Chapter 8: Grounds Upon Which a Contract May be Set Aside

Misrepresentation

- A statement/representation made during negotiation of a contract, before formation of the contract, that turns out to be false o Fraudulently Misrepresentation → Pretending to be someone you arent o Negligently Misrepresentation → careless o Innocent Misrepresentation → No way you could have know, later found out that later what you said was untrue.

Duress

- Actual or threatened violence or imprisonment as a means of coercing a party to enter a contract - Contract would be voidable at the option of the victim

Undue Influence

- Special Relationship o Often fiduciary relationships o Special case - husband and wife o Need for ILA - Dire Circumstances: o Where one party is temporarily desperate and will agree to any terms - Threat of Prosecution o Agreeing to terms to avoid prosecution of a family member • Trying to protect someone and agreeing to ridiculous terms - Unconscionable Contracts o Arising from inequality of bargaining power - but the court is reluctant to look at the bad bargain as being a result of unconscionability • They don't care if you make a bad bargain → Only care about behavior that screams out for equitable relief

Undue Infuence

- The domination of one party over the mind of another to such a degree as to deprive the latter of the will to make an independent decision o Someone has some form of influence over another person → because of relationships between parties. Most commonly seen in state law. • Influencing your grandma to change her will, does occur in situations of contracts - Contract formed under undue influence would be voidable at the option of the victim

Rescission

- The setting aside of a contract because of some *defect* affecting its formation such as a mistake, misrepresentation, duress or undue influence o One party is asking the court to rescind the contract → very reluctant to do so - Or, the discharge of the contract by the subsequent agreement of the parties o Both parties are in a contract, if both parties agree they can discharge it

Elelements

1) Statement/Representation made (must be a statement of fact) 2) Statement is False 3) Intent (if fraudulent); Duty of Care owed/Standard breached (if negligent) 4) Reliance on the statement caused the injured party to enter the contract 5) Caused harm

Burden of Proof

Plaintiff must prove that: 1) There was *domination by the other party* in the circumstances -----By showing the special relationship exists; or -----That s/he was in desperate circumstances at the time of contract formation 2) That the contract is* unfair or disadvantageous to the weaker party*

Omissions

o Not necessarily a misrepresentation UNLESS there is a duty of utmost good faith owed, e.g. fiduciary

Experts:

o Representation is a statement of fact NOT opinion o Expert opinions are considered to be a statement of fact • Even self proclaimed experts

Object

o To place the parties as closely as possible back to their pre-contractual positions o NOT damages

Mistake in terms

• *Ambiguity* - multiple interpretations of the same term → two people both understand the contract differently • If the court decides that one side is more reasonable than the other → then the court can give preference to an interpretation

Other contracts that require disclosure

• Directors of companies owe a duty of utmost good faith to their corporations • Partners in a partnership • Insured's to their insurance company • Professionals owe a duty to their clients and must disclose conflicts of interest

Non Est Factum

• Historical defence devised in a time when people were largely illiterate • Claim of non est factum = this is not the contract I agreed to • Today → really hard defence due to the wide spread literacy • Reliance on another person's word that the document contains the terms agree to • Works for the blind or illiterate

Mistake in Identity

• Often occurs in fraud situations (pretending to be somebody else) - Car selling of car example

Mistake in Assumptions

• Refers to the subject matter of the contract • Mistake in assumption as to the existence of the subject matter - contract is void • Selling lumber and make a contract, the lumber burns and we have the contract still → both unaware that the lumber is gone. CONTRACT VOID • If the items disappear AFTER the contract then the contract is still valid • Mistake as to the value • Court will not interfere in a fluctuating market o Made a bad deal → your problem • Court will interfere if the mistake in value was present from the outset o From the time of negiation they were talking about different things from the get go - honest mistakes. Unfair or unjust for the court not to act. • VERY UNUSAL o There is a mistake made about the product itself which affects its value. o Example: Looking to purchase land → buyer thinks that the land is actually a bigger amount than the actual land available. Seller doesn't understand why they are offering so much → doesn't care it is money • Turns out that when the deal goes through they discover what they actually bought for that price → got contract rescinded

Mistake

• Typographical errors: • Test: would a reasonable bystander recognize it as a mistake? • If yes, then despite proper formation, contract would not be enforceable - it would be voidable at the option of the party that made the mistake • Mistake when reducing the terms to writing • Court may grant rectification, but only where: • Court is satisfied that there was a complete agreement between the parties free from ambiguity and not conditional on any further adjustments • The parties did not engage in further negotiations to amend the contract and • The change in the written document appears to be an error in recording and is most easily explained as such

Mistake in terms of the contract

• Typographical errors: • Test: would a reasonable bystander recognize it as a mistake? • If yes, then despite proper formation, contract would not be enforceable - it would be voidable at the option of the party that made the mistake • Mistake when reducing the terms to writing • Court may grant rectification, but only where: • Court is satisfied that there was a complete agreement between the parties free from ambiguity and not conditional on any further adjustments • The parties did not engage in further negotiations to amend the contract and • The change in the written document appears to be an error in recording and is most easily explained as such