Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 7 Business Law in Canada, 7/e Chapter 7 Factors Affecting the Contractual Relationship 7-1

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 7 Factors Affecting Contractual Relationships Mistake Misrepresentation Duress and undue influence 7-2 Unconscionable Transaction Privity of Contract Assignment

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 7 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 7-3 Continued on 7-4

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 7 Mistake/2 One-sided Mistake - fundamental mistake usually when one party misleads the other mistaken identification Non Est Factum (It is not my act) mistake goes to the nature of the document usually involves misrepresentation Rules of Interpretation apply with simple misunderstanding 7-4

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 7 Rules of Interpretation Reasonable person test Literal or liberal meanings imposed on written terms Courts or statutes may imply terms Outside evidence will not change clear wording 7-5

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 7 Question for Discussion The law of equity is sometimes applied by the courts to redress injustices in contractual relations. Consider the case of Cooper v. Phibbs and discuss whether it is justifiable to override an agreement entered into by able parties. 7-6

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 7 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. Continued on

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 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. 7-8

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 7 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 7-9

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 7 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 Continued on

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 7 Innocent Misrepresentation/2 Rescission is not available when contract is: affirmed impossible to restore where a third party is involved 7-11

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 7 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 damages contract may be considered void 7-12

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 7 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. 7-13

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 7 Duress and Undue Influence Duress threat of violence makes contract voidable Undue Influence which reduces free will to bargain - voidable contract presumed in certain relationships Continued on

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 7 Duress and Undue Influence/2 Unconscionable Transactions Where a person takes advantage of another’s vulnerability - voidable 7-15

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 7 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? 7-16

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 7 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 7-17

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 7 Privity of Contract Contract can only affect parties to it Exceptions: original party can enforce contract when benefits bestowed on outsider Novation - a new party is substituted for an original party to the contract Contractual Rights run with land Contracts created through agents 7-18

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 7 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. 7-19

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 7 Assignment The benefits (chose in action) received under a contract can be assigned or transferred to another Qualifications for statutory assignment absolute and unconditional must be in writing and complete must give proper notice Continued on

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 7 Assignment/2 Some things cannot be assigned: the right to sue (champerty) when contract involves the personal performance of a particular skill Continued on

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 7 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 7-22

Copyright © 2005 Pearson Education Canada Inc. Business Law in Canada, 7/e, Chapter 7 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? 7-23