Business Law chapter 8 .docx

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

Business Law final exam review Chapter 8 Rectification: - If a written document does not reflect the common intention of the parties to the contract, the court will be willing to rectify the document - Example if the parties have agreed to the sale of land for $500000 and a clerical error states the price as $50000 on the contract the court will rectify that situation - The court will only do this if both parties are aware of that what they were agreeing to and what was written was different than the understanding - The Courts will correct an improperly written agreement. Misunderstanding - When parties have a misunderstanding relating to the terms of agreement of the contract and either of them are aware of the situation - In this case the courts apply the reasonable person test to determine which interpretation is more reasonable - If the error is serious and both seem reasonable and the court cant decide which one is more reasonable the contracted will be labeled void - Example of such a dilemma- there were two ships with cargo sale a part of the contract both named Booty departed from the same port on different times, the buyer and seller had different ships in mind. The reasonable person test was not able to resolve this issue and the court could not reach a consensus which lead the contract to be void One-sided mistake - One-sided or unilateral mistake occurs where only one parties to the contract is making a mistake with respect to the contract - There is no recourse for the person making the unilateral mistake - If the purchaser buys a computer thinking it will be awesome for gaming but infact the computer was no better than a printer there will be no remedy, but this only applies if there was no misleading information provided by the salesperson or a brochure. - Purchaser made the mistake, principle of caveat emptor applies ( Let the buyer beware) - The purchaser can not take advantage of an obvious error made by the seller such as accidently quoting the price of the computer as $25 instead of $250 - Person making a one sided mistake only has a remedy when he/she is mislead in making the decision - For consensus to be destroyed a one-sided mistake should be profound such as incorrect identification of one of the parties. The first party has to have to think the person he/she was dealing with was a completely different person, not just the fact that they would the person was wealthy. Non Est Factum, (its not my deed) - one party unaware of the nature of the document they are signing, in some rare case cases the court will declare the contract to be void on the bases of non est factum. - For the defense to follow through and the contract to be void it must be shown that the mistake related to the very nature of the contract rather than merely to its terms - Example- if a person signs a mortage thinking he is only paying 10% interest but in reality the contract requires 15%, the contract will not be void as the mistake is only concerned with some aspect of the document and not the document itself. - Not reading the contract before signing can defeat the defense of no nest factum, successful claims of non est factum are really rare Rules of Interpretation - The courts are not concerned with what the parties are agreeing to but are concerned with what the parties should be aware off and expected when they were making the decision - The courts use the reasonable person test when both parties have made a mistake, only when the misunderstanding is equally reasonable or there is no reasonable solution the courts will declare the contract to be void - Courts apply literal meaning to specific wording - Ambiguous wording is interpreted liberally - The court will look at parties past dealings as well as their dealings at the time of the contract was formed in order to determine the intended meaning of the word used - To determine the indented meaning of the word used the court uses a method known as the parol evidence rule o Principle that the courts will not allow outside evidence to contradict clear wording of a contract - The courts will override the parol evidence rule when the evidence to be introduced is of a fraud or some other problem associated with the formation of the contract such as duress or undue influence - Misrepresentation - During pre-contract negations people often say things that never become a part of the contract but sway the other parties decision, when these statements are false, misleading and inducing the party to enter a contract an actionable misrepresentation has taken place o Misrepresentation is a false statement or fact that persuades a following party into entering a contract. - These statements can be made in 3 different ways o Fraudulently- when the person providing the statement knows its false o Negligently – when the person making the statement should have known that the statement was false o Innocently- when the misrepresentation is made without fault Allegation of fact - The statement that forms the basis of an misrepresentation must be an allegation of fact - Statements made about current things that prove to be false can be considered misrepresentation - A future promise can only be considered a misrepresentation when the person making the promise has no intention or will to honour the promise in the future - If a sales person makes a statement that this is a good car or a good deal, he is entitled to say that as that’s his opinion and he is not an expert, but if a mechanic says the same thing and the car breaks down later in the week, that statement can be considered as a misrepresentation as the mechanic is an expert - Misrepresentation must be a fact not a opinion or promise - Statements made by an expert can be considered as misrepresentations Silence or Non Disclosure - For misrepresentation to take some communication has to take