5: Interpreting the contract and terminating the contractual relationship

Questão	Responda
A mistake in law	may be an error in a term of the contract or an incorrect assumption about facts relating to the contract.
A mistake is usually about	the terms of a contract or an assumption about important facts relating to a contract. If a mistake occurs, and it is clear that because of the mistake, the parties have failed to reach a consensus, the contract is void.
Misunderstanding that destroys consensus results in	void contract
For consensus to be destroyed the one-sided mistake must be	profound
Mistake must go to	the very root of the contract
Mistake must be	serious
Careless party responsible when mistake is	result of negligence
Fundamental shared mistake about subject matter	void
Let the buyer beware – CAVEAT EMPTOR	One-Sided mistake – The purchaser has mislead himself
When seller makes an obvious mistake selling something in 25 when it was 2500	Snapping up an offer – Contract is rescinded
mistake is not an	error in judgment
Failure to read the document before signing, can defeat the defence of	non est factum.
The defence of non-est factum (“it is not my act”) is not available for	a negligent act, but can be successful only where the harmed party is unaware of the true facts relating to the agreement
Express terms are	those terms in a contract that the parties have agreed upon. They may be oral or in writing.
Implied terms are	terms implied by the courts where it is reasonable to do so. Terms may be implied by applicable legislation, such as legislation relating to the sale of goods, by the conduct of the parties, or by other circumstances.
There are two main approaches used for interpreting terms:	the literal or strict dictionary meaning, and the liberal approach.
Reasonable person test applies when there is	a misunderstanding
Courts apply literal meaning to	specific wording
Ambiguous wording interpreted	liberally
The parol evidence rule	affects the interpretation of contractual terms. This rule states that where a contract contains express terms previously agreed upon by the parties, neither of the parties is permitted to introduce evidence that would alter those terms. In other words, “what you see is what you get.”
A misrepresentation is	a false statement of a material fact made by one party to the other during the course of negotiations that induced the other party to enter into the contract. A misrepresentation may be innocent, fraudulent, or negligent.
Misrepresentation is a	misleading statement that induces a contract
A misrepresentation is made during	the bargaining process and is typically not included as a term in the contract. However, if the misleading statement is made a term of the contract, it will then become a breach of contract, providing much broader remedies that are often easier to obtain.
An opinion is not usually a misrepresentation, unless	given by an expert
When an expert in the area covered by the contract gives an opinion and the other party relies on that opinion, the opinion is considered a	statement of fact, so the expert’s opinion is deemed a misrepresentation.
A misrepresentation can occur through omission if	a material fact is withheld by one party from the other during negotiations and that omission induces the other party to enter into a contract.
contracts of utmost good faith	occur where there is a special trust relationship and one of the parties is in a superior position of knowledge.
The two main types of contracts of utmost good faith are	contracts of insurance and stock promotions or prospectus
An innocent misrepresentation is	a false statement that the person who made it honestly believed to be true. If that person does find out the statement is false, he or she has a duty to inform the other party; otherwise, the statement becomes a fraudulent misrepresentation.
A fraudulent misrepresentation is	a deceitful statement, a false statement made knowingly or without belief that it is truth, or one made recklessly and carelessly as to whether it was true or false. The person who made the statement does not honestly believe it to be true but makes the statement nonetheless. This is also known as the tort of deceit.
A negligent misrepresentation or misstatement occurs	where the party should have known what they said was false, even though they honestly believed it to be true — facts were stated carelessly with no reasonable grounds for believing them to be true.
Misrepresentation must be	fact, not opinion or promise (Unless experts opinion)
Silence or non-disclosure is not	misrepresentation, unless there is duty to disclose
Partial disclosure may be	misrepresentation
A victim of misrepresentation must show that	he or she was induced into entering a contract by false statement
. For innocent misrepresentation, the only remedy available is	rescission.
Rescission amounts to	an “unmaking of the contract” where both parties must be capable of being returned to the position they were in before the contract was entered
Rescission not available in certain circumstances:	If contract affirmed If restoration impossible If it will affect 3rd party If plaintiff is not blameless – does not have clean hands
Rescission and/or damages for torts for	intentional misrepresentation Fraudulent misrepresentation
Failure to correct an innocent misrepresentation without delay turns into	fraudulent
Damages for negligence may be available in cases of	negligent misrepresentation
Duress occurs when	a person feels threatened or coerced into entering into a contract, due to actual or threatened violence, or imprisonment, affecting either the individual or someone close to them. It can also occur where a person is threatened with criminal prosecution or disclosure of information that would be damaging to his or her reputation or relationships due to its scandalous or embarrassing nature.
