Management and Organizational Studies 2275A/B Chapter Notes - Chapter 8: Accounts Receivable, Accounts Payable, Parol Evidence Rule

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Published on 16 Apr 2013
School
Western University
Department
Management and Organizational Studies
Course
Management and Organizational Studies 2275A/B
Professor
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
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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
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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
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Document Summary

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 and a clerical error states the price as 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. 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.

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