless, but in fact it sits on top of a huge oil deposit. A court will _______.

1) set the agreement aside due to the obvious discrepancy in value between the price paid and the true value of the land.
2) set the agreement aside due to the evident failure of the owner to ascertain the value of the land.
3) enforce the agreement
4) None

Answer 1

Considering the theory of property rights and typical contract law principles, a court is likely to enforce the agreement between Ronald and Jill, despite the discrepancy between the paid price and the unknown true value of the land that sits on a huge oil deposit.

Correct answer is option 3).

Step-by-step explanation:

The student's question is about whether a court will enforce an agreement where Ronald agrees to sell to Jill a parcel of land for $150, not knowing it sits on a huge oil deposit. The principle that is relevant here is the theory of property rights as described by economist Ronald Coase. Both Ronald and Jill enter into the agreement with the belief that the land is worthless. Contract law typically enforces the terms of a deal so long as both parties have agreed to those terms, the terms do not result in an illegal act, and both parties have the capacity to contract. Since both parties here made an agreement based on what they believed to be the true facts, the court is likely to enforce the agreement. Mistaken value, when mutual, does not usually invalidate a contract.