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Chapter 9 Misrepresentation, undue influence and duress.docx

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Brock University

Chapter 9 Impeaching Contracts: Misrepresentation, Undue Influence and Duress 1. Representation VS. Terms in a Contract Term  A term in a contract is a provision that both parties intend and agreed to bind as part of the contract.  If a term is breached then the party can sue for Breach of Contract Representation  A representation to a contract is a statement of fact made by a party during negotiation prior to the time the contract was entered into – representations are not part of the contract.  A party may sue for breach of representation but not a breach of contract.  Breach of representation and breach of term are different remedies.  Common law holds that you can sue for representation because the representation was not part of the contract BUT equity holds Misrepresentation and may set aside. To determine if Representation or Term 1) If the statement is made prior to the contract is most likely will be representation. 2) If the statement was made late in negotiations it is most likely a term. 3) If written in black and white it is a term or if not could be a representation. 4) The relevance of the statement to the contract- minor or big? 2. Requirements to find Misrepresentation ( 5 ) a) The statement must be Material  If the statement is minor it wont likely be misrepresentation but the more material the statement is the more it may be misrepresentation. b) The Misrepresentation must be a statement of Fact and Not Opinion  One exception of this is the opinion of an expert because the opinion of an expert is equal to a statement of fact. c) The statement has to be Intended to be Acted on  The person making the statement must have intention for the other party to act upon to try and induce the party to enter into the contract  But it is difficult to know someone’s intentions?  Courts will look at the stage of negotiations the statement was made – the closer the statement was made to the entering of the contract the more it is misrepresentation.  Or they will look at if they knew the parties intentions for entering the contract d) The Statement must be False e) The Aggrieved party must Renounce the Agreement Promptly  As soon as the aggrieved party suspects misrepresentation the party must take action immediately – if they party waits to see what benefits may be gained this is considered fraudulent 3. Types of Misrepresentation a) Negligent Misrepresentation  Negligent misrepresentation is a false statement made 1) knowledge of false 2) reckless disregard  if a false statement is made with knowledge of being false then the courts will not help parties.  If a false statement is made recklessly disregard then the courts will rescind or set the contract aside  In certain cases the courts will allow aggrieved party to sue for damages b) Innocent Misrepresentation  A false statement made by a party in honest belief that it was true.  In this case the courts will set the contract aside. 4. Misrepresentation by Omission This means that if a party neglects to give any relevant information needed. a) Contracts Signed in Haste  When a party signs a contract in haste everything in the contract must be reasonable and anything unreasonable must be brought to the person’s attention.  It is misrepresentation if anything out of the ordinary is not brought to attention. b) When one party has Special knowledge  When one party to a contract has expert or special knowledge of the nature to the contract and the relationship b/w the parties showed that party trusted in them – the party with the special knowledge is obligated to put forward any relevant information in relation to the contract  If the person omits any relevant information then this is misrepresentation and the courts will set the contract aside c) Insurance Contracts  A person seeking any kind of insurance must disclose all relevant information in relation to the contract and must not omit any important information otherwise this is misrepresentation through omission d) Sales of Corporate Securities  When shares or bonds are publicly traded under the ‘Securities Act’ all information about the corporation must be disclosed in a ‘Prospectus’ – if not this is misrepresentation through omission e) Sales of Goods and Sales of Land  The general rule is ‘ CAVEAT EMPTER’ ( buyer beware )  Sales of Land is more Caveat Empter  Sales of Goods has little exceptions. Impeaching Contracts: Misrepresentation, Undue Influence and Duress 1. Undue Influence: Definition and Burden of Proof Undue Influence  Undue influence is the domination of one party of over the mind of another to such a degree as to deprive the victim of the ability or will to make an independent decision  A situation when one party influences another party to enter into to a contact that they otherwise wouldn’t have  Contracts like this are voidable at the option of the victim  To get equity the party must repudiate the contract promptly  Undue influence usually arises out of the victim Burden of Proof  So the burden of proof starts with the victim  Must prove in those circumstances that domination was possible  Easier to prove is a special relationship exist between parties such as lawyers and clients  Once victim has proven – then burden of proof moves to the defendant – must prove undue influence did not occur 2. Situations where Undue Influence may Arise a) Dire Circumstances  This is when one party is in a very desperate situation in such that they would do anything to get out of it – the other party will take advantage of the desperate party b) Treat of Prosecution  A kind of black mail – threatening a party to charge them c) Family Relationships  With family relationships undue influence arises in cases where a family members uses emotional bond to an agreement – a rich parents will – husband and wife entering into a contract d) Inequality of Bargaining Power  A case where one party clearly has a higher level of knowledge of contract law and puts the party in situation in which they feel they must sign 3. Independent Legal Advice  Banks will require a party to get independent legal advice from a lawyer to explain contract clearly – so the party can not claim ‘non est factum’ or ‘undue influence  The lawyer will give a certificate of independent legal advice 4. Duress  Duress is the actual or threatening of violence against a party to sign the contract  Undue influence is more influence – Duress is more of open threat  When duress in contract – it is voidable at the option of the vi
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