Lesson 6: Impeachment of a Contract

Question 1

define mistake

Answer 1

error by one or both parties that undermines the contract

Question 2

when a court is faced with allegation of mistake, what does it ask

Answer 2

1) did a legal mistake occur

2) was the legal mistake one where the court should intervene

Question 3

clarify question 1) did a legal mistake occur

Answer 3

• mistake must be one that undermines the contract

- simply making a mistake in judgement or a mistake in the understanding of a contractual term is insufficient

Question 4

clarify question 2) was the legal mistake one where the court should intervene

Answer 4

1) court must decide is whether interpretation of the mistaken party at the time they entered the contract was reasonable
2) a person cannot be overly naive or trying to take advantage of an obvious error
3) if a mistaken party cannot restore subject matter of the contract to the other party, the mistaken party loses right to rescind

Question 5

if a court finds there was a legal mistake, what may it do?

Answer 5

make the contract void, voidable or rescind the contract

Question 6

in a unilateral mistake, where is rectification available?

Answer 6

if mistake amounts to fraud or near fraud

Question 7

in a common mistake, where is rectification available?

Answer 7

the party seeking rectification must establish:

1) An agreement between the parties existed prior to the execution of a written instrument and the terms are definite and ascertainable as at the timing of the execution of the written instrument;
2) The prior agreement was still in effect when the written instrument was executed;
3) The written instrument fails to accurately record the prior agreement; and
4) If rectified as proposed, the written instrument would carry out the prior agreement.

Question 8

define unilateral mistake

Answer 8

where only one party believes there is a mistake in the contract

Question 9

define common mistake

Answer 9

both parties believe there has been the same mistake

Question 10

define mutual mistake

Answer 10

both parties are mistaken but believe something different from each other

Question 11

what happens if a mutual mistake exists?

Answer 11

contract is void

Question 12

define non est factum

Answer 12

it is not my doing

Question 13

explain non est factum

Answer 13

1) special type of mistake where a party has signed a document under mistaken belief as to its nature and character
2) Party proving non est factum must prove that nature of the document must have been misrepresented for this to apply
3) The party arguing non est factum must not have acted carelessly when entering the agreement
4) If there is non est factum, the contract is voidable

Question 14

define voidable

Answer 14

the contract exists until set aside by a court, rights may pass to 3rd parties before set aside

Question 15

define equitable relief

Answer 15

discretionary remedy first developed by courts of equity to undo justice

Question 16

define rescind

Answer 16

set aside, undo or revoke a contract and return the parties as nearly as possible to their original position

Question 17

what happens if a contract dispute concerns only 2 original parties?

Answer 17

in either void or voidable event, the court may return the property that has passed between the parties

Question 18

what happens if property has been transferred to an innocent purchaser?

Answer 18

original owner may recover only if the original contract is declared void and not voidable. if it is void, original owner must sue innocent purchaser

Question 19

define rectification

Answer 19

correction of a written document to reflect accurately the contract made by the parties

Question 20

what happens if parties place different meaning on words and how does this relate to mutual mistake?

Answer 20

courts will decide which meaning is more reasonable in light of the circumstances including things parties ought to know about subject matter and intentions of other party; mutual mistake is where both parties have equally reasonable or unreasonable interpretations of the words

Question 21

what happens if there is a contract for the sale of specific goods and the goods without knowledge of the seller have perished at the time the contract is made

Answer 21

contract is void

Question 22

what happens if the subject matter of a contract is understood, described or represented to have particular characteristics that give it value, then there are mistakes about those characteristics

Answer 22

may trigger a contract to be rescinded

Question 23

define misrepresentation

Answer 23

untrue statement or omission that is believed and relied upon by another person

Question 24

in tort law when may a misrepresentation be actionable?

Answer 24

if it is negligent or fraudulent. if it is innocent, no tort as long as party corrects their mistake

Question 25

explain misrepresentation in contract law

Answer 25

either innocent, fraudulent or negligent, may result in contract being made voidable at option of victim so long as the misrepresented info was material

Question 26

how long does victim of misrepresentation in contract law have to rescind contract?

