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Chapter 8

BU231 Chapter Notes - Chapter 8: Bona Fide Purchaser


Department
Business
Course Code
BU231
Professor
Valerie Irie
Chapter
8

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Party AParty B
Party C
Contract 1
Contract 2
READING NOTES
CHAPTER 8: Grounds Upon Which a Contract May Be Implemented
Discuss what happens when a party realizes that the contract is not
the one that was intended
Review:
Impeaching Contracts
1) Mistake
2) Lack of Capacity
3) Illegality
Caveat Emptor = Buyer Beware
Exceptions – Lack of Capacity, Mistake, Consumer (Consumer Protection
Act)
Review Void vs. Voidable
Void - Never existed, return parties to original state
Voidable – Exists until set aside, no return to original state
oEg. If contract 1 is void, then contract two also becomes void
(Thus, Party C needs to fully restored Party A or become liable, Party C needs
to sue Party B if they wanna get anything back!)
Why? No contractual linkage to party A
oEg. If contract 1 was voidable, Party A only has until contract 2 is enacted to
get their stuff back or else Party A is outta luck!
For Party C to be protected in this case, they must be innocent and
have paid value for the goods
Restricted Meaning of Mistake
We must not confuse ‘legal mistake’ with ‘mistake’ in its more general, non-legal
meaning
oGeneral mistakes (realizing a bad bargain was made) do not provide a legal
basis from removing yourself from contract… would undermine all contracts!
Mistake has to be something that is undiscoverable
There are two main types of mistake:
oMistake about the terms of a contract
oMistakes in assumptions about important facts related to a contract, although
not part of the contract itself
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Mistakes About the Terms
Words Used Inadvertently
oIf, in the circumstances, it was reasonable for the second party to rely on them
and enter into the contract, then the terms of the contract are binding
oEg. Webster vs. Cecil
Cecil accidentally counter offers with 1250 instead of 2150, doesn’t
realize error until acceptance is already drafted, Webster sues to
enforce the contract
Court concluded that no reasonable person could have believed such
an offer to be made intentionally
oRemedy is not complete, and is consequently voidable, meaning no protection
from third party’s (punishes stupidity!)
Errors in Recording an Agreement (Transcription)
oTwo parties reach an agreement in some form (orally, roughly written) but the
final form does not accurately reflect the original statement
Term may have been left out or figures may be wrong
oParty claiming that the arrangement was improperly recorded may ask the
court for rectification of the contract if they meet the following qualifications
Court must be satisfied that there was a complete agreement between
the parties, free from ambiguity or further adjustments
Parties did not engage in further negotiations to amend the contract
The change appears to be error in recording, easily explained as such
oOften becomes a battle of credibility which is an imperfect art
Misunderstandings About the Meaning of Words
oParties might place quite different meanings on those words
oCourt tries to keep contract alive by deciding which meaning is the more
reasonable in light of the circumstances, including those things each party
ought to have known about the subject-matter of the contract as well as
intentions
oIf this is not possible, they will argue that neither agreed on the same thing
and void the contract
Eg. By a remarkable coincidence two ships called Peerless were
sailing from Bombay, one in October, the other in December
A delay of two months in the shipment of an economically volatile
commodity caused a major difference in terms whereby the seller sued
for breach of contract
Defence succeeded because the court could not decide which ship
Peerless was meant
oCourt will find contract void when:
i. Two equally valid interpretations exist
ii. Wording itself is ambiguous (ie. Parties were careless)
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