Professional Documents
Culture Documents
Chapter 4
Enforcing
Contractual
Obligations
Copyright 2013 Pearson Canada Inc.
4-1
Learning Objectives
List the events that can bring a contract to an end
Identify the various mistakes that can end or
otherwise affect a contract
Describe four forms of misrepresentation
Explain the effects of duress and undue influence
on a contract
(Continued)
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Learning Objectives
(Continued)
Consider the implications of privity and
assignment for a contract
Describe how a contract can be breached or
otherwise ended
Outline the remedies that are available for breach
of contract
Summarize risk-reduction strategies when forming
or ending a contract
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Disputes
May revolve around
The existence of the contract
The conduct of the parties at time of negotiating
the agreement
Performance of obligations under contract
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Mistake
When parties have a different understanding
of terms of contract
Shared mistake
Both parties have made same mistake
Contract void for lack of consensus
If mistake only in recording the terms, may ask
court to rectify (correct) agreement
(Continued)
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Mistake
(Continued)
Misunderstanding
Each party has a different understanding
Courts will imply most reasonable
interpretation and enforce
If both interpretations equally reasonable,
contract void for lack of consensus
(Continued)
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Mistake
(Continued)
One-sided mistake
Usually has no effect on contract
Caveat emptor (let the buyer beware)
Only if different understanding is a result of
misrepresentation would it be actionable
(Continued)
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Mistake
(Continued)
Contract Interpretation
Terms and words given reasonable meaning
Industry usage for special or technical terms
Copyright 2013 Pearson Canada Inc.
4-8
Exemption Clauses
Also known as exculpatory, exclusion, or
limitation clauses
Attempt to limit or eliminate liability for
one party to the contract
Due to one-sided nature, courts interpret
As narrowly as possible
Against the favoured party
(Continued)
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Exemption Clauses
(Continued)
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Misrepresentation
False and misleading statements that induce
a person to enter into a contract
If a term of contract, can sue for breach
Must be statement of fact
Statement of opinion actionable if made by
expert
Silence generally not misrepresentation,
unless duty to disclose (duty of good faith)
Copyright 2013 Pearson Canada Inc.
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Innocent Misrepresentation
Misleading another without knowing or
being careless
Only remedy is rescission
If goods destroyed or not available, no other
remedy possible
Not available if any wrongdoing by person
claiming rescission
Not available if contract affirmed
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Fraudulent Misrepresentation
Intentionally and knowingly misleading another to
induce him/her to enter into contract
Victim may seek rescission, damages, or both
If made innocent misrepresentation, and later learn
it is false, but fail to correct it, it becomes
fraudulent
May seek punitive damages in extreme cases
Easier to sue for innocent or negligent
misrepresentation
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Negligent Misrepresentation
If person making misrepresentation should
have known what he/she was saying was
false, he/she was careless
Victim may seek rescission, damages, or
both
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Criminal Fraud
Specific provisions of Criminal Code deal
with fraudulent activity Examples:
S. 361-365 prohibit knowingly making false
representations intended to induce someone to
act on the representation
Other sections deal with specific areas of fraud
including the falsification of employee records,
books, and other documents
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Duress
Entering into a contract because of coercion
Threats may be violence, financial pressure,
scandal, etc.
May be against you, your family, your
property, or business
Contract is usually voidable
Threats may also be criminal offence
Copyright 2013 Pearson Canada Inc.
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Undue Influence
Abuse of trust relationship
Contract voidable
Presumed in certain relationships
Lawyers, doctors, trustees, guardians, religious
advisors, adults with infant children, adult
children with aging parents
May be rebutted by evidence
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Unconscionability
Taking advantage of vulnerable persons
situation
e.g., poverty, mental impairment (short of
incapacity)
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Privity
Only the parties to a contract are bound to it
or may enforce it
Exceptions
Interests in land bind subsequent owners of the
property
Trusts beneficiaries may enforce
Life insurance beneficiaries may enforce
Some statutory exceptions
(Continued)
Copyright 2013 Pearson Canada Inc.
4 - 19
Privity
(Continued)
Novation
One person taking over obligations of another
in a contract; no privity issues as new contract
is required
Employees
Contract clauses often extended to employees,
thus ignoring privity
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Assignment
Transferring a benefit under a contract to a
third party
(Continued)
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Assignment
(Continued)
Usually assignor and assignee must join together
to sue if debtor fails to pay
Statutory assignment allows assignee to sue
directly if
Assignment is absolute (complete and unconditional)
Assignment is in writing
Proper notice was given to debtor
(Continued)
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Assignment
(Continued)
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Negotiable Instruments
Controlled by federal Bills of Exchange Act
Freely transferable from party to party
Innocent third party (called a holder in due
course) may enforce a negotiable
instrument against the person who made it
Include promissory notes, cheques, and bills
of exchange (aka drafts)
(Continued)
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Negotiable Instruments
(Continued)
Promissory note
One person promises to pay another a certain
sum of money at some future date or on
demand
(Continued)
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Negotiable Instruments
(Continued)
Cheque
Drawer orders bank to pay a certain sum of
money to a third party (the payee) on demand
(Continued)
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Negotiable Instruments
(Continued)
Bill of exchange
May be an order to any person or business to pay
money to someone either now or at a future time
(Continued)
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Negotiable Instruments
(Continued)
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Discharge of Contracts
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Performance
Once parties have performed as required under the
contract, it is discharged
Conditions - major terms of contract
If breached, contract ends (if other party wants to end it)
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Performance
(Continued)
Substantial performance
Substantially all obligations have been fulfilled,
but a condition is breached in a minor way
May seek compensation for small part
remaining
If contract requires payment, must be cash
unless otherwise specified
Limits on coinage set under Currency Act
(Continued)
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Performance
(Continued)
Tender of performance
Ready, willing, and able to perform; other party
refuses to accept performance
Contract has been breached by refusal;
performance no longer required
Debt treated differently if party refuses to
accept payment, money is still owed but debtor
must seek payment and bear all costs of
collection
Copyright 2013 Pearson Canada Inc.
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Breach
Incomplete or improper performance of
contract
Repudiation breach by refusal to perform
Anticipatory breach repudiation before
performance is due gives victim two options
Treat contract as breached
Continue to demand performance
(Continued)
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Breach
(Continued)
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Breach
(Continued)
Fundamental breach
Breach of very essence of contract
Exemption clauses can still apply if properly
worded
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Frustration
Outside, unforeseen event that is out of the
control of either party and renders contract
either impossible to perform or completely
different than what parties contemplated
Caused by things such as illness, destruction
of subject matter, government actions,
natural disasters
(Continued)
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Frustration
(Continued)
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Agreement
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Agreement
(Continued)
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Damages
Compensation to attempt to put victim in
position he/she would have been in if contract
properly performed
Sometimes includes emotional stress or pain
(Continued)
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Liquidated damages
Term in contract to limit damages
Deposit
Amount forfeited as pre-estimate of damages
Down payment
First payment of purchase price; not meant to
be forfeited
(Continued)
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Injunction
Requires a person to stop doing something
(Continued)
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Quantum meruit
Pay a reasonable price for services rendered
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