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Lecture 5

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Philosophy 2080
James Hildebrand

Week 5 - Contract: Failure to Contract and Privity Chapters 10 and 11 (7th Edition) Chapters 11 and 12 (8th edition) CHAPTER 10 (7TH EDITION)/CHAPTER 11 (8TH EDITION)- FAILURE TO CREATE AN ENFORCEABLE CONTRACT * My Note: In the following situations the failure of the parties to create a contract is due to the need for another essential element of contract. Parties can agree to create rights and obligations, but for all elements of the contract there must be a “meeting of the minds”, in Latin, consensus ad idem. Parties must know what they are agreeing to. Given the traditional notion that parties are free to agree to what they like, and the courts are not to interfere, the principles that allow a party to avoid its obligations are limited. Mistake: must go to essential element or fundamental term of the contract, mistake the result of a party's negligence may not defeat contract Of Law: - distinction does not apply now, was problematic because all are presumed to know the law, and as presumed to know the law, could not rely on ignorance of it Of Fact: as to: Existence of subject matter of the contract, contract is void ab initio, “from the beginning” Identity of contracting parties, corporate entities complicate this, i.e. identity of a corporation is not normally an issue - identity of the parties must be an essential element of the contract, may be voidable if party does not wish to contract with particular party, then discovers has contracted with that party by mistake, or wishes to contract with a particular party and finds out not that person Nature of the contract, very limited, must show document completely different in nature, due to some infirmity someone else explained contents - also, person seeking to avoid must show they had no opportunity for independent legal advice 1 Non est factum “not my deed” - courts rarely grant relief for this, it is hard to establish, it is presumed a party intends to by bound by documents they sign - even where an infirmity, party cannot be careless in signing document Unilateral Mistake: - one party makes a mistake as to terms, other party knows of the mistake and either allows or encourages ignorant party to contract anyway - court may permit party to rescind (rescind means avoid, and be returned to original position where possible) - subjective test, what was actually in the minds of the parties, (not what a reasonable person would have thought) Mutual Mistake: - easier to deal with, both parties make mistake as to content of agreement - mistake re either subject matter, or re fundamental term of the contract - void ab initio, from the beginning, never was any contract - there must be some outside objective evidence - mistake that negatives consent means void ab initio, because parties not ad idem at the time of contracting, no meeting of the minds Rectification: - where mistake on written document re content of the agreement - court will save, correct, rectify agreement - not to change, but to correct to original intentions of the parties - have to prove a clear original agreement 2 Misrepresentation: 2 flavours Innocent or fraudulent - contract voidable - misstatement must be a material fact not opinion - statement must induce party to enter contract - to avoid contract, conduct once you learn about misrepresentation is important - if you don’t take steps to avoid it, courts may rule you have affirmed it Innocent: - remedy of rescission - must be able to restore parties to original position, restitutio ad integrum - no damages, so be returned to position where possible, relieved of further obligations, property returned, but no damages are granted - no consequential damages, but courts accept that money may sometimes restore a party to its original position where a return of property is not possible Fraudulent: - statement of fact inducing party to enter into contract - fact must be material to the contract, i.e. something that is related to the contract matter and important to the parties - known by party making statement to be false, or carelessly made, with a reckless disregard for truth of statement - plaintiff entitled to rescission, and damages for tort of deceit - damages question is not a simple one, may be question of remoteness, "consequential damages" - punitive damages generally available 3 Non-disclosure: - not saying something is not the same as saying something false - in general -- no obligation to disclose negative things - contracts of utmost good faith require full disclosure - also cases where there is an active concealment, i.e. cracks in the basement, foundation repaired cosmetically - active concealment is treated as fraud - contract voidable Utmost good faith: - small class of contracts, insurance, partnership, special trust or confidence - insurance contracts, disclose health conditions etc., - Re Gabriel v Hamilton Tiger-Cats: page 177 (7th edition), page 198 (8th edition) , held not to be utmost good faith contract, contracts for service do not meet this criteria, contracts for service are not utmost good faith contracts Fiduciary relationship: - position of trust, banker, lawyer, etc., high standard of care, special duty to act in best interests of the weaker party - also applies to partners in partnerships - would include a duty to disclose, non-disclosure enables innocent party to avoid contract Undue influence: - contract law assumes parties have equal bargaining power, freedom to contract - some cases one party has more power than the other, creates an undue influence, the weaker party is not really free to contract in the same way as the more powerful one 4 - some relationships carry a rebuttable presumption of inequality: solicitor - client, eg, dominant party has the onus to prove no influence - to rebut, must show: - fair price paid - full disclosure - weaker party had opportunity to seek advice - independent legal advice - where undue influence, weaker party must avoid when free of dominating influence, get rescission - failure to avoid, or act of ratification = contract - husband wife relationship courts determine degree of influence, no presumption, consider fairness of bargain, degree of influence Duress: - contract induced under threat of or actual violence - rare, once threat is gone, take steps to rescind, or lose right to avoid Siametis v Trojan Horse: page 181 (7th edition), page 196 (8th edition) plaintiff's purchased a business, defendant had misrepresented its profitability, plaintiff sued for fraud; Held: for the plaintiff, fraud proved, lack of caution of plaintiff is not a defence where fraud, damages include consequential damages 5 473759 Alberta Ltd. v. Heidelberg Canada Graphic Equipment Ltd.: page 184 (7th edition), not in 8th edition Facts: The plaintiff purchased a printing press from the defendant under a contract that described the press as a "new press in demonstrator condition." The press had been previously used, and the plaintiff brought an action against the defendant on the basis of negligent misrepresentation. Held: Note that the Hedley Byrne case is applied to establish liability for both the tort of deceit, and the tort of negligent misrepresentation. But, wait a minute, this is a contract chapter. Observe that when there is a negligent or fraudulent misrepresentation about a term of a contract, inducing a party to enter into the contract, you have an action in tort and in contract. Damages are measured differently, pleading a case in both tort and contract gives a plaintiff more options regarding the amount of damages recovered. Questions on page 180 (7th editon): 2, 4-6, 8, 10 Questions on page 202 (8th edition): 2, 4-6, 8, 10 Case problems for discussion, page 185-186 (7th edition): 4 and 7 Case problems for discussion, page 204-
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