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Business Law

Spring 2009

Copyright © Daniel E. O’Connell


 Terms vs. Representations
 Misrepresentation
 Mistake

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 Vitiating factors is the technical term
for the things which make a contract
void or voidable
These things are:
 Mistake
 Misrepresentation
 Duress
 Undue influence
 Public policy

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 Terms are part of the contract
 Breach of term is a breach of contract,
allowing the remedies for breach of
contract
 Representations (other statements)
are not
 Misrepresentations don’t allow remedies
for breach of contract
 They make the contract voidable

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 Oral statement/ written contract - a
representation
 Oral contract
 Strong statements are likely to be terms
 Weak statements are likely to be
representations
 Important statements are likely terms

 Knowledge and skill of the parties


 Depends on the level of skill or knowledge

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A misrepresentation is a false
statement which persuades
someone to enter into a contract
 The contract is then voidable
 Misrepresentation has 3 parts
 A statement
 About a fact
 Which causes the party to enter into the
contract

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 Opinions are not facts

 Opinionsmade by someone with


superior knowledge can be
misrepresentations

 Thestatement has to be one of the


reasons for entering into the
contract
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 Silence
cannot be a
misrepresentation, unless:
 There is a change of circumstances
 An insurance contract is involved
 A fiduciary relationship is involved
 Silence makes another statement
misleading

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 Thereare 3 types of
misrepresentation
 Fraudulent misrepresentation
 Negligent misrepresentation
 Innocent misrepresentation

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A person intentionally makes a
false statement
 Fraudulent misrepresentation
involves a statement by one
party:
 That they know is untrue;
 That they don’t believe is true; or
 That they recklessly disregard
whether it’s true or not
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 Rescission and damages for the
tort of deceit
 Must bring an action within a
reasonable time after discovering
the misrepresentation

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A person makes a statement they
believe to be true, but they have no
reasonable basis for believing it to
be true
 Remedies are rescission and
damages
 Action
must be brought within a
reasonable time after the
misrepresentation is made

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 A person makes a statement believing it to
be true, and has good reasons for
believing that
 This could be because the seller had been
persuaded to make a contract by the same
misrepresentation
 Remedies for innocent misrepresentation
are simply rescission
 BUT, under the Misrepresentation Act of
1967, courts may apply contract damages
if rescission would be unfair

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A party may lose its right to rescind
a contract for misrepresentation if:
 The contract is affirmed
 A third party acquires rights
 The subject matter of the contract no
longer exists

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 There are 3 kinds of mistake:
 Common mistake
 Mutual mistake
 Unilateral mistake

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 Thisis where both parties to the
contract share the same mistake
about the circumstances
surrounding the agreement

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Common mistakes are:
 Mistake as to the existence of
goods
 Mistakes as to quality

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 This mistake occurs when the
subject of the contract no longer exists
but the parties don’t know that when
they make the contract

 The goods must be specific goods

 The contract is void

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 Courtsare unwilling to make a
contract void because of a mistake
about the quality of the subject of
the contract

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 Cross purposes
 Mistakes as to terms
 Mistakes as to the identity of a
person

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 A mutual misunderstanding
 Two parties have different views
about the same situation

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 One party is mistaken about some
important fact relating to the
contract, and the other party
knows that
 These contracts will be void
unless the mistake is one of
quality

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 This
is where one party is making a
mistake about the identity of the
other party

 The contract is void if:


 The parties didn’t meet face to face
 The mistake is one of identity, not
attributes

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 Many cases of unilateral mistake also
involve misrepresentation
 However,it is important to decide
whether unilateral mistake is
involved
 Thisis because unilateral mistake
makes the contract void,
void but
misrepresentation only makes the
contract voidable

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 Contracts made under duress are
voidable
 Duress
 Physical threat
 Economic threat

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A party with a particular position of
power or authority makes a contract
with another
 Doctor-patient
 Lawyer-client
 Courtpresumes undue influence
occurred unless the dominant party
proves otherwise

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 Undue influence may occur outside
of the previous relationships
 Person alleging undue influence
must prove that it occurred

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