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Chapter 8

Chapter 8 BU231.docx

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Wilfrid Laurier University
Valerie Irie

BU231 Chapter 8 – Grounds Upon Which a Contract May Be Set Aside: Mistake and Week 3 Misrepresentation The Narrow Meaning of a Mistake -Void – the contract never comes into existence and no rights pass -Voidable – the contract exists until set aside by a court; rights may pass to third parties before it is set aside -Equitable relief – a discretionary remedy first developed by the courts of equity to undo an injustice -Rescind – set aside; undo or revoke a contract and return the parties as nearly as possible to their original positions -Generally, mistakes must be about factual circumstances, not the law itself -Sometimes both parties are mistaken about the facts, a situation known as a common or mutual mistake Void and Voidable Contracts -If the court finds that there has been a mistake, the contract may be declared either void or voidable, or, in special circumstances, the mistake may be corrected -The common law recognizes no half measures: either the contract is void or it is not -Set aside – rescind; undo or revoke a contract and return the parties as nearly as possible to their original positions -Rescission – an equitable remedy that rescinds a contract -In order to receive protection, a third-party purchaser must be innocent and have paid value for the goods Mistakes about the Terms Words Used Inadvertently -Unilateral mistake – a situation in which only one of the parties believes there is a mistake in the contract Errors in Recording an Agreement -Rectification – correction of a written document to reflect accurately the contract made by the parties -Rectification can be asked for if the following conditions are met: -The court is satisfied that there was a complete oral agreement between the parties, free from ambiguity and not conditional on further adjustments -The parties did not engage in further negotiations to amend the contract -The mistake in the written document may have, but does not have to have, occurred as a result of fraud -When the written document was signed, the defendant knew or show have known of the mistake and the plaintiff did not -Any subsequent attempt to enforce the inaccurate written document would be equivalent to fraud Misunderstandings About the Meanings of Words -Mutual mistake – a situation in which both parties believe a mistake exists in the contract but their understandings of the mistake are different BU231 Chapter 8 – Grounds Upon Which a Contract May Be Set Aside: Mistake and Week 3 Misrepresentation Mistakes about the Subject Matter Mistake about the Existence of the Subject Matter of a Contract -Common mistake – a situation in which both parties believe the same misunderstanding or mistake about the contract Mistake about the Value of the Subject Matter -Finding a solution that is fair to both parties is much more difficult when the subject matter of a contract is still in existence, but its qualities are radically different from those contemplated by the parties -One party may be paying far too much for what he will receive Mistakes about the Identity of a Party to a Contract -Mistakes as to the identity of a party to the contract are unilateral mistakes often is fraud, where an innocent party is deliberately tricked into believing the other party is someone that he is not involving -Subsequent purchasers are better protected when the first transaction takes place face to face than when the transaction takes place by post, phone, or Internet Mistakes about the Nature of the Signed Document Non Est Factum -Non est factum – “it is not my doing” -Made in a time when most people could not read or write and usually signed documents by making a mark or imprinting with a seal -In those days, illiterate people relied on the literate party to describe the nature of the document -If the literate party materially misrepresented the nature of the document, it would be declared void Misrepresentation Contract vs. Tort -Misrepresentation is an untrue statement or omission that is believed and relied upon by another party -When a person makes an innocent misstatement, no tort is committed -If this person later discovers her error, she must inform the other party of the true situation as soon as she can -Material – could
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