Chapter 8: Factors Affecting the Contractual Relationship

Question 1

Misrepresentation

LO 8.1 Distinguish innocent, fraudulent, and negligent
misrepresentation

AND

LO 8.2 Identify the remedies available for each type of
misrepresentation

Answer 1

Misrepresentation

LO 8.1 Distinguish innocent, fraudulent, and negligent
misrepresentation

AND

LO 8.2 Identify the remedies available for each type of
misrepresentation

Question 2

Misrepresentation

Answer 2

an untrue statement of fact; an incorrect or false representation

A false statement of fact that persuades someone to enter into a contract

From lecture:
-The statement that forms the misrepresentation must be an allegation of fact (not opinion, unless special certain circumstances from an experts opinion)

• Silence (or non-disclosure) is not usually actionable as a misrepresentation; however if you cover something up this may be considered a misrepresentation
• The statement is false
• That the false statement induced them into entering the contract

Question 3

3 ways to present the false statement:

Answer 3

1) The false statement can be made fraudulently, when the person making the statement knew it was false;
2) Negligently, when the person should have known the statement was false

3) Completely innocently, when the
misrepresentation is made without fault.

Question 4

Allegation of Fact

Answer 4

The statement that forms the basis of the misrepresentation must be an allegation of fact. Only statements made about the current state of things
that prove to be incorrect can be considered misrepresentation.

Example: “I will have the car inspected next
year” is not a statement of fact, but a promise to do something in the future

Question 5

Misleading statement being complained of was an expression of opinion rather than fact

Answer 5

When a person declares that the car
he is selling is a “good car” or a “good deal” he is entitled to have that opinion

But if a mechanic makes the same statement and it proves to be false, it
can be actionable as misrepresentation because he is an expert

Question 6

Silence or Non-Disclosure definition

Answer 6

a failure to reveal facts; if a duty to disclose exists, silence may constitute misrepresentation

Question 7

Upmost good faith

Answer 7

a duty to act in the best interests of another; such duty may arise between directors and officers and the corporation they serve, between business associates including senior employees and their employer, between agents and their principals, and between partners; also called fiduciary duty

Question 8

Can misrepresentation be non verbal?

Answer 8

misrepresentation can occur even if the method of communicating it is a gesture, such as a nod of the head

Question 9

False Statement

Answer 9

It is necessary to demonstrate not only that the misleading comment qualifies as an allegation of fact, but also that the statement is incorrect and untrue.

For example, if a used car salesperson
tells a potential purchaser that the transmission of a particular car has just been replaced but fails to say it was replaced with a used transmission,
this partial truth can be misrepresentation if it leads the purchaser to believe a new transmission was installed

Question 10

Statement Must Be Inducement

Answer 10

If the victim knew that the statement was false and entered into the agreement anyway, either
because she did not believe the statement or believed that the statement did not make any difference, the misrepresentation is not actionable

Question 11

Misrepresentations That Are Also Terms of the Contract

Answer 11

Plaintiffs may need to seek equitable remedies when induced by misleading statements into a contract, because the misleading statements usually do not become terms of the agreement itself

Selling a 2012 car as a 2015 model can be bad
But saying it gets 10L/100km and that is not correct is okay

Question 12

Innocent Misrepresentation definition

Answer 12

a false statement made honestly and without carelessness by a person who believed it to be true

As soon as the victim realizes what has happened, he can choose either to ignore the misrepresentation and affirm the contract or refute the contract and seek rescission

Question 13

Rescission definition

Answer 13

amounts to the undoing of a contract, returning the parties to the positions they were in before the contract

the subject matter of the contract must be returned to the original owner, and any monies paid under the contract must also be returned

Question 14

Negligent Misrepresentation

Answer 14

an incorrect or false statement of fact, made without the required care, that misleads the recipient thus causing injury

All four elements of negligence must be established
- A duty to exercise care needs to be first

Question 15

Fraudulent Misrepresentation

Answer 15

misleading (false) words made knowingly, without belief in their truth, or recklessly, causing injury

Question 16

Fraud is established when the false statement

was made

Answer 16

(1) knowingly,
(2) without belief in its truth, or
(3) recklessly, careless whether it be true or false

Question 17

The courts do not treat fraud lightly and may award _______________

Answer 17

punitive damages

Question 18

Duress, Undue Influence, and Unconscionable Transactions

LO 8.3 Examine duress, undue influence, and unconscionable transactions

Answer 18

LO 8.3 Examine duress, undue influence, and unconscionable transactions

Question 19

Duress definition

Answer 19

force or pressure to enter into a contract because of a threat

This threat may be physical violence or imprisonment, criminal prosecution, to disclose embarrassing or scandalous information

Note: Duress only causes a contract to be voidable, not void

Question 20

Voidable contract

Answer 20

could be revived later by affirmation and be binding on the parties.

