Part 3 – The Law of Contract

Chapter 11 – Failure to Create an

Enforceable Contract

Prepared by Michael Bozzo, Mohawk College

© 2015 McGraw-Hill Ryerson Limited 11-1

MistakeMistake of lawMistake of factNon est factumUnilateral and mutual mistake

MisrepresentationInnocent, fraudulent, negligent

Undue Influence Duress

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Overview

Requirements for a valid contractEssential elements such as offer, acceptance,

intention, consideration, capacity may all exist but contract may still not be enforceable

Situations which may render a contract unenforceable Mistake, misrepresentation, undue influence,

duressAlso determines who bears the brunt of a given

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Introduction

MistakeA state of affairs in which a party (or both parties)

has formed an erroneous opinion as to identity of subject matter, or some other important term

Contract does not express their true intentions Types of Mistake

Mistake of lawMistake of fact

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Mistake

Mistake of LawPresumed to know the lawUsually no relief providedException: if statute provided for recovery

Mistake of FactMistake as to the existence of the subject

matter of the contract or the identity of a party

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Mistake

Court may provide reliefMistake as to subject matter of contract○ General rule contract is void

Mistake as to identity of the Party○ Depends if the identity of the person is an

essential element of the agreement○ If essential may not be enforceable○ If not essential – it will be enforceable

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Mistake of Fact

Non Est Factum A defense that may allow illiterate or infirm

persons to avoid liability on a written agreement if they can establish that they were not aware of the true nature of the document, and were not careless in its execution

Narrow form of mistake Applies only to type of agreement being signed

not to the terms of the agreement

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Mistake of Fact

Unilateral MistakeA mistake by one party to the agreement

Mutual MistakeA mistake where both parties have made

mistaken assumptions as to the subject matter of the agreement Can be same mistake or different mistakes

Courts will not enforce agreements when the other party is aware of the mistake being made

Unilateral and Mutual Mistake

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Rules If both parties make the same mistake:

as to subject matter then the contract is unenforceable

As to identity of the partiesDealt with on a case by case basis

Rectification The correction of a mistake in an agreement that

would have rendered the agreement impossible to perform, essentially for the correction of typos or editorial errors that distort the intention of the parties

Mutual Mistake

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CharacteristicsA statement or conductThat induces the other party to enter into the

contractMust be about a material matterMust be a statement of fact and not opinion

Exception: expert opinionStatement made before contract entered into

Misrepresentation

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Result of misrepresentationVoidable at the option of the injured partyMust rescind or lose the right if they accept

benefits under the contractRescission

The revocation of a contract or agreement

Misrepresentation

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Three TypesType RemedyInnocent rescission onlyNegligent rescission and damagesFraudulent rescission and damagesRemedy depends on type of

misrepresentation

Misrepresentation

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A false statement of a material fact made by a party that honestly believed the fact to be true

Courts attempt to put the parties back into position they were before the contract was entered into

Innocent Misrepresentation

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Fraudulent MisrepresentationA false statement of fact made by a person who

knows, or should know, that it is false, and made with the intention of deceiving another

DeceitA tort that arises when a party suffers damage by

acting upon a false representation made by a party with the intention of deceiving the other

Fraudulent Misrepresentation

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Contractual vs. Tort remedyContract: rescission is contractual remedy ○ If courts can restore parties to position they were

before entering into the contractTort: Deceit – allows for damages○ can award punitive damages

Deceit○ Made knowingly○ Without belief in its truth○ Recklessly or carelessly without regard for its truth

Fraudulent Misrepresentation

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General ruleNo obligation to discloseException:

certain types of relationships or contracts (Contracts of utmost good faith)

Partial disclosure of facts has effect of rendering the part disclosed as false

Misrepresentation by Non-Disclosure

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Contracts of Utmost Good FaithInsurancePartnership (fiduciary obligation)Contracts with special trust or confidence

between the parties

Misrepresentation by Non-Disclosure

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NegligenceNewer form of misrepresentationStatements that are sufficiently

reckless but not quite fraudulent

Negligent Misrepresentation

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Undue InfluenceA state of affairs whereby a person is so

influenced by another that the person’s judgment is not his or her own

Not in a fair bargaining position 2 Scenarios

Special Relationship existsSpecial Relationship does not exist

Undue Influence

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Special RelationshipsTypes: lawyer/client; doctor/patient;

trustee/beneficiary; parent-child; spiritual advisor/faithful adherent

Does not apply to spousal relationshipUndue influence alleged onus shifts to

dominant party to prove otherwise

Undue Influence

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No undue influence if ○ Agreement was fair and reasonable in the

circumstances○ Full disclosure is made prior to the formation of

contract○Weaker party was free to seek independent legal

adviceContract is voidable at option of weaker party

Undue Influence

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DuressThe threat of injuring or imprisonment for

the purpose of requiring another to enter into a contract or carry out some act○ Threat can be to person directly or to

person’s family (or a close relative)○ Contract is voidable at option of person

once they come out from under duress○ Threat to person and not person’s goods

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Duress

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Law of Contract

MistakeContracts require a meeting of the mindsNo meeting of the minds if certain mistakes are

made Misrepresentation

The type determines the remedyParty is free to get out of the contract since they

would not have entered into it but for the misrepresentation

Duress and Undue InfluenceParty can avoid the contract

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SUMMARY