Chapter11

Chapter Overview

  • Topic: Failure to Create an Enforceable Contract

  • Prepared by: Renee Majeau, NAIT

  • © 2024 McGraw Hill Ltd.

Chapter Objectives

  • Legal Doctrine of Mistake: Understanding how mistakes can lead to unenforceable contracts.

  • Kinds of Misrepresentation: Identifying different misrepresentation types and their implications.

  • Undue Influence vs. Duress: Differentiating these concepts and their effect on contract enforceability.

Key Components of a Valid Contract

  • Requirements for Validity:

    • Offer and acceptance

    • Capacity

    • Consideration

    • Legality of object

    • Intention

    • Form and writing

  • Contracts may still not be enforceable despite meeting the above requirements.

Situations Rendering Agreements Unenforceable

  • Four Key Situations:

    • Mistake

    • Misrepresentation

    • Undue influence

    • Duress

  • These situations can also determine the allocation of loss between parties.

Mistakes

  • Definition: A state where either or both parties form an incorrect opinion about a vital term in the contract.

  • Consequences of Mistakes:

    • Contract misrepresents true intentions.

    • Untrue impressions about essential elements.

    • Fundamental agreements remain unresolved.

  • Types of Mistakes:

    • Mistake of Law: Understanding of the law and no courtroom relief typically.

    • Mistake of Fact: Mistakes about the subject matter or party identities, which can lead to judicial relief depending on circumstances.

Mistake of Law

  • Presumption: Individuals are presumed to know the law.

  • Judicial Relief: Limited to cases where corresponding laws allow recovery.

Mistake of Fact

  • Definition: Mistake regarding the existence of the contract subject or identity of parties.

  • Court’s Discretion: Relief may be granted based on the specifics of the case.

Non est Factum Defense

  • Definition: A defense for individuals who are illiterate or infirm, allowing avoidance of liability if they:

    • Did not understand the document's true nature.

    • Were not negligent in signing.

  • Limitations: Applies to the agreement type, not terms.

Narrow Form of Mistake

  • General Rule: Parties bound by written agreements signed.

  • Plea Requirement: To use non est factum, evidence must show the document differed significantly from what was believed.

Types of Mistakes

  • Unilateral Mistake: Error made by one party.

  • Mutual Mistake: Errors made by both parties about the agreement's subject.

  • Court Enforcement: Agreements may not be enforced if the other party is aware of the mistake.

Effects of Mutual Mistake

  • Same Mistake: Unenforceable if about subject matter.

  • Different Mistakes: Require case-by-case evaluation.

  • Rectification: Fixing mistakes to align with party intentions.

Misrepresentation

  • Definition: False statements made that induce a contract.

  • Criteria:

    • Statement pertains to a material fact.

    • Must be factual, not mere opinions.

    • Occurs before contract finalization.

Effects of Misrepresentation

  • Voiding: Contracts can be voided at the injured party's choice.

  • Rescission: Voidable if the party relied on a false statement.

Types of Misrepresentation

  • Remedies depend on the type:

    • Innocent: Rescission only.

    • Negligent: Rescission and damages.

    • Fraudulent: Rescission and damages.

Innocent Misrepresentation

  • Occurs when a party makes a false claim they believed to be true.

  • Court’s Goal: Restitution to original positions before the contract.

Fraudulent Misrepresentation

  • Definition: False statements made knowingly or recklessly.

  • Intent: To deceive the innocent party.

  • Proof Required: Innocent party must demonstrate fraud.

Deceit in Contract Law

  • Definition: Tort arising from injury due to acting on a false representation with intent to deceive.

  • Punitive Damages: May be awarded against deceitful parties.

  • Contractual Rights: Continued acceptance of benefits can limit rescission.

Remedies: Contractual vs. Tort

  • Contractual Remedies: Rescission used to restore parties' prior positions.

  • Tort of Deceit: Allows for damage recovery, including punitive damages.

Non-Disclosure of Material Facts

  • Generally, there is no duty to disclose material facts unless within specific contract types or relationships.

  • Exceptions Include:

    • Contracts of utmost good faith.

    • Active concealment of facts.

    • Partial disclosures that create misleading impressions.

Insurance Disclosure Obligations

  • Insurance Contract Rule: Full disclosure required by the insured to allow proper risk assessment and premium determination.

  • Fiduciary Relationships: Also adhere to strict disclosure requirements.

Negligent Misrepresentation

  • Characters of negligence that lead to misrepresentation without fraudulent intent.

Undue Influence

  • Definition: When one party's judgment is impaired due to another's influence, making contracts voidable.

  • Key Elements: Lack of fair bargaining power and requirement for prompt action to seek relief.

Consideration of Special Relationships in Undue Influence

  • Dominant Parties: Often include lawyers, doctors, or trustees.

  • Onus of Proof: Shifts to the dominant party to disprove undue influence allegations.

Conditions Preventing Undue Influence Claims

  • Fair agreements, full disclosure, and advisement to seek independent counsel.

Duress in Contracts

  • Definition: Involves coercions such as threats of harm to induce contract formation.

  • Validity: Contracts can be voidable if entered under duress.

Effect of Flaws on a Contract

  • Types of Flaws:

    • Mistake: Void or voidable.

    • Innocent Misrepresentation: Voidable.

    • Fraudulent Misrepresentation: Voidable.

    • Negligent Misrepresentation: Voidable.

    • Undue Influence and Duress: Voidable.

Checklist for Enforceable Contracts

  • Ensure no underlying conditions exist such as mistakes, misrepresentation, undue influence, or duress that could compromise enforceability.

Conclusion

  • Contracts may be rendered void or voidable due to non-compliance with essential elements, lack of mutual understanding, or specific mistakes affecting agreement execution.