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Lecture

BUS 393 Lecture Notes - Undue Influence, Rescission, Clean Hands


Department
Business Administration
Course Code
BUS 393
Professor
Colin Hawes

Page:
of 4
BUS 393
Lecture 5
October 8, 2010
Contracts
Colin Hawes
Mistake
(258)
Misrepresentation
(270)
Duress (279)
Undue Influence
(281)
Unconscious
Transactions
(283)
Mistake: Misunderstanding that destroys consensus results in void contract
Mistakes must be serious
“Bad deals” will not count as mistakes
Shared Mistake: Both parties are in agreement, but have both made the same mistake regarding
some aspect of the contract
Rectification: The rewriting of a contract on behalf of one of the party at the expense of another
Misrepresentation: A misleading statement that induces a contract
Must be fact, not opinion or promise
Opinion: This a a good car
Promise: I will wash the car next year
Opinion by expert may be misrepresentation
Ex: When a mechanic says a car is a good car, but it breaks down, it is misrepresentation
Utmost Good Faith: An obligation to disclose certain information
Partial disclosure may also be misrepresentation/false statement
Misrepresentation must inducing
Innocent Misrepresentation: A false statement made honestly without carelessness by a person
who too, thought it was true
Remedy is rescission
Rescission: The unmaking of a contract; Properties are returned to original owners
Not Available when in:
Affirmation: Where a person knowing the misrepresentation continues to use product
Impossibility of Restoring: Subject in question is destroyed courts deny remedy
Third Party Involvement: If it affects a third party
Failure on the Part of the Victim: When victim (plaintiff) comes without “clean hands”
Fraudulent Misrepresentation: A false misrepresentation when the statement was made
knowingly, without belief in the truth and recklessly, carelessly
Remedy:
Rescission of Contract
Awarding damages for deceit (monetary)
Negligent Misrepresentation: Damages can also be awarded based on negligent
misrepresentation can sue in contract or tort for negligence
Duress: When a contract is signed due to threats of violence or imprisonment, contract can be
voidable
But not available when good is transferred to third party
Ex.: Contract to sell gold watch from A to B. B buys watch, and now sells to C. A cannot sue for
duress as title has been transferred to third party
Undue Influence: When a contract is signed due to pressure from a dominant, trusted person
who makes it impossible to bargain freely, contract may be voidable
Presumption based on a special relationship
Presumption based on unique circumstances
Undue influence determined from facts
Unconscious Transaction: Where a party is taken advantage of through factors such as
desperation by poverty or intellectual impairment that falls short of incapacity
Privity
(285)
Assignment
(289)
Performance
(299)
Breach
(302)
Exemption
Courts will release the person from the contract
Privity of Contract: When the contract binds only the two parties to it, outsiders cannot enforce it
or be bound to the contract, only those inside the contract can do anything
Exceptions:
Land related situations: Rights run with the land (A person leases a room in house, owner
sells house, but new owner must still honor the leased room)
Agents create contract been principal and third party (Clerk in a store binds storeowner
with customer)
Trust: Allows a third party to benefit from the property of another
Constructive Trust: Benefit bestows on a third party, courts might create a trust
Novation: The substitution of someone new for one of the original party
Assignment: The transfer of a benefit under contract to a third party
Chose in Action: The benefit which is transferred
Assignor: Person who transfers the benefit
Assignee: Person who receives the benefit
Assignee normally only receives benefit, cannot enforce claim
Statutory Assignment: Transfer where the assignee can directly enforce claim without
assignor
Requires:
Absolute (transferred amount must be full and unconditional)
In writing
Original party notified
Vicarious Performance: Where the service which is contracted may be performed through
employees or subcontracted
Regardless, original party to the contract still has obligation to complete service
Where assignor assigns to two third party (illegal), debtor will pay only once and to the one who
first gives notice
Involuntary Assignment: Involuntary assignment in cases of death and bankruptcy
Ex.: Employee must complete work before he is paid
Conditions: Major terms of a contract
Warranties: Minor terms of a contract
Substantial Performance: The majority of the work is performed, but not to 100% - is still
considered finish
Tender of Performance: A person is ready, willing and able to perform a contractual obligation
and attempts to do so, but the other party refuses or prevents it first party is regarded as
completed the obligation
Currency Act: Creditors do not need to take more than X coins (page 301)
Breach: Breach of contract by improper or incomplete performance of the obligations set out in
the agreement and by refusal to perform
Conditions and Warranties
Repudiation (308): One of the parties indicate to the other an intimation or an intention to
abandon and refuse performance of the contract, occurs after performance is due
Anticipatory Breach: Repudiation before performance is due
BUS 393
Lecture 5
October 8, 2010
Contracts
Colin Hawes
Clauses (304)
Contractual
Terms (313)
Frustration
(313)
Damages (319)
Party can end contract right then, but repudiation must be on some important term
Failure to perform table: 310
Exemption Clauses: Attempts by a party to limit or eliminate the liability under an agreement
A person must be able to reasonably read the text
Condition Precedent: Some requirement which must be satisfied before people are bound to the
contract
Condition Subsequent: Conditions which when fulfilled, ends the contract
Force Majeure Clause: Clause with anything related to catastrophic events
Frustration: Some unforeseen, outside event (out of control of other party) interferes with the
performance of the contract, rendering the agreement unobtainable (frustration happens after
contract)
Common Cases:
Performance of the contract becomes impossible because the subject is destroyed
An event that forms the basis of a contract fails to take place
Acts of government interfering with policy
Damages: Funds awarded due breach of contract
Special Damages: Damages awarded to cover specific costs and expenses
General Damages: An estimate of funds awarded of what has been lost or will be lost
Limitations:
Party breaching contract is responsible for what a reasonable person could reasonably foresee
Victims must mitigate their losses even when the contract is breached, failure will result in
monetary penalty awarded
Acceleration Clause: Whereby missing an installment payment will make the full balance due
Liquidated Damages: Terms the contract has which specifies the damages which must be paid
Deposit: A prepaid fund incase of damages, forfeited when contract breached
Down Payment: The first payment of something, might have to return to owner
Damages and deposits must be reasonable, else it is treated as a punishment and courts do not
enforce it
Specific Performance: Court orders telling the party to perform its obligations
Injunction: Court order to refrain some party from some offensive conduct
But not where a person can no longer earn a living
But not where damages are more appropriate
But not where it would hurt a third party
Interlocutory Injunction: A valid injunction before a trial even takes place (usually to stop
former employees to work for competitors)
Accounting: Ordering all financial records then requiring what has been wrongfully obtained by
the breaching party to be given back
Quantum Meruit: Partial payments for partial work completed
Only victim of breach can claim