Question 21

Examples of duress

Answer 21

includes not only threats of violence and imprisonment,
but also threats of criminal prosecution and threats to disclose embarrassing or scandalous information

also includes threats to a person’s goods or property. The threat of loss of employment and other financial losses can amount to economic duress and be actionable

Question 22

When duress is voidable but denied remedy example

Answer 22

If someone is forced to sell a gold watch by threat of violence but then the watch is then resold to an innocent third party, the watch cannot be retrieved. Because a voidable contract is still a contract, the title has passed on to the innocent third party

Question 23

Undue Influence definition

Answer 23

pressure from a dominant, trusted person that makes it impossible for a party to bargain the terms of a contract freely

Note: Only causes a contract to be voidable (not void)

Question 24

The court may find undue influence in the following situations:

Answer 24

1. Presumption based on a special relationship
2. Presumption based on unique circumstances
3. Undue influence is determined from the facts

Question 25

1. Presumption based on a special relationship

Answer 25

In certain categories of relationships the courts will presume the presence of undue influence, and if the presumption is not rebutted the
contract will be set aside.

Examples: Professionals such as doctors or lawyers contracting with their patients or clients

Parents or guardians contracting with infant children in their care

Religious advisers contracting with parishioners

Question 26

2. Presumption based on unique circumstances

Answer 26

May arise on the basis of unique circumstances,
where one person was in a position to dominate the will of another.

Example: A husband or a wife signing a guarantee for a spouse’s indebtedness might constitute such a situation

Question 27

3. Undue influence is determined from the facts

Answer 27

In the absence of a relationship that gives rise to the presumption, it is still possible for a victim to produce actual evidence to satisfy the court that undue influence was, in fact, exerted and that there was coercion

Question 28

Unconscionable Transactions definition

Answer 28

an equitable principle allowing courts to set aside a contract in which a party in a superior bargaining position took advantage of the other party
and the consideration was grossly unfair

Question 29

To escape

from such a contract, it must be shown that

Answer 29

(1) there is an inequality in the bargaining positions of the parties arising out of ignorance, need, or distress of the weaker party;

(2) the stronger party has consciously used
the position of power to achieve an advantage; and

(3) the agreement reached is substantially unfair to the weaker party.

Question 30

Mistake

LO 8.4 Identify three types of mistake
LO 8.5 Describe the effect of mistake upon the enforceability of a contract

Answer 30

Mistake

LO 8.4 Identify three types of mistake
LO 8.5 Describe the effect of mistake upon the enforceability of a contract

Question 31

Mistake definition

Answer 31

an error about some aspect of a contract that destroys consensus

Where it is clear that because of the mistake the parties have failed to reach a consensus, the contract is void

Question 32

It can relate to an assumption upon

which the contract is based, whether that assumption is about

Answer 32

(1) a matter of fact,
(2) some future event, or
(3) the law surrounding the contract

Question 33

Shared mistake

Answer 33

where both are making the same mistake

Question 34

Misunderstanding

Answer 34

where each party has a different idea as to the meaning of the terms of the contract

Question 35

Unjust enrichment

Answer 35

a windfall that one party to a contract stands to make at the expense of the other

Question 36

Void versus voidable contracts

Answer 36

If a contract is found to be void it is not a contract at all;

If it is voidable the contract does exist, but one of the parties has the option of getting out of it

Question 37

Shared Mistake

Answer 37

the same mistake made by both parties to a contract

Question 38

The most common example of such a shared mistake

resulting in a void contract is where

Answer 38

the subject matter of the contract no
longer exists at the time the contract is made.

Example: an agreement for the sale and purchase of the cargo of a ship, without knowing that the ship and cargo were destroyed the night before, the contract is void because of the shared mistake

Question 39

Rectification

Answer 39

The agreed upon price was expressed in US dollars per US gallon. A clerical error made the document read US dollars per Canadian gallon.

Rectification was ordered since it was clear that both understood what they were agreeing to, and what was written in the contract was different from that understanding

Question 40

Is rectification the rewriting of a contract?

Answer 40

It is important to remember that the courts are not rewriting the agreement during rectification—they are simply correcting a written document so that it corresponds to the demonstrated intentions of the
two parties.

Question 41

Misunderstanding

Answer 41

When one party to an agreement thinks that the agreement is to do something else, the
courts will usually apply the reasonable person test to determine which interpretation of the contract is more reasonable

Question 42

One-Sided Mistake (aka unilateral mistake)

Answer 42

a mistake made by only one of the parties about the terms of a contract

Question 43

Caveat emptor

Answer 43

“Let the buyer beware”

Question 44

Non Est Factum

Answer 44

“It is not my act”

grounds for a court to declare a contract void because a party is unaware of the nature of the contract

Question 45

Example of Non Est Factum

Answer 45

If a person were led to believe he was guaranteeing a note and was, in fact, signing a mortgage agreement on his home, he could argue that there was no
consensus between the parties and no contract.