Answer 26

reasonable time

Question 27

what happens if victim of misrepresentation in contract law if they have incurred expenses as a result of the contract

Answer 27

may be entitled to indemnity or compensation

Question 28

define indemnity or compensation

Answer 28

a money award given as a supplement to rescission for loss sustained in performing a contract

Question 29

define material

Answer 29

fact that could be reasonably expected to influence or induce the decision of a party to enter into a contract

Question 30

what must a misrepresentation must be in contract law?

Answer 30

fact, not opinion, unless it is expert opinion

Question 31

define expert opinion

Answer 31

opinions given by a person who purports to have specialized knowledge of a subject

Question 32

when does silence or conduct amount to misrepresentation?

Answer 32

when parties have a requirement of utmost good faith and obligation to disclose

Question 33

what situations do parties have requirement of utmost good faith and obligation to disclose?

Answer 33

continuing business relationships, contracts of insurance, fiduciary relationships, contracts involving sale of corporate securities, contracts involving sale of good, contracts with consumers

Question 34

explain contracts of insurance with requirement of utmost good faith and obligation to disclose?

Answer 34

party seeking insurance has a duty of utmost good faith to disclose all pertinent info

Question 35

explain contracts involving sale of corporate securities with requirement of utmost good faith and obligation to disclose?

Answer 35

corporations are required to give investing public info about any new issue of shares or bonds

Question 36

explain contracts involving sale of goods with requirement of utmost good faith and obligation to disclose?

Answer 36

buyers can rescind contracts for sale of goods if vendor fails to disclose problems with ownership of goods, quality or characteristics about goods (does not apply to services or lands)

Question 37

explain contracts with consumers with requirement of utmost good faith and obligation to disclose?

Answer 37

specific industries need to disclose cost of credit, total interest etc, some statutes offer consumers a cooling off period - consumer may rescind contract without any reason for a time

Question 38

what is a misrepresentation not?

Answer 38

a term of the contract, otherwise it gives rise to a breach of contract action

Question 39

define undue influence

Answer 39

mental denomination of one party by the other to such a degree as to deprive the weaker party of the will to make an independent decision

Question 40

what happens in a contract reached by undue influence

Answer 40

voidable at option of victim provided he/she acts promptly upon being freed from denomination

Question 41

burden of proof in undue influence contracts

Answer 41

the party alleging undue influence must satisfy that denomination was probable

Question 42

how to rebut undue influence in contracts

Answer 42

1) There is a rebuttable presumption of undue influence if there is a special relationship between parties like accountant and client. The stronger party may rebut the presumption by showing that no undue influence was exerted
2) Courts reject allegations of undue influence where the parties have received independent legal advice at time of contract or if stronger party suggests other party seek independent legal advice

Question 43

define unconscionable contracts

Answer 43

contracts where there is unequal bargaining power between the parties and the powerful party gets an extremely advantageous deal

Question 44

what happens with unconscionable contracts?

Answer 44

Considered voidable at option of victim

Question 45

define duress

Answer 45

use of actual or threatened violence as a means of coercing a party to enter into a contract, conduct that may well amount to a criminal offense like extortion or assault

Question 46

how is a contract created under duress treated?

Answer 46

Voidable at option of victim; injured party must repudiate the contract promptly once freed of the violence of treat of that violence

Question 47

elements for duress to apply

Answer 47

1) It must be a pressure which the law does not regard as legitimate and it must be applied to such a degree as to amount to a coercion of the will, or
2) It must place the party to whom the pressure is directed in a position where he has no realistic alternative but to submit to it.

Question 48

how to argue against duress

Answer 48

If party is given opportunity to seek independent legal advice, any inference of duress is negated

Question 49

strategies to manage legal risks

Answer 49

1) Preparing standard form contracts with entirety clauses that specifically excludes any outside terms, conditions or representations
2) Each party should seek independent legal advice
3) sale staff should be trained so no misrepresentations are made

Question 50

what happens involving mistakes as to the identity of a party, where an innocent party is deliberately tricked into believing the other party is someone they are not

Answer 50

1) if an existing identity is assumed and not fabricated, the contract will be void and the innocent party will need to return the goods
2) if an identity is fake, the contract is voidable and the innocent party does not need to return the goods

Question 51

recap of effects of a contract and additional tort remedies available

Answer 51

1) mistake -> void/voidable/rectification

2) innocent misrepresentation ->