place, silence and non-disclosure by itself is not actionable - Contracts such as insurance requires the person to disclose a great deal of personal information, failure to do so can lead to the contract being rescinded - Professionals also have an obligation to disclose information at their disposal that may effect the actions of their clients. o These are referred to at “utmost good faith” contracts o It is much more common for courts to find out that a misrepresentation has taken place due to one party not disclosing the required information - It is not necessary for the statement to be written or verbal; misrepresentation can occur even if the method of communication is a gesture such as a head nod - Misinterpretation must have mislead the victim o If the victim misled him/herself no remedy would be provided  Example lozanovskis and hoy house buying termites case False Statements - It is necessary to prove that the mislead statement is an allegation of fact but also is incorrect or untrue - Telling the truth and withholding information that would create an entirely differently impression can be considered a misrepresentation o Example if a car sales person tells a potential buyer that the transmission on a particular car had been replaced but fails to tell him that it was replaced with a used transmission, this partial truth can be considered as a misrepresentation has it may lead the buyer to believe that a new transmission had been installed - Partial disclosure may be misrepresentation Statement must be inducement - A victim of misrepresentation must prove that the misleading statement induced him/her into the contract - If an individual enters a contract knowing that the statement is incorrect or false, misrepresentation is not actionable - In order for the misrepresentation to be actionable, the statement must effect the outcome of the agreement and the victim must have been mislead into doing something he or she would not have done o In the case of lozanovskies and hoy, the court had found that loz had made a misleading statement but this misleading statement was not actionable as hoy did not rely on it and got the house inspected before it was purchased As a term of Contract - The law of misrepresentation applies when the incorrect or false statement induced or persuaded the client into making a decision, special remedies are used as the misleading statement normally does not make the terms of the contract - If they do make the contract normal breach of contract remedies apply - Breach of contract action may be appropriate if misleading terms are inserted in contract Innocent Misrepresentation - An innocent misrepresentation is false statement, made honestly and without carelessness by a person who believed it to be true. - If the person making the misleading statement is no way at fault, misrepresentation is innocent and remedies are limited - The only resource available to the victim is to ask for a equitable remedy of rescission o As soon as the victim finds out about the innocent misrepresentation he or she can either ignore the misrepresentation and affirm to the contract, or refute the contract and ask for a rescission Rescission - Attempts to return both parties to their original position, subject matter of the contract must be returned to the original owner and any monies paid under the contract must be returned - The court will also require that the party returning any subject matter of the contract to return any benefits derived while the content was in his/her possession - Property returned along with monetary benefits minus expenses - Rescission is not available in the following situations o Affirmation  Where a person uses the proceeds of a contract knowing of the misrepresentation, he has affirmed the contract o Impossibility of restoring  Remedy of rescission is not available if the parties cannot be returned to their original position because the subject matter of the contract has been destroyed or damaged o Third-party involvement  Rescission will not be granted if it adversely affects the position of the third party o Failure on the part of the victim  Where victim comes without clean hands  Where the victim has mislead or cheated rescission  Where victim has caused unreasonable delay Fraudulent Misrepresentation - If misrepresentation of a fact is intentional and induces another person to enter a contract the victim can sue under the tort of deceit in addition to or instead of contractual remedy of recession - If it is fraud it can be proved that the person who made the false statement did not honestly believe that it was true - One cannot avoid the truth by saying that they were unaware that what they said was not the truth as they never bothered to find out - Fraud exists even when the victim of the misrepresentation could have found out the truth easily, but relied on the statement of the defendant - Failure to correct an innocent false statement turn misrepresentation into fraud - Once the court has come to a conclusion that the misrepresentation was fraudulent, the court can award rescission or damages o Rescission or avoidance:  The victim of the misrepresentation has the right to have the parties in the contract to return to their original position and reimburse any out of pocket expenses o Damages for deceit  The victim of misrepresentation can seek monetary compensation as well as rescission for any loss incurred as a result of the fraud  The damages are awarded for the tort of deceit  To obtain damages there is no obligation to return property, nor is the court requiring both parties to return to their original positions, as with rescissions but rather the court requires financial compensation to be paid to the victim but the party at fault  The victim of fraudulent misrepresentation can seek punitive damages, which is to punish the wrongdoer rather than compensat
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