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Management and Organizational Studies
Management and Organizational Studies 2275A/B

BUSINESS LAW CHAPTER 8: FACTORS AFFECTING THE CONTRACTUAL RELATIONSHIP Mistake  Where it is clear that due to a mistake, the parties have failed to reach a consensus VOID contract  Shared mistake or misunderstanding  Mistake must go to the very root of the contract (identity, terms, future event, consequences)  Courts will provide remedy when: o Terms of agreement (identity or subject) o Based on the facts (not law)  Where mistake is caused by negligence of one partythat party is held responsible for error  Unjust enrichment courts will order a return of funds if one party receives a payment she is not entitled to because the other has misunderstood his legal obligation  Shared mistake o Two parties in complete agreement but both made same mistake o Eg. subject matter no longer exists at the time contract is made (a destroyed car… both didn’t know it was destroyed) o Property being sold is already owned by purchaser o Contract is void o If a shared mistake relates to the value of what their dealing with=enforceable o Rectification: if written document doesn’t reflect common intention… courts are willing to correct (not rewrite) or rectify the document (could be a clerical error)  Both parties must intend for the documents to be read another way  Misunderstanding o When one party to an agreement thinks that the agreement is to do something else, the courts will usually apply the reasonable person test to determine which interpretation of the contract is more reasonable o Contract void: if error is serious and both parties are equally reasonable o Raffles v. W  Cargo was being transported on a ship called “the Peerless”- there were two ships by this name both leaving same port at different time  Seller had in mind one ship and the purchaser had in mind another  Contract was void, no consensus  One-sided mistake or unilateral o One of the parties is making a mistake with respect to the contract o Eg. someone buys a computer thinking it will do a specific job but actually does not have the required capacity… mistake been made by the purchaser o no remedy o caveat emptor(let the buyer beware) o see page. 264 case o courts are more willing to rescind a contract based on unilateral mistake where the mistake or error has been contributed or caused by wrongful behaviour on the part of the other party o when an offeror makes an obvious error in relation to his or her offer, the purchaser will not be allowed to take advantage if this offer and snap it up… if a merchant misquoted the computer, agreeing to sell it at $25 instead of $2500normal price)contract is rescinded because it is an obvious error. Relief is given to the offeror o void-if it affects someone’s identity (thought contract was with someone else)… not void if the mistake is someone’s attribute (wealth) o courts will not rescind or rectify a contract where mistaken party is to be blamed or contributed to own mistake o mistake- someone doesn’t read the whole contract and they get themselves into a situation=no remedy >>>”read before you sign” o non-est factumone of the parties is unaware of the nature of the contract being signed, courts can declare agreement to be void  defense for innocent party  mistake is about nature… not terms  eg. person thinks he’s signing a note when he’s really signing a mortgage agreement … no consensus  today, failure to read document can defeat this defense  Rules of interpretation courts are concerned with what the parties should have been aware of when making agreement NOT with what the parties thought they were agreeing too o Reasonable person test  What a reasonable person would have understood the term to mean o courts apply literal meaning of a word to wrongdoing o parol evidence rule: courts will not permit outside evidence to contradict clear and unambiguous wording  if you state your selling a “Honda Civic automobile”very clear, you cant try to introduce evidence that a Honda motorcycle was intended  exceptions:  fraud, duress, undue influence  Condition precedent (a condition must be met before obligations set out in contract are in force)  Collateral contract: separate contract from written one  Subsequent agreement and absence of intention o courts will supply missing terms (when price is to be paid or time of delivery) at a reasonable level (pg.270)to determine the damages o statutes may imply terms-sale of goods act o business people should take great time are care to ensure all terms are clear and unambiguous so there is no question later on what has been agreed upon contribute to goodwill Misrepresentation  false statement of a fact that persuades someone to enter into a contract  remedy: (drastic) rewriting a contract to include terms that other party originally thought were n contractthen the party that did not conform to these new terms in the past can be liable  in the heat of a closing deal employees or agents may be tempted to hide or misrepresent info to not scare other party away –pg. 271  allegation of fact o only statements made about the CURRENT state of things that are false=misrepresentation  “I will have the car expected in a year”=NO mis.  “ The car has a new motor”-mis. o If a person says “good car”- but then breaks down the next year… then statement is not actionable (no remedies) o BUT if a mechanic (expert) makes this opinion then statement is actionable because it proves false  Those making statements better be sure that they are accurate or made only after due diligence is exercised  Silence or no disclosure o Silence is not misrepresentation unless there is a duty to disclose o If terms require person to disclose all information, and they fail to do so, the contract can be rescinded o Insurance companies require parties to disclose a great deal of personal info o Utmost good faith contracts- professionals have an obligation to disclose certain info at their disposal that might affect the actions of their clients  More common now for courts to find misrepresentation for parties that withhold info o They can occur through gestures or verbally (yes or a head nod) o When individuals mislead themselves=no remedy o Hoy v. Lozanovski  Hoy purchased house from Mr. L and house proved to be infested with termites  Hoy sought rescission of contract-misrepresentation- but the judge determined that Mr.L did not know about the termites when they sold the house=no fraudulent mis. And remained silent  Hoy had house inspected even before purchase… misled himself  If a person technically tells the truth but withholds information that would have created an entirely different impression =misrepresentation (partial disclosure)  a victim of mis. Must prove that they were induced into entering a contract by a false statement o not actionable IF person knew statement was false OR believed statement would make no difference o victim must have been misled into doing something that she otherwise would not have done o Eg. pg. 275 Case  The plaintiff company was in the business of selling long-distance telephone services  Defendant had a new product that can use the internet to make long distance calls with no landline=cheaperexphone  Exphone assured the plaintiff (in writing) that their product was ready for market  Plaintiff company invested $200,000 into company  Fact: product was not market ready. Still in testing phase  Plaintiff sued for misrepresentation and won… merely having a prototype
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