Lecture 6 Contract Law (III): Vitiating Factors Flashcards
What are the two possible consequences if a vitiating factor is identified? Please draw a picture of what they look like.
Contract Voidable - an option available to the innocent part, either choose to keep the contract in for force or set aside the contract. (If so the contract ceases to be effective at the time of termination!)
Contract Void - where the defect is tremendously substantial, the contract has to be declared null and void. (The contract is considered never to have existed at all and has no force from the beginning)
Name the five vitiating factors focused on for the midterm exam.
Misrepresentation, Mistake, Duress, Undue Influence and Unconscionability
What are the four things that create operative/actionable misrepresentation?
1) a statement of fact (not mere opinion, sales talk or puff)
2) that is untrue or false
3) that is material
4) that actually induces the aggrieved party to enter into the contract
Explain the Bisset v Wilkinson case
Sold land, seller said “the land would carry 2,000 sheep” but the land had never carried out sheep farming on that land. The buyer counter-claimed rescission of the contract on ground of misrepresentation
The privy council said:
The capacity of the farm was “merely a statement of opinion, he was in no better position than the prospective purchaser to know”
Explain the Smith v Land and House Property Corporation case
L bought a hotel and S said “it was let to a most desirable tent” but turns out that tenant was in financial difficulty and couldn’t pay rent. L claimed misrepresentation
This case explained that “where the facts are equally known to both parties it is an expression of opinion” but when “facts are not equally known to both sides, it is a statement of fact”
The hotel owner should have known about the tenant and told them.
Explain the the general rule for that is untrue
A party negotiating an agreement is not subject to a duty to disclose material facts to the other party Smith v Highes
How ever some non-disclosed might still amount to misrepresentation.
What four non-disclosure instances can amount to misrepresentation?
A) half-truths or partial disclosure
Dimmock v Hallet a seller of land told a purchaser that the land had recently been occupied at a particular rent, which was true. But it omitted to inform him that more recently he had failed to find a new tenant except at a lower rent.
B) active concealment of the truth
Gronau v Schlamp Investments Ltd rather serious crack in apartment block, concealed the crack to cover what really needed intense repairs.
C) neglects to correct an earlier statement which is no longer true With v O’Flanagan medical doctor told purchaser of practice it was bringing $2000 a year, but O became ill and practice became worth less. Failure to disclose this provided a ground fo rescission.
D) contracts requiring utmost good faith eg 1. Insurance contracts: a duty to disclose all information that would be relevant to the insurer who is assessing the risk of accepting the application. Eg 2. Contacts between parties who have a fiduciary relationship, such as company directors (conflict of interest)
Explain what the “that is material”.
SCC described them as terms that are “substantial” and “going to the roots” of the contract Guarantee Co of North America v Gordon Capital Corp
Eg. Kisil v John F. Stevens (a statement by a real property vendor that water on property has been tested when it is not, is material)
Explain what inducement means
Whether there has been reliance/inducement depends on the facts. For example a statement about the year and qualities of the car:
- if made by a dealer to a consumer (there is inducement)
-if made by one dealer to another dealer (no inducement)
-if made by consumer to a dealer (no inducement)
F & B transport Ltd v White Truck Sales Manitoba Ltd
Name the three categories & remedies of misrepresentation (mental state)
Fraudulent misrepresentation - with deliberate intent to mislead or cheat, made recklessly without knowing or believing that it is true. Remedies: Damages & Rescission
Negligent misrepresentation - made carelessly or negligently, without reasonable ground to believe what said is true. Remedies: Damages (lesser amount) & Rescission
Innocent misrepresentation - having reasonable grounds to believe that what said is true, but in fact is incorrect. Remedies: Rescission.
What are the three operative mistakes that make a contract void?
Common mistake - Both parties made the same mistake as to: title, existence, fundamental quality
Mutual mistake - one party meant A and the other party meant B, no meeting of minds (ad idem)
Unilateral mistake - only one party is mistaken, contract normally remains effective unless (the non mistaken party ought to have known, Non est factum)
Which case relates to a common mistake?
Diamond v British Columbia Thoroughbred Breeders’ Society
Parties agreed on the sale of a race horse, thinking it was Pennate, while it was actually Palloffair. Parties were ad idem (meeting of minds)
Which case relates to a mutual mistake?
Lindser v Heron & Co
Agreement of price to buy shares, wasn’t in writing. Thought it was a mutual mistake.
Which case relates to a unilateral mistake?
The Queen (Ont) v Ron Engineering
Error in submission of tender for a project. SCC: there was no mistake, they intended to submit the tender and it was not so large.
If error is so large, then they otherwise should have known, But if not then it is not a mistake.
Explain what if a party signed a contract by mistake - Doctrine of non est factum (‘That is not my doing’)
Saunders v Anglia Building Society three conditions for this doctrine:
1. There was a difference between the document and it is the document as it was believed to be
2. The difference must be “Fundamentally different “ or “radically different” or “totally different”
3. There was no negligence or carelessness on the signor’s part.
