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Prepared by Douglas Peterson, Prepared by Douglas Peterson, University of AlbertaUniversity of Alberta 11-11-11
Part 3 – The Law of ContractPart 3 – The Law of Contract
Chapter 11Chapter 11Failure to Create an Failure to Create an
Enforceable Enforceable ContractContract
© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 11-11-22
OverviewOverview
MistakeMistake Mistake of lawMistake of law Mistake of factMistake of fact Non est factumNon est factum Unilateral and mutual mistakeUnilateral and mutual mistake
MisrepresentationMisrepresentation Innocent, fraudulent, negligentInnocent, fraudulent, negligent
Undue InfluenceUndue Influence DuressDuress
© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 11-11-33
IntroductionIntroduction
Requirements for a valid contractRequirements for a valid contract Essential elements such as offer, acceptance, intention, Essential elements such as offer, acceptance, intention,
consideration, capacity may all exists but contract may consideration, capacity may all exists but contract may still not be enforceablestill not be enforceable
Situations which may render a contract unenforceableSituations which may render a contract unenforceable Mistake, misrepresentation, undue influence, duressMistake, misrepresentation, undue influence, duress
Also determines who bears the brunt of the lossesAlso determines who bears the brunt of the losses
© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 11-11-44
MistakeMistake
MistakeMistake A state of affairs in which a party (or both parties) has A state of affairs in which a party (or both parties) has
formed an erroneous opinion as to identity of subject formed an erroneous opinion as to identity of subject matter, or some other important termmatter, or some other important term
Contract does not express their true intentionsContract does not express their true intentions Types of MistakeTypes of Mistake
Mistake of lawMistake of law Mistake of factMistake of fact
© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 11-11-55
MistakeMistake
Mistake of LawMistake of Law Presumed to know the lawPresumed to know the law Usually no relief providedUsually no relief provided Exception: if statute provided for recoveryException: if statute provided for recovery
Mistake of FactMistake of Fact Mistake as to the existence of the subject matter of the Mistake as to the existence of the subject matter of the
contract or the identity of a partycontract or the identity of a party
© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 11-11-66
Mistake of FactMistake of Fact
Court may provide reliefCourt may provide relief Mistake as to subject matter of contractMistake as to subject matter of contract
General rule contract is voidGeneral rule contract is void Mistake as to identity of the PartyMistake as to identity of the Party
Depends if the identity of the person is an essential Depends if the identity of the person is an essential element of the agreementelement of the agreement
If essential may not be enforceableIf essential may not be enforceable If not essential – it will be enforceableIf not essential – it will be enforceable
© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 11-11-77
Mistake of FactMistake of Fact
Non Est FactumNon Est Factum A defense that may allow illiterate or infirm persons to A defense that may allow illiterate or infirm persons to
avoid liability on a written agreement if they can establish avoid liability on a written agreement if they can establish that they were not aware of the true nature of the that they were not aware of the true nature of the document, and were not careless in executiondocument, and were not careless in execution
Narrow form of mistakeNarrow form of mistake Applies only to type of agreement being signed not to the Applies only to type of agreement being signed not to the
terms of the agreementterms of the agreement
© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 11-11-88
Unilateral and Mutual MistakeUnilateral and Mutual Mistake
Unilateral MistakeUnilateral Mistake A mistake by one party to the agreementA mistake by one party to the agreement
Mutual MistakeMutual Mistake A mistake where both parties have made mistaken A mistake where both parties have made mistaken
assumptions as to the subject matter of the agreementassumptions as to the subject matter of the agreement Can be same mistake or different mistakesCan be same mistake or different mistakes
Courts will not enforce agreements when the other party Courts will not enforce agreements when the other party is aware of the mistake being madeis aware of the mistake being made
© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 11-11-99
Mutual MistakeMutual Mistake
RulesRules If both parties make the same mistake:If both parties make the same mistake:
as to subject matter then the contract is unenforceableas to subject matter then the contract is unenforceable As to identity of the partiesAs to identity of the parties
– Deal with on a case by case basisDeal with on a case by case basis RectificationRectification
The correction of a mistake in an agreement that would The correction of a mistake in an agreement that would have rendered the agreement impossible to performhave rendered the agreement impossible to perform
© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 11-11-1010
MisrepresentationMisrepresentation
CharacteristicsCharacteristics A statement or conductA statement or conduct Induces the other party to enter into the contractInduces the other party to enter into the contract Must be a material matterMust be a material matter Must be a statement of fact and not opinionMust be a statement of fact and not opinion
Exception: expert opinionException: expert opinion Statement made before contract entered intoStatement made before contract entered into
© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 11-11-1111
MisrepresentationMisrepresentation
Result of misrepresentationResult of misrepresentation Voidable at the option of the injured partyVoidable at the option of the injured party Must rescind or lose the right if accept benefits under Must rescind or lose the right if accept benefits under
the contractthe contract RescissionRescission
The revocation of a contract or agreementThe revocation of a contract or agreement
© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 11-11-1212
MisrepresentationMisrepresentation
