Part 3 – The Law of Contract Chapter 11 – Failure to Create an Enforceable Contract Prepared by...
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Transcript of Part 3 – The Law of Contract Chapter 11 – Failure to Create an Enforceable Contract Prepared by...
Part 3 – The Law of Contract
Chapter 11 – Failure to Create an
Enforceable Contract
Prepared by Michael Bozzo, Mohawk College
© 2015 McGraw-Hill Ryerson Limited 11-1
MistakeMistake of lawMistake of factNon est factumUnilateral and mutual mistake
MisrepresentationInnocent, fraudulent, negligent
Undue Influence Duress
© 2015 McGraw-Hill Ryerson Limited 11-2
Overview
Requirements for a valid contractEssential elements such as offer, acceptance,
intention, consideration, capacity may all exist but contract may still not be enforceable
Situations which may render a contract unenforceable Mistake, misrepresentation, undue influence,
duressAlso determines who bears the brunt of a given
loss© 2015 McGraw-Hill Ryerson Limited 11-3
Introduction
MistakeA state of affairs in which a party (or both parties)
has formed an erroneous opinion as to identity of subject matter, or some other important term
Contract does not express their true intentions Types of Mistake
Mistake of lawMistake of fact
© 2015 McGraw-Hill Ryerson Limited 11-4
Mistake
Mistake of LawPresumed to know the lawUsually no relief providedException: if statute provided for recovery
Mistake of FactMistake as to the existence of the subject
matter of the contract or the identity of a party
© 2015 McGraw-Hill Ryerson Limited 11-5
Mistake
Court may provide reliefMistake as to subject matter of contract○ General rule contract is void
Mistake as to identity of the Party○ Depends if the identity of the person is an
essential element of the agreement○ If essential may not be enforceable○ If not essential – it will be enforceable
© 2015 McGraw-Hill Ryerson Limited 11-6
Mistake of Fact
Non Est Factum A defense that may allow illiterate or infirm
persons to avoid liability on a written agreement if they can establish that they were not aware of the true nature of the document, and were not careless in its execution
Narrow form of mistake Applies only to type of agreement being signed
not to the terms of the agreement
© 2015 McGraw-Hill Ryerson Limited 11-7
Mistake of Fact
Unilateral MistakeA mistake by one party to the agreement
Mutual MistakeA mistake where both parties have made
mistaken assumptions as to the subject matter of the agreement Can be same mistake or different mistakes
Courts will not enforce agreements when the other party is aware of the mistake being made
Unilateral and Mutual Mistake
© 2015 McGraw-Hill Ryerson Limited 11-8
Rules If both parties make the same mistake:
as to subject matter then the contract is unenforceable
As to identity of the partiesDealt with on a case by case basis
Rectification The correction of a mistake in an agreement that
would have rendered the agreement impossible to perform, essentially for the correction of typos or editorial errors that distort the intention of the parties
Mutual Mistake
© 2015 McGraw-Hill Ryerson Limited 11-9
CharacteristicsA statement or conductThat induces the other party to enter into the
contractMust be about a material matterMust be a statement of fact and not opinion
Exception: expert opinionStatement made before contract entered into
Misrepresentation
© 2015 McGraw-Hill Ryerson Limited 11-10
Result of misrepresentationVoidable at the option of the injured partyMust rescind or lose the right if they accept
benefits under the contractRescission
The revocation of a contract or agreement
Misrepresentation
© 2015 McGraw-Hill Ryerson Limited 11-11
Three TypesType RemedyInnocent rescission onlyNegligent rescission and damagesFraudulent rescission and damagesRemedy depends on type of
misrepresentation
Misrepresentation
© 2015 McGraw-Hill Ryerson Limited 11-12
A false statement of a material fact made by a party that honestly believed the fact to be true
Courts attempt to put the parties back into position they were before the contract was entered into
Innocent Misrepresentation
© 2015 McGraw-Hill Ryerson Limited 11-13
Fraudulent MisrepresentationA false statement of fact made by a person who
knows, or should know, that it is false, and made with the intention of deceiving another
DeceitA tort that arises when a party suffers damage by
acting upon a false representation made by a party with the intention of deceiving the other
Fraudulent Misrepresentation
© 2015 McGraw-Hill Ryerson Limited 11-14
Contractual vs. Tort remedyContract: rescission is contractual remedy ○ If courts can restore parties to position they were
before entering into the contractTort: Deceit – allows for damages○ can award punitive damages
Deceit○ Made knowingly○ Without belief in its truth○ Recklessly or carelessly without regard for its truth
Fraudulent Misrepresentation
© 2015 McGraw-Hill Ryerson Limited 11-15
General ruleNo obligation to discloseException:
certain types of relationships or contracts (Contracts of utmost good faith)
Partial disclosure of facts has effect of rendering the part disclosed as false
Misrepresentation by Non-Disclosure
© 2015 McGraw-Hill Ryerson Limited 11-16
Contracts of Utmost Good FaithInsurancePartnership (fiduciary obligation)Contracts with special trust or confidence
between the parties
Misrepresentation by Non-Disclosure
© 2015 McGraw-Hill Ryerson Limited 11-17
NegligenceNewer form of misrepresentationStatements that are sufficiently
reckless but not quite fraudulent
Negligent Misrepresentation
© 2015 McGraw-Hill Ryerson Limited 11-18
Undue InfluenceA state of affairs whereby a person is so
influenced by another that the person’s judgment is not his or her own
Not in a fair bargaining position 2 Scenarios
Special Relationship existsSpecial Relationship does not exist
Undue Influence
© 2015 McGraw-Hill Ryerson Limited 11-19
Special RelationshipsTypes: lawyer/client; doctor/patient;
trustee/beneficiary; parent-child; spiritual advisor/faithful adherent
Does not apply to spousal relationshipUndue influence alleged onus shifts to
dominant party to prove otherwise
Undue Influence
© 2015 McGraw-Hill Ryerson Limited 11-20
No undue influence if ○ Agreement was fair and reasonable in the
circumstances○ Full disclosure is made prior to the formation of
contract○Weaker party was free to seek independent legal
adviceContract is voidable at option of weaker party
Undue Influence
© 2015 McGraw-Hill Ryerson Limited 11-21
DuressThe threat of injuring or imprisonment for
the purpose of requiring another to enter into a contract or carry out some act○ Threat can be to person directly or to
person’s family (or a close relative)○ Contract is voidable at option of person
once they come out from under duress○ Threat to person and not person’s goods
© 2015 McGraw-Hill Ryerson Limited 11-22
Duress
© 2015 McGraw-Hill Ryerson Limited 11-23
Law of Contract
MistakeContracts require a meeting of the mindsNo meeting of the minds if certain mistakes are
made Misrepresentation
The type determines the remedyParty is free to get out of the contract since they
would not have entered into it but for the misrepresentation
Duress and Undue InfluenceParty can avoid the contract
© 2015 McGraw-Hill Ryerson Limited 11-24
SUMMARY