Copyright © 2008 Pearson Education Canada8-1 Chapter 8: Factors Affecting the Contractual Relationship

Copyright © 2008 Pearson Education Canada8-2 Factors Affecting Contractual Relationships  Mistake  Misrepresentation  Duress and undue influence  Unconscionable Transaction  Privity of Contract  Assignment

Copyright © 2008 Pearson Education Canada8-3 Mistake  Error that destroys consensus  Shared Mistake—fundamental mistake about subject matter of contract— common to both parties—courts must correct obvious error  Misunderstanding - questions existence of consensus - differing interpretations

Copyright © 2008 Pearson Education Canada8-4 Mistake/2  One-sided Mistake-fundamental mistake usually when one party misleads the other usually when one party misleads the other mistaken identification mistaken identification  Non Est Factum (It is not my act) mistake goes to the nature of the document mistake goes to the nature of the document usually involves misrepresentation usually involves misrepresentation  Rules of Interpretation apply with simple misunderstanding

Copyright © 2008 Pearson Education Canada8-5 Rules of Interpretation  Reasonable person test  Literal or liberal meanings imposed on written terms  Courts or statutes may imply terms  Parol Evidence Rule Outside evidence will not change clear wording Outside evidence will not change clear wording

Copyright © 2008 Pearson Education Canada8-6 Case Summary  Cooper v. Phibbs  Because of a shared mistake a vendor sold some property, on which he had done considerable work, to a neighbour who it turned out already owned the property.

Copyright © 2008 Pearson Education Canada8-7 Case Summary/2  There was no way to compensate the vendor for his improvements to the property without the court applying an equitable principle.

Copyright © 2008 Pearson Education Canada8-8 Case Summary/2  There was no way to compensate the vendor for his improvements to the property without the court applying an equitable principle.

Copyright © 2008 Pearson Education Canada8-9 Misrepresentation  False statement of fact that persuades someone to enter into a contract.  The statement must be an allegation of fact  Silence is not misrepresentation when there is no duty to disclose  The statement must be incorrect and untrue and must have been the inducement that led to the contract

Copyright © 2008 Pearson Education Canada8-10 Innocent Misrepresentation  The person making it honestly believes it to be true.  Remedies are limited to rescission  Rescission puts both parties back into original positions

Copyright © 2008 Pearson Education Canada8-11 Innocent Misrepresentation/2  Rescission is not available when contract is:  affirmed  impossible to restore  where a third party is involved

Copyright © 2008 Pearson Education Canada8-12 Fraudulent Misrepresentation  Victim of intentional misrepresentation can sue for damages in addition to rescission  An innocent misrepresentation becomes fraudulent if not corrected when discovered  Remedies: rescission rescission damages damages contract may be considered void contract may be considered void

Copyright © 2008 Pearson Education Canada8-13 Case Summary  Negligent Misrepresentation  In Haig v. Bamford the courts found that even though the accountants honestly believed what they had stated on the audit was true, because they had not measured up to the standard expected of a reasonable accountant they were liable for the damages they caused to the group of investors they knew about.

Copyright © 2008 Pearson Education Canada8-14 Duress and Undue Influence  Duress threat of violence makes contract voidable threat of violence makes contract voidable  Undue Influence which reduces free will to bargain - voidable contract which reduces free will to bargain - voidable contract presumed in certain relationships presumed in certain relationships

Copyright © 2008 Pearson Education Canada8-15 Duress and Undue Influence/2  Unconscionable Transactions Where a person takes advantage of another’s vulnerability - voidable Where a person takes advantage of another’s vulnerability - voidable

Copyright © 2008 Pearson Education Canada8-16 Question for Discussion  The courts will presume undue influence in certain circumstances which may include a spouse assuming the indebtedness of their partner.  What evidence do you think would convincingly demonstrate to a court that there has been undue influence?

Copyright © 2008 Pearson Education Canada8-17 Case Summary  Stevenson v. Hilty - the court determined that a contract could be set aside if:  One party is ignorant, in need or in distress  One party uses position of power to achieve an advantage  The agreement is substantially unfair to weaker party

Copyright © 2008 Pearson Education Canada8-18 Privity of Contract  Contract can only affect parties to it  Exceptions: Original party can enforce contract when benefits bestowed on outsider Original party can enforce contract when benefits bestowed on outsider Novation - a new party is substituted for an original party to the contract Novation - a new party is substituted for an original party to the contract Contractual Rights run with land Contractual Rights run with land Contracts created through agents Contracts created through agents

Copyright © 2008 Pearson Education Canada8-19 Question for Discussion  The number of exceptions to the privity rule suggest that there is no justification for its existence.  Consider the validity of this statement and the advantages and disadvantages of the principle of privity of contract, particularly with reference to trusts which are designed to bestow benefits on third parties.

Copyright © 2008 Pearson Education Canada8-20 Assignment  The benefits (chose in action) received under a contract can be assigned or transferred to another  Qualifications for statutory assignment absolute and unconditional absolute and unconditional must be in writing and complete must be in writing and complete must give proper notice must give proper notice

Copyright © 2008 Pearson Education Canada8-21 Assignment/2  Some things cannot be assigned: the right to sue (champerty) the right to sue (champerty) when contract involves the personal performance of a particular skill when contract involves the personal performance of a particular skill

Copyright © 2008 Pearson Education Canada8-22 Assignment/3  Assignee is in the same position as original contractor  Subsequent claims do not affect assignee  Contractual rights assigned automatically in case of death or bankruptcy

Copyright © 2008 Pearson Education Canada8-23 Question for Discussion  The rules relative to assignment of contractual benefits seem to favour the original contractor because the agreement is subject to the rights between the parties to the original contract.  Is this appropriate, or should the advantages be given to the assignee?