Question 46

For Non Est Factum to succeed and the contract to be void, _________________________________________________

Answer 46

it must be shown that the mistake about the document went to the very nature of that document rather than merely to its terms

Question 47

Rules of Interpretation

Answer 47

When interpreting contracts, the courts are not concerned with what the parties thought they were agreeing to but rather with what the parties
should have been aware of and expected when they made the agreement.

Question 48

Parol evidence rule

Answer 48

a principle that courts will not permit outside evidence to contradict clear wording of a contract

2008 Honda vs 2008 Honda Civic, one cant confuse a motorbike vs car in the second

Question 49

Sale of Goods Acts

Answer 49

set down, in rule form, the terms that are

implied in a contract for the sale of goods when the parties have not addressed them

Question 50

Privity of Contract and Assignment

LO 8.6 Outline the rules governing privity and assignment

Answer 50

Privity

LO 8.6 Outline the rules governing privity and assignment

Question 51

Privity of contract

Answer 51

a principle that contract terms apply only to the actual parties to the contract

Occurs when two parties have created a private agreement and outsiders do not have the ability to rely upon, enforce it, nor be bound by its terms

Question 52

Exceptions to the privity rule

Answer 52

First it must be emphasized that while a third party
designated to receive a benefit cannot enforce the contract, the original
parties still have the right to insist on performance

From lecture

• Interest in land ‘runs with the land”
• Agency
• Negotiable instruments

Question 53

Where land is involved, the rights of the parties are said to run with the land.

Answer 53

If a person leases a suite in a house and the owner sells the house,
the new owner must honour the lease, even though the new owner was
not a party to the lease

Question 54

Trust definition

Answer 54

a provision in equity whereby one person transfers property to a second
person obligated to use it to the benefit of a third person

Question 55

Constructive trust

Answer 55

a trust inferred by the courts to benefit a third party to a contract

Question 56

Novation

Answer 56

When the parties to a contract agree to substitute someone new for one of the original parties there is also no problem with privity so long as all
three parties agree to the change.

Question 57

Assignment

Answer 57

the transfer of rights under a contract to another party

Question 58

Chose in action

Answer 58

the thing or benefit that is transferred in an assignment; intangible personal property, such as a claim or the right to sue

Question 59

First, only a benefit can be assigned, not an __________

Answer 59

obligation

Question 60

Vicarious performance

Answer 60

performance by another designated person of the obligations under a
contract rather than the actual contracting party

Question 61

Statutory assignment

Answer 61

an assignment that meets certain qualifications and under which the
assignee can enforce a claim directly without involving the assignor

Question 62

The qualifications that have to be met to establish a statutory assignment
are as follows:

Answer 62

First, the assignment must be absolute, meaning that it
must be both complete and unconditional
-The full amount owed must be assigned (complete) without any strings attached (unconditional)

Second, the assignment must be in writing, signed by the assignor

Third, the original party obligated to pay must be notified in writing of the
assignment.

Question 63

Involuntary assignment

Answer 63

assignment of rights that takes place involuntarily, as in the cases of death and bankruptcy

Question 64

Negotiable Instruments

Answer 64

substitutes for money that bestow unique benefits; vehicles for conveniently transferring funds or advancing credit

including cheques, promissory notes, and bills of exchange, commonly called “drafts”

Question 65

Types of misrepresentation and their remedies

Answer 65

1) Innocent misrepresentation: Rescission is the only remedy
2) Negligent misrepresentation: Damages are / or rescission
3) Fraudulent misrepresentation: Rescission and damages (including punitive damages)
4) Damages (and possibly punitive damages) for the tort of deceit and / or rescission: Rescission OR damages for Breach of contract

Question 66

Duress, Undue influence, or unconscionability and their remedies

Answer 66

Duress; Contract made involuntarily: Contract is voidable- Rescission

Undue Influence: Contract is voidable - rescission

Unconscionable Transactions: Contracts is voidable - Courts may rescind or modify the contract

Question 67

Types of mistakes and their remedies

Answer 67

1) Both parties making a common error: If serious, three is no contract
2) An error in recording the terms: Can be corrected by rectification
3) A misunderstanding between the parties: Most reasonable interpretation of the contract is enforced
4) A one-sides mistake: Caveat Emptor applies unless the mistake is so fundamental as to destroy consensus or there is fraud

Question 68

An action for misrepresentation is different from an action for breach of contract because

Answer 68

the statement is no usually included in the contract, but rather is an inducement to enter into the contract