blaw10a - Elements of Law - Part One Part III Contract Law...

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Unformatted text preview: Elements of Law - Part One Part III Contract Law Unit 10 Failure To Create A Valid Contract © 2007 Captus Press Inc. Module 1 Introduction-How a seemingly valid contract can be ruled invalid © 2007 Captus Press Inc. © 2007 Captus Press Inc. 1 Elements of Law - Part One How a seemingly valid contract can be ruled invalid There is a narrow band of situations where the courts have stepped in for one of two reasons: the parties are so mistaken as to the essential nature or terms of the contract, or so misunderstood each other that they could not, on any objective basis, be said to have reached an agreement, though they may think they had at the time they made the agreement. one party has done something that has so affected the bargaining process, that the parties cannot really be said to be in agreement Module 2 Mistake © 2007 Captus Press Inc. © 2007 Captus Press Inc. 2 Elements of Law - Part One Trends in analyzing the law of mistake If what was offered was offered in error, the offeree may be unable to accept an unintended offer If there is a mistake about something fundamental, like the existence of the object of the contract, it may be unenforceable A mistake in the motive for contracting is irrelevant; the contract is valid Unexpected consequences flowing from the mistake may lead to the contract being unenforceable Trends in analyzing the law of mistake (cont’d) If one party makes a fundamental mistake, and the other is aware of it, the contract may not be enforceable If one party made a careless or reckless mistake, the contract is enforceable If the court must intervene, it will try to fix the contract before it declares it void or voidable. © 2007 Captus Press Inc. 3 Elements of Law - Part One Mistake of law If one or both parties make a mistake of law affecting their contract, they are still bound Everyone is presumed to know the law, so the party who made the mistake must take responsibility for it The law is beginning to recognize that the law affecting civil matters can be very complex, and some courts are beginning to accept the idea that a mistake of law may void a contract. Mistake of fact A mistake about the identity of the subject matter may result in an invalid contract. But a mistake about a quality of the subject matter will not result in an invalid contract, unless the quality is fundamental to the determination of the identity of the subject matter © 2007 Captus Press Inc. 4 Elements of Law - Part One Existence of the subject matter If the parties agree on what the subject matter is, but are mistaken as to its existence the contract is usually deemed void from the beginning The parties cannot be in agreement on something that does not exist Situations where contract fails because subject matter is non existent It may never have existed—for example where the parties contract for the sale of a unicorn It may have existed but ceased to exist before the parties reached an agreement- for example the parties contract for the sale of a live dinosaur Both may think they can contract about it, but it is not something that can be the subject of a contract for legal or other reasons—for example a contract for the sale of skins of a protected and endangered species They may have contemplated the non-existence of the subject matter, but not decided how to deal with its non existence. © 2007 Captus Press Inc. 5 Elements of Law - Part One Mistake as to identity of a party If a party is mistaken as to the identity of the other party, the contract is void. An offer can only be made to the party to whom it is intended to be made A mistake as to an attribute of a party does not void the contract. But some cases hold that this is a distinction without a difference. Non est factum The party relying on the plea must be affected by a disability that interferes with understanding the nature of the document The party must not be careless or negligent The party must be entirely mistaken as to the type of transaction The party must prove his or her disability caused the mistake The party need not prove fraud or fault by the other party © 2007 Captus Press Inc. 6 Elements of Law - Part One Unilateral mistake Unilateral mistake occurs when one party is mistaken about some fundamental element of the contract Other party is unaware of the mistake If the other party is unaware of the mistake, and could not have reasonably been expected to be aware of it, then the contract is valid © 2007 Captus Press Inc. 7 Elements of Law - Part One Other party should be aware of the mistake If one party make a mistake and the other is unaware of it but in all the circumstances should have been aware of it, then the contract is voidable by the mistaken party Other party is aware of the mistake If one party makes a mistake and the other is aware of it and snaps up the bargain, the contract is voidable by the mistaken party © 2007 Captus Press Inc. 8 Elements of Law - Part One Remedies for mistake At common law, a contract is either void ab initio [from the beginning] or it is valid At equity, a contract could be rescinded in which case it is voided and the parties are returned to their pre-contract position At equity, a contract could be rectified, in which case it is rewritten to correct the mistake. It is then valid and enforceable Mutual mistake Mutual mistake arises when both parties are mistaken, but they each make a different mistake. Where there has been a mutual mistake about something fundamental, the contract can be rescinded © 2007 Captus Press Inc. 9 Elements of Law - Part One Common mistake A common mistake is one where both parties make a mistake and it is the same mistake Module 3 Frustration © 2007 Captus Press Inc. © 2007 Captus Press Inc. 10 Elements of Law - Part One The doctrine of frustration of contract This is a legal doctrine that permits the