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Law 122 - Chapter 9.docx

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Law and Business
LAW 122
Gil Lan

Chapter 9 December-06-11 4:34 PM Pre-Contractual and Contractual Statements  A statement only becomes a contractual term only if it is included in the agreement as a legal enforceable obligation. o By its nature, it is a promissory statement o The person who make it voluntarily agrees to do something in the future  Pre-contractual representation is a statement one party makes by words or conduct with the intention of inducing another party to enter into a contract o It is made during negotiation o Puffs: mere sales words - no consequences o Representation: induce contract - possible consequences o Terms: contractual promises - certain consequences Silence as Misrepresentation  6 occasions when the failure to speak will amount to misrepresentation  When silence would distort a previous assertion o Silence has the effect of falsifying a statement that was previously true o Duty to disclose the change in the accuracy of early representation  When a statement is half-truth o A party cannot give a partial account if the unspoken words would substantially alter the meaning of the actual statement 3. When the contract requires a duty of utmost good faith o When one party is in a unique position to know the material facts o Law imposes an obligation of utmost good faith that require that party to disclose all relevant facts 4. When a special relationship exists between the parties o When the relationship between the two is one of trust o When one party has some special influence over the other o EX: your accountant selling cottage: if selling to randoms, she doesn't have to disclose what wasn't asked, but if she selling to you, she's has to disclose everything since she is YOUR accountant, and in a relationship of trust 5. When a statutory provision requires disclosure o Statutes require the disclosure of material facts in a contractual setting o EX: director buying or selling with company o EX: division of domestic property upon separation 6. When facts are actively concealed o If the party actively conceals the truth Misrepresentation  A misrepresentation is an incorrect statement of an existing fact. o Main feature is that the statement is false when it was made o It is a false statement of fact that causes the recipient to enter into a contract o may be actionable if they falsely induce contract  Actionable if mis-representation Misstatement of Fact  Misrepresentation occurs only if the speaker claimed to state a fact o It is difficult because people often make non-factual statements o They might state an opinion: statement of belief or judgement  Opinion can range from carefree speculations to deliberate assessments based on the substantial body of evidence  If your opinion in a way leads me to think it must be true, the court might find your opinion an implied statement of fact  Which can be treated as a misrepresentation  A statement of future conduct is not a statement of fact. o It is a statement about the person`s future intention o The statement is a misrepresentation if it is fraudulently or if the future conduct is described in terms of present intention o EX: I do not intent to sell this land to Billy in the future  Discuss of LAW during the negotiation o It is not misrepresentation if the law stated is incorrect o IT IS if you inaccurately describe the consequences of a law o EX: saying the property that you're selling has zoning approval The legal consequences of misrepresentation 1. Remedy of rescission o The cancelation of contract, by the parties, or by court, with the aim of restoring the parties, to the greatest extent possible, to their pre-contractual state o Rescission is consider a discretionary remedy, not as of right  Therefore: difficult to know in advance weather the court will grant rescission o Restitution: usually followed by rescission  Involves giving and taking back on both sides  Affirmation: occurs when the misled party declares an intention to carry out the contract or otherwise acts as though it is bound by it 1. ASAP!! When you know the other party has not fulfilled the contract, file for rescission 2. Rescission cannot happen if restitution is impossible 3. Rescission may be unavailable if it would affect a third party 2. The right to damages o Damages are intended to provide monetary compensation for the losses that a person suffered as a result of relying upon a misrepresentation Inducement  For a statement to be actionable as a misrepresentation, the deceived party must prove that the false statement induced the contract. o Meaning the statement must have misled its recipient into creating the contract o The statement of misrepresentation does not have to be the ONLY inducing factor  There could be many reasons why you agree to a contract  It is good enough to claim relief if only one of the factor is misrepresented o However, a statement will not be actionable if it did not affect the recipient's decision  Even if the other party made the representation with intention to deceive.  NOR will it be actionable if the recipient conducted an independent inquiry into the matter  The intention is how we identify the difference between representations and terms: which is  If a statement is intended by both parties to form a part of the contract then it is a term of agreement.  If it is made by one party to induce the other to enter into an agreement, and the party understands it that way, then it is a representation or a misrepresentation. Types of misrepresentation (chart on p. 210) 1. Innocent Misrepresentation o Is a statement a person makes carefully and without knowledge of the fact that it is false  General rule is: the deceived party is not entitled to recover damages  Rescission is available only when there's a huge difference in what was bargained for and what was obtained 2. Negligent Misrepresentation o It is a false, inducing statement made in an unreasonable or careless manner  Possible remedy - rescission  Or file damages in tort 3. Fraudulent Misrepresentation o Occurs when a person makes a statement that they know is false or that they have no reason to believe is true or that is reckless  Liability will arise under the tort of deceit  Court will require an allegation of fraud to be supported by clear evidence Contractual Terms  Express Term  Is a statement made by one of the parties that a reasonable person would believe was intended to create an enforceable obligation  PROOF  ORAL AGREEMENT  When an agreement is unwritten and un-witnessed, a court is required to determine whose version of events is more believable. Still, as long as there is no formal writing requirement and all of the other conditions of contract formation have been met, oral agreements are binding.  Rick management perspective: better to have it in writing as a proof of evidence  WRITTEN  Parol Evidence: evidence that is not contained within the written contract  Parol evidence rule: if an agreement is written, oral evidence generally cannot be used to add to, subtract from, qualify, or vary the terms of document.  Generally means that they are unenforceable  Exceptions are:  To rectify or fix a mistake in a contractual document  To prove that a contract was never really formed or is somehow defective  To resolve ambiguities in the document  To demonstrate that a document does not contain the parties' complete agreement  There one other way: a statement may be characterized as a collateral contract. Collateral contract is: a separate agreement one party makes in exchange for the other party's entry into the main contract.  EX: if an oil seller promised to sell oil at a certain kind of quality, but did not put into a written contract, and the contract stated that it DOES NOT warrant the quality of its oil, you therefore offer to enter into a contract
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