Chapter 9 – Representation and Terms
PRE-CONTACTUAL AND CONTRACTTUAL STATEMENTS
It’s hard to identify which part of the parties’ statements are part of the negotiations and
which are part of the actual contract.
Therefore, we need to distinguish contractual terms and pre-contractual
A statement becomes a contractual term only if it’s included in the agreement as a legally
A contractual term is a promissory statement. The person who makes it voluntarily
agrees to do something in the future.
A pre-contractual representation is a statement one party makes by words or conduct with
the intention of including another party to enter into a contract.
It doesn’t impose a contractual obligation nor form part of a contract.
The distinction between both is important if a statement is false.
If a non-contractual statement is false, we say one of the parties has made a
When a contractual statement isn’t fulfilled, we say that one of the parties is in breach
THE NATURE OF MISREPRESENTATION
A misrepresentation is a false statement of an existing fact that causes a recipient to enter a
A contract terms is not meant to describe an existing state of facts, but it provides a promise
of future performance.
It cannot be false when it’s given nor can a breach of contract occur as soon as such a
promise is made.
Breach happens only when one of the parties fails to perform precisely as promised.
Misstatement of Fact
A misrepresentation occurs only if the speaker claimed to state a fact.
Difficulty with that requirement is that people often make non-factual statements
during negotiations, such as stating their opinion.
Personal opinion isn’t usually a misrepresentation even if it’s false.
If you state an opinion that leads someone to think it must be true, a court may find that your
statement includes not only an opinion, but also an implied statement of fact that can be
treated as misrepresentation.
A statement of future conduct isn’t a statement of fact. It’s a statement about a person’s
Such statements aren’t usually treated as misrepresentation but it is one if it’s made
fraudulently or if the future conduct is described in terms of a present intention. LAW 122
A misrepresentation doesn’t arise because merely because you inaccurately describe a
particular law because we all are presumed to know the law.
However, the court may find a misrepresentation if you inaccurately describe the
consequences of a law, because those are treated as fact rather than a law.
Silence as Misrepresentation
As a general rule, parties aren’t required to disclose material facts during pre-contractual
negotiations, no matter how unethical non-disclosure may be.
There are 6 occasions when the failure to speak will amount to misrepresentation.
1. When silence would distort a previous assertion – When a change in circumstances affects
the accuracy of an earlier representation, the party that made that statement has a duty to
disclose the change to the other party.
2. When a statement is a half-truth – A party cannot give a partial account if the unspoken
words would substantially alter the meaning of the actual statement, even if that half was
3. When the contract requires a duty of utmost good faith – Some contracts require a party to
make full disclosure of the material facts (i.e. insurance).
4. When a special relationship exists b/w the parties – When the relationship b/w 2 parties is
one of trust, or when one of the parties has some other form of special influence over the
other, a duty of disclosure may arise.
5. When a statutory provision requires disclosure – Some statures require the disclosure of
material facts in a contractual setting.
6. When facts are actively concealed – If a party to a contract actively conceals the truth it may
be treated as a misrepresentation.
i.e. Building vendor hides evidence of structural damage.
For a statement to be actionable as a misrepresentation, the deceived party must prove that it
misled them into creating the contract.
The statement doesn’t have to be the only inducing factor. A party can claim relief for
misrepresentation even if other factors were influential.
A statement won’t be actionable if it didn’t affect the recipient’s decision, even if the other
party made the representation with an intention to deceive.
Also won’t be if the recipient conducted an independent inquiry into the matter.
THE LEGAL CONSEQUENCES OF MISREPRESENTATION LAW 122
There’s 2 possible consequences of an actionable misrepresentation:
The remedy of rescission
The right to damages
It’s the cancellation of a contract with the aim of restoring the parties, to the greatest extent
possible, to their pre-contractual state.
The remedy is awarded on the basis of the court’s judgement about what’s best according to
the rules of reason and justice.
The remedy of rescission is often accompanied by an order for restitution, which involves a
giving back and taking back on both sides.
Victim of a misrepresentation may be barred from rescission in certain circumstances:
A. If the misled party affirmed the contract, then rescission is not available.
Affirmation occurs when the misled party declares an intention to carry out the
contract or otherwise acts as though it were bound by it.
i.e. waiting six months to complain that paint isn’t waterproof
B. Recession may be barred if restitution is impossible.
The more that’s been done under the contact, the less likely a grant of
i.e. using substantial amount of paint before noticing it’s not waterproof
C. Recession may be unavailable if it would affect a third party.
It’s the rights of a 3 party that makes restitution impossible.
A court may respond to a misrepresentation by awarding damages against the party that
made the statement.
Damages are intended to provide monetary compensation for the losses that a person
suffered as a result of relying upon a misrepresentation.
If damages are awarded for a misrepresentation, the plaintiff’s claim arises not in contract, but
rather in tort.
TYPES OF MISREPRESENTATION
It’s a statement someone makes carefully and w/o knowledge of the fact that it’s false.
If the speaker is innocent of any fraudulent/negligent conduct, the rule is that the deceived
party isn’t entitled to recover damages.
Only legal remedy for this misrepresentation is rescission, and is available when there’s a
substantial diff. b/w what the deceived party bargained for and what was obtained.
It’s a statement made carelessly or unreasonably. The person doesn’t have to know that it’s
false to be liable.
Remedy can be rescission or a tort that supports an award of damages. LAW 122
Occurs when someone makes a statement that they know is false or have no reason to believe
is true or recklessly made without regard to the truth.
Liability will arise under the tort of deceit.
The courts will require an allegation of fraud to be supported by very clear evidence.
Contractual terms arise from statements that impose obligations under the contract.
If a statement is intended by both parties to form a part of the contract, then it’s a term of the
If it’s made by one party to induce the other to enter the contract, and the party understands
it that way, then it’s a representation or misrepresentation.
There’s two types of contractual terms: terms expressed by the parties and those implied by a
court or a statute.
It’s a statement made by one of the parties that a reasonable person would believe was
intended to create an enforceable obligation.
Proof of Express Terms
When an agreement is unwritten and unwitnessed, a court is required to determine whose
version of events is more believable.
If an agreement is written, oral evidence cannot be used to add to, subtract from, qualify, or
vary the terms of the document (parol evidence rule).
Parol evidence refers to evidence that’s not confined within the written contract.
Business people often sign a written agreement on the assurance that some of its terms will
not be enforced, or on the assurance that certain items discussed duri