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Chapter 8

BU231 Chapter 8

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Wilfrid Laurier University
Keith Masterman

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 o Eg. 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 o Eg. 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 Party B Contract 1 Party A Contract 2 Party C Restricted Meaning of Mistake • We must not confuse ‘legal mistake’ with ‘mistake’ in its more general, non-legal meaning o General 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: o Mistake about the terms of a contract o Mistakes in assumptions about important facts related to a contract, although not part of the contract itself Mistakes About the Terms • Words Used Inadvertently o If, 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 o Eg. 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 o Remedy is not complete, and is consequently voidable, meaning no protection from third party’s (punishes stupidity!) • Errors in Recording an Agreement (Transcription) o Two 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 o Party 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 o Often becomes a battle of credibility which is an imperfect art • Misunderstandings About the Meaning of Words o Parties might place quite different meanings on those words o Court 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 o If 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 o Court will find contract void when: i. Two equally valid interpretations exist ii. Wording itself is ambiguous (ie. Parties were careless) Mistakes in Assumptions • About the existence of subject matter of a contract o Court will find a contract to be VOID where subject matter does not exist at time of contracting (but parties believe it does) o Applies primarily for living things that can disintegrate or be destroyed  Eg. If at the time the contract was made the subject matter, a horse, had just died unbeknownst to both parties it is hard to imagine a fair way to enforce the contract  Have to hold contract void! o This rule as it applies to the sale of goods is incorporated into the Sale of Goods Act which argues that a contract is void in a situation like above • About the value of the subject ma
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