parties to a contract to be relieved of their contractual obligations because of the occurrence of some event beyond their control that makes it impossible for them to perform the contract. Factors affecting frustration of contracts Impossibility arises from the acts of a third party Impossibility arises from some natural or external force: fire, flood, earthquake, weather or other force majeure that is beyond the control of the parties The impossible situation cannot be prevented by the parties and is beyond their control. The impossibility is not directly or indirectly brought about by the party who is arguing that the contract has been frustrated. © 2007 Captus Press Inc. 11 Elements of Law - Part One Factors affecting frustration of contracts (cont’d) The impossibility is caused by the death or serious physical incapacity of a party where a persona attribute of that party was required to perform the contract The impossibility is caused by the subject matter of the contract ceasing to exist The impossibility is caused by a change in the law that is not contemplated by the parties The impossibility is caused by serious delay that is not contemplated by or caused by the parties Analytic approaches to frustration of contracts Implied term approach: a term is seen as a condition precedent to to the performance of a contract. If it cannot be fulfilled, the contract may be frustrated Contract construction approach: if the very basis or purpose of the contract cannot be achieved, then the contract may be frustrated. © 2007 Captus Press Inc. 12 Elements of Law - Part One Common law remedies for frustrated contracts The loss lies where it falls at the moment of the frustrating event occurs The Fibrosa case: money paid prior to the crystalizing event can be recovered, but expenditures for work done to perform the contract cannot be. Exclusions from the Frustrated Contracts Act Contracts governed by a specific statute that has frustration provisions overrides the Frustration of Contracts Act. This follows the general rule of statutory interpretation that a specific statute dealing with an issue overrides a more general one. Contracts where the parties have created their own express terms to deal with frustration Certain contracts for the carriage of goods by sea © 2007 Captus Press Inc. 13 Elements of Law - Part One Exclusions from the Frustrated Contracts Act (cont’d) Insurance contracts Contracts for the sale of goods when the goods cease to exist before the contract is entered into without faulty bye either party, and before risk passes to the bury—this really is likely to be a case of mistake rather than frustration Contracts where the goods cease to exist after the the contract is entered into without fault by either party and before risk passes to the buyer. Remedies under the Frustration of Contracts Act Money paid before discharge is recoverable Debts accrued but not yet paid are not to be paid Total failure of consideration is not required. Even if some value was obtained, the contract can be terminated for frustration and parties may receive compensation © 2007 Captus Press Inc. 14 Elements of Law - Part One Remedies under the Frustration of Contracts Act (cont’d) Where a party has incurred expenses to carry out the contract the party may be allowed to keep part or all of a deposit paid by the other party or to recover some or all of the expenses The court is given a reserve power to apportion losses and benefits so that if one party receives some benefit, where failure of consideration is not total, she or he will have to pay the other side a reasonable amount for that benefit. Module 4 Misrepresentation © 2007 Captus Press Inc. © 2007 Captus Press Inc. 15 Elements of Law - Part One Misrepresentation A misrepresentation is a statement that is false or misleading that induces someone to enter into a contract. An innocent misrepresentation is a false statement made to induce a party to enter into a contract that the maker of the statement does not know is false. A fraudulent misrepresentation is a false statement made to induce a party to enter into a contract that the maker knows is false Damages for innocent misrepresentation If innocent misrepresentation is a term of the contract, sue for all damages flowing from breach of contract. If innocent misrepresentation is negligent, sue for all damages flowing from the injury done by negligent misrepresentation If innocent misrepresentation is “pure” sue for restitution to pre contract position only, other consequential damages are excluded. © 2007 Captus Press Inc. 16 Elements of Law - Part One Damages for fraudulent misrepresentation Fraudulent misrepresentation is equivalent to the tort of deceit and gives rise to a claim for damages for all consequential damage The contract may be voidable by the injured party. If rescission is granted, the court will try to restore the victim to his or her pre contract position. If this cant be done, the court may award damages to cover the losses as if the fraud had not occurred. Module 5 Duress—Let me Make you an offer you can’t refuse… © 2007 Captus Press Inc. © 2007 Captus Press Inc. 17 Elements of Law - Part One Let me make you an offer you can’t refuse Duress arises where a party to a contract is induced to enter it through force or threats of force against the party, or members of his or her family. Module 6 Undue Influence © 2007 Captus Press Inc. © 2007 Captus Press Inc. 18 Elements of Law - Part One Undue influence Undue influence is the domination of one party by another so that the latter cannot make an independent decision Actual undue influence requires the dominated party to prove the allegation Presumed undue influence arises from the type of relationship between the parties, where one is presumed to dominate the other. The burden is on the dominating party to prove that there was no undue influence. © 2007 Captus Press Inc. 19 ...
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