Duress involves threats of violence or imprisionment – Contract is	Voidable. And voidable contracts cant affect innocent 3rd parties.
With undue influence, the victim feels	pressured into entering into a contract. There is a fine line between duress and undue influence. Undue influence usually involves pressure from a person who is held in high regard — a trusted though dominant person who relieves the victim of the ability to bargain freely and abuses the trust-based relationship
The court may find undue influence in the following situations:	1- Presumption based on a special relationship 2- Presumption based on unique circumstances – Undue pressure from circumstances 3- Undue influence determined from facts
Where an unfair contract has been entered into and there was an inequality of bargaining power between the parties, the courts may set the contract aside as	unconscionable.
only the parties to the contract can sue under the contract; third parties cannot sue on the contract. This is the principle behind	privity of contract
Insurance policies are an exception to the rule of	privity
Some of the most common exceptions are	Trust Novation Land law
Novation occurs when	the parties agree to terminate (discharge) an original agreement and substitute it with a new agreement by either altering the subject matter of a contract or by replacing one of the parties to the agreement. For novation to occur, there must be consensus of all parties. Novation is not a true exception to the privity rule because there is no continuation of the original agreement.
A trust is	any arrangement whereby property is transferred to a trustee with the intention that it be administered by the trustee for another’s benefit, referred to as the “beneficiary.” Although the beneficiary is not a party to the original contract, he or she is entitled to enforce the contract between the original parties. To avoid the inequities caused by a strict application of the doctrine of privity at common law, the equitable principle of the trust was developed. This allows the beneficiary to bring an action — in trust and not in contract given the lack of privity of contract — against the trustee.
Land law is not covered by the concept of	privity, as property law applies (as opposed to contract law). Restrictions and obligations run with the land, despite a change of parties if the land is transferred to another owner. For example, tenancy agreements are not affected by changes in ownership of a property, nor are easements or restrictive covenants
An assignment is a	transfer by one party of its contractual rights to a third party. The assignor is allowed to transfer rights or benefits held under the contract to a third party without the consent of the other contractual party. For example, businesses frequently assign their accounts receivable to secure credit. It is important to note, however, that only a benefit can be assigned, not an obligation.
The parties who transfer their rights are	assignors;
the third parties to whom rights are transferred are	assignees
The scope of the rights acquired by the assignee against the promisor cannot be any broader than	the rights the promisee has
To qualify as a statutory assignment, all of the following requirements must be met:	• The assignment must be absolute and unconditional. • The assignment must be in writing and signed by the assignor. • Proper notice of the assignment must be given to the original debtor.
Often, contractual obligations are performed by someone else, but this is not an assignment. In vicarious performance, the first party’s obligations to the second party are performed by	a third party. No new contract is made between the second party and the third party; consequently, the original party remains liable for any defects in performance.
Negotiable instruments are another exception to the general rules regarding	assignments. With a negotiable instrument, the assignee may not be subject to the equities between the original contracting parties. If the assignee can satisfy the qualifications to be a “holder in due course,” he or she will be entitled to the rights set out in the negotiable instrument in the absence of any fraud on his or her behalf.
When a contract is discharged, it has come to an end. There are five ways a contract can be discharged:	1. performance 2. agreement 3. frustration 4. operation of law 5. breach (depends on the severity of the breach and the party’s option)
Discharge by performance occurs when	both parties have fully performed all of their obligations. This is the type of discharge expected when the parties made their agreement.
Tender of performance is	an attempt by one of the parties to perform according to the terms of the contract, whether accepted or rejected by the other party
Contracts usually consist of major terms (called conditions) and minor terms	(called warranties
Where warranty breached, contract is	still considered performed
Contract discharged when contract substantially performed Example	Farmer is required to deliver 2000 kg and only deliver 1987 kg
Tender of performance ends	obligation
When a party has substantially fulfilled the requirements of a contract	there is said to be substantial performance
Discharge by agreement occurs when	the parties agree not to perform the contract. The requirements of consensus and consideration are most frequently called into question when a contract is discharged or modified. Consensus and consideration are necessary to support a new agreement to change the contractual terms.