3 Types3 Types TypeType RemedyRemedy Innocent Innocent rescission onlyrescission only Negligent Negligent rescission and damagesrescission and damages Fraudulent Fraudulent rescission and damagesrescission and damages Remedy depends on type of misrepresentationRemedy depends on type of misrepresentation
© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 11-11-1313
Innocent MisrepresentationInnocent Misrepresentation
A false statement of a material fact made by a party A false statement of a material fact made by a party that honestly believed the fact to be truethat honestly believed the fact to be true
Courts attempt to put the parties back into position they Courts attempt to put the parties back into position they were before the contract was entered intowere before the contract was entered into
© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 11-11-1414
Fraudulent MisrepresentationFraudulent Misrepresentation
Fraudulent MisrepresentationFraudulent Misrepresentation A false statement of fact made by a person who knows, A false statement of fact made by a person who knows,
or should know, that it is false, and made with the or should know, that it is false, and made with the intention of deceiving anotherintention of deceiving another
DeceitDeceit A tort that arises when a party suffers damage by acting A tort that arises when a party suffers damage by acting
upon a false representation made by a party with the upon a false representation made by a party with the intention of deceiving the otherintention of deceiving the other
© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 11-11-1515
Fraudulent MisrepresentationFraudulent Misrepresentation
Contractual vs. Tort remedyContractual vs. Tort remedy Contract: rescission is contractual remedy Contract: rescission is contractual remedy
If courts can restore parties to position they were before If courts can restore parties to position they were before entering into the contractentering into the contract
Tort: Deceit – allows for damagesTort: Deceit – allows for damages can award punitive damagescan award punitive damages
DeceitDeceit Made knowinglyMade knowingly Without belief in its truthWithout belief in its truth Recklessly or carelessly without regard for its truthRecklessly or carelessly without regard for its truth
© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 11-11-1616
Misrepresentation by Non-DisclosureMisrepresentation by Non-Disclosure
General ruleGeneral rule No obligation to discloseNo obligation to disclose Exception: Exception:
certain types of relationships or contracts (Contracts of certain types of relationships or contracts (Contracts of utmost good faith)utmost good faith)
Partial disclosure of facts has effect of rendering the part Partial disclosure of facts has effect of rendering the part disclosed as falsedisclosed as false
© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 11-11-1717
Misrepresentation by Non-DisclosureMisrepresentation by Non-Disclosure
Contracts of Utmost Good FaithContracts of Utmost Good Faith InsuranceInsurance Partnership (fiduciary obligation)Partnership (fiduciary obligation) Contracts with special trust or confidence between the Contracts with special trust or confidence between the
partiesparties
© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 11-11-1818
Negligent MisrepresentationNegligent Misrepresentation
NegligenceNegligence Newer form of misrepresentationNewer form of misrepresentation Statements that are sufficiently reckless but not quite Statements that are sufficiently reckless but not quite
fraudulentfraudulent
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Undue InfluenceUndue Influence
Undue InfluenceUndue Influence A state of affairs whereby a person is so influenced by A state of affairs whereby a person is so influenced by
another that the person’s judgment is not his or her ownanother that the person’s judgment is not his or her own Not in a fair bargaining positionNot in a fair bargaining position
2 Scenarios2 Scenarios Special Relationship existsSpecial Relationship exists Special Relationship does not existSpecial Relationship does not exist
© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 11-11-2020
Undue InfluenceUndue Influence
Special RelationshipsSpecial Relationships Types: lawyer/client; doctor/patient; trustee/beneficiary; Types: lawyer/client; doctor/patient; trustee/beneficiary;
parent-child; spiritual advisor/parishionerparent-child; spiritual advisor/parishioner Does not apply to spousal relationshipDoes not apply to spousal relationship Undue influence alleged onus shifts to dominant party to Undue influence alleged onus shifts to dominant party to
prove otherwiseprove otherwise
© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 11-11-2121
Undue InfluenceUndue Influence
No undue influence if No undue influence if agreement was fair and reasonable in the circumstancesagreement was fair and reasonable in the circumstances Full disclosure is made prior to the formation of contractFull disclosure is made prior to the formation of contract Weaker party free to seek independent legal adviceWeaker party free to seek independent legal advice
Contract is voidable at option of weaker party Contract is voidable at option of weaker party
© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 11-11-2222
DuressDuress
DuressDuress The threat of injuring or imprisonment for the purpose of The threat of injuring or imprisonment for the purpose of
requiring another to enter into a contract or carry out requiring another to enter into a contract or carry out some actsome act Threat can be to person directly or to person’s family (or a Threat can be to person directly or to person’s family (or a
close relative)close relative) Contract is voidable at option of person once they come Contract is voidable at option of person once they come
out from under duressout from under duress Threat to person and not person’s goodsThreat to person and not person’s goods
© 2006 McGraw-Hill Ryerson © 2006 McGraw-Hill Ryerson LimitedLimited 11-11-2323
SummarySummary
MistakeMistake Requires meeting of the mindsRequires meeting of the minds No meeting of the minds if certain mistakes madeNo meeting of the minds if certain mistakes made
MisrepresentationMisrepresentation Type determines remedyType determines remedy Party is free to get out of the contract since they would Party is free to get out of the contract since they would
not have entered into it but for the misrepresentationnot have entered into it but for the misrepresentation Duress and Undue InfluenceDuress and Undue Influence
Party can avoid the contractParty can avoid the contract
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