Business Law_misrep And Mistake

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

are not

(other statements)

 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 5

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

 Opinions

made by someone with superior knowledge can be misrepresentations

 The

statement has to be one of the reasons for entering into the contract 7

 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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 There

are 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

damages

are rescission and

 Action

must be brought within a reasonable time after the misrepresentation is made 12



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 13

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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 This

is 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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 Courts

are 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 23

 Many

cases of unilateral mistake also involve misrepresentation

 However,

it is important to decide whether unilateral mistake is involved

 This

is because unilateral mistake makes the contract void, void but misrepresentation only makes the contract voidable 24

 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

 Court

presumes undue influence occurred unless the dominant party proves otherwise 26

 Undue

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

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