The parties may replace one of the parties to the contract with a new party and discharge the former party from its obligations under the contract. This is called	This is called novation (see also Topic 5.4). All parties must consent for novation to occur, and certain criteria must be present
Accord and satisfaction occurs where	one of the parties may be unable to perform their original obligations, so the parties agree that it should be replaced with a new obligation. It is essentially a compromise to allow the terms of the contract to be fulfilled as closely as possible to those set out in the original agreement.
Accord refers to the agreement to	change (or end) the old contract and the satisfaction is the extra consideration to be supplied by the party benefiting from the change (or discharge)
A condition precedent or “subject to” clause is	an event or requirement that must be satisfied before either party to the contract becomes obliged to do anything.
. If a condition precedent is not satisfied, there is	no contractual obligation on either party
A condition subsequent occurs where	terms are included in a contract that bring the obligations of the parties to an end upon some event or condition taking place (for example, a contract with an employer that pays a CGA student an extra $50 per month for expenses until he or she ceases to be a full-time student).
Conditions precedent determine when obligations to perform contract	begins
Conditions subsequent determine when contractual obligations	end
Sometimes the contract anticipates some catastrophic event, such as a riot, invasion, earthquake, or flood that will interfere with the performance of the contract. This is referred to as a	Force majeure clause
A frustrating event is an	unforeseen occurrence beyond the control of either party that makes the contract impossible to perform.
The frustrating event must take place after the making of the contract and	must not be self-induced
. A self-induced frustration is	actually a breach of contract
In a few situations, a contract may be discharged by	operation of law. For example, the Bankruptcy and Insolvency Act allows a bankrupt debtor to be discharged from contractual liabilities, such as cell-phone packages.
If a frustrating event occurs, the Frustrated Contracts Act in most provinces allows for	for the apportionment of any losses and deposits paid based on the extent or proportion of performance performed to date by either party before the frustrating event occurred.
Breach of contract occurs when	one of the parties fails to perform its obligations under the contract. Breach of contract does not necessarily or automatically lead to the termination of the contract; the breach must be sufficiently serious and the injured party must choose to terminate
A breach of a condition is a	breach of a fundamental, essential term of the contract, and allows for discharge of the contract
A warranty is a	non-essential term, the breach of which does not discharge the contract.
An exemption clause is a	term of a contract that attempts to significantly limit or eliminate the liability of the promisor for breach of the contract.
When a breach of condition in a contract has been accepted by the other party, it is	treated as a breach of warranty.
For an exemption clause to be effective, the promisor must	give adequate notice of its existence to the promisee.
Repudiation occurs when	one party declares to the other party that it does not intend to perform its obligations under the contract. Repudiation may occur either prior to performance or during performance.
An anticipatory breach occurs where	one party notifies the other in advance of performance of a contract that it will not be able or willing to perform
Rescission	deals with problems with the formation of a contract and focuses on restoring the parties to their original position.
Rectification	interprets and corrects the terms of contracts
Damages	compensate a victim who has been misled or pressured into the contract
Damages are awarded for	breach of contract in order to place the injured party in the position they would have been in had the contract been performed. An award of damages is subject to the duty to mitigate and may be limited by remoteness.
Parties who have suffered a loss as a result of another party’s breach of contract are under a	duty to take reasonable steps to minimize their loss; this is known as the duty to mitigate
Damages are not generally awarded to compensate an injured party for some unusual or unexpected consequence of a breach, as such consequences would be considered	too remote from the breach
Parties may also predetermine what damages will need to be paid if there is a breach; these are called	liquidated damages
Liquidated damages may be prepaid in the form of a	deposit, as opposed to a down payment, which is just part of the first payment and is returned if there is a breach.
Where an award of damages is not sufficient for a breach of contract, the court may award an equitable remedy, such as	specific performance. When specific performance is ordered, the party in default is required to perform its obligations according to the contract.
When the equitable remedy of an injunction is ordered, it is	effectively an order by a court forbidding a party from doing a particular act. It may be used to prevent a party from breaching the contract.
Courts may order breaching conduct to stop But not	But not where a person can no longer earn a living But not where damages are more appropriate But not where it would hurt a 3rd party
Interlocutory injunction is	Interlocutory injunction issued before the trial – employee leaves work for a competitor, it is important to get an injunction right away and sort out the merits of the dispute later
Quantum meruit when	the contract breached when only part of the work has been done and before the amount agreed to in the contract is due and payable to the injured party. Quantum Meruit is the principle that allows the supplier of a service to collect a reasonable fee, even when no price had been agreed upon.

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5: Interpreting the contract and terminating the contractual relationship

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