Chapter 9: Representations & Terms
P RE -C ONTRACTUAL & C ONTRACTUAL S TATEMENTS
Not every statement communicated during the negotiation process is a contractual term. A statement
becomes a contractual term only if it is included in the agreement as a legally enforceable
A contractual term is a promissory statement. The person who makes it voluntarily agrees to
do something in the future.
In contrast, a 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.
It may induce the creation of a contract, but it does not form part of the contract.
The distinction b/t the contractual term and pre-contractual representation is especially important if a
statement is false.
The distinction is important b/c
misrepresentation and breach
of contract have different legal
may result in a form of legal
liability, such as actionable
misrepresentation, but not in
an action for breach of
The Nature of Misrepresentation
o Misrepresentation: is a false statement of an existing fact that causes the recipient to enter into a
In contrast, a contractual term is not mean to describe an existing state of facts, but rather it
provides a promise of future performance.
Given promissory nature, a contractual term cannot be false when it is given. Nor can a
breach of contract occur as soon as such a promise is made. A breach occurs only when one
of the parties fails to perform precisely as promised.
Misstatement of Fact
Not every misstatement during pre-contractual negotiation is a misrepresentation. A
misrepresentation occurs only if the speaker claimed to state a fact.
The difficulty of that requirement is that ppl often make non-factual statements during
o Opinion: is the statement of belief or judgment. Opinions can range from carefree speculation to
deliberate assessments based on a substantial body of evidence.
It is not usually misrepresentation, even if it’s false.
It is sometimes risky to offer an opinion; e.g. if you state an opinion in a way that leads me to
think that it must be true, a court may find that your statement includes not only an opinion
but also an implied statement of that can be treated as a misrepresentation.
It is also risky to offer an opinion if you have no reason to believe that it is actually true.
During pre-contractual negotiation, a person may describe how they will act in the future
o Future Conduct: is a second type of non-factual statement. It is a non-promissory statement as to a
party’s future conduct & is usually not usually treated as a misrepresentation.
However, a statement of future conduct is a misrepresentation if it is made fraudulently or if
the future conduct is described in terms of present intention.
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However, the court may find a misrepresentation if you inaccurately describe the
consequence of a law.
E.g. Suppose you are trying to persuade me to buy your land. It is not a
misrepresentation if you in incorrectly tell me that the zoning laws do not apply to the
property. That is a matter of law. However, it may be a misrepresentation if you
inaccurately tell me that zoning approval has been granted and that I therefore would
be able to develop the land.
Silence as Misrepresentation
As a general rule, parties are not required to disclose material facts during pre-contractual
negotiations, no matter how unethical non-disclosure may be.
There are, however, at least 4 occasions when failure to speak will amount to misrepresentation:
i. When silence would distort a previous assertion: A party’s silence sometimes has the
effect of falsifying a statement that was previously true. 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. Failure to do so amounts to a
misrepresentation. A misrepresentation may also occur if a party tells half of the truth and
remains silent on the other half.
ii. When the contract requires a duty of utmost good faith: the requirement of utmost faith
arises when one party is in a unique position to know the material fact. The best e.g. involves
insurance contracts. Since the customer is the only person that has the info required by
insurance comp., the law imposes an obligation of good faith that requires the customer to
disclose all of the relevant facts. A breach of that obligation = insurance comp can avoid the
iii. When a special relationship exists b/t the parties: When the relationship b/t two 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. E.g. pg 195
iv. When a statutory provision requires disclosure: Some statute requires the disclosure of
material facts in a contractual setting.
Insurance legislation in many provinces contains statutory conditions that are
deemed to be part of every insurance contract and must be printed on every
document. Many provinces have statutes that automatically insert certain conditions
into every insurance contract.
Some financial officers have a duty to disclose material facts. E.g. an officer or
director has to speak up if they have an interest in a contract with their own company.
If they fail to do so, the company may be entitled to set aside the contract. The same
holds true for some Crown corporations. A similar disclosure requirement arises in
the securities law.
Many provinces have legislation regulating the formation of domestic contracts. If a
party failed to disclose significant assets or significant liabilities that existed when the
domestic contract was made, the court can set aside the agreement or a provision in
For a statement to be actionable as a misrepresentation, the deceived party must prove that the false
statement induced the contract. The statement does not have to be the only inducing factor.
However, a statement will not be actionable if it didn’t affect the recipient’s decision, even if the other
party made the representation with the intention to deceive.
The Legal Consequences of Misrepresentation
There are 2 possible consequences of an actionable misrepresentation. The deceived party may
1. The remedy of rescission
2. The right to damages
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Is the only contractual consequence of misrepresentation
o Rescission: is the cancellation of a contract by the court with the aim of restoring the parties, to the
greatest extent possible, to their pre-contractual state.
It is sometimes difficult to know in advance whether the court will grant the rescission b/c it is
a discretionary remedy, one that is not available as of right. The remedy Is awarded on the
basis of the court’s judgement about what is best according to the rule of reason and justice.
The order of rescission is often accompanied by an order for restitution.
o Restitution: involves a giving back and taking back on both sides.
E.g. you want to buy waterproof paint to make snowboards. A supplier represents that it has
waterproof paints to sell but insists you buy 4 shipments over the next 2 years. When the first
shipment comes you discover that the paint is not waterproof. Thus you want your money
back, and the supplier wants it paint back after it gives u your money back.
The victim of misrepresentation may be disqualified from rescission in certain circumstances.
i. 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 act as
though it is bound by it. E.g. If discover the 1 shipment of paint is not waterproof but you do
nothing about it, but six month later you receive the 2 shipment then complain that neither
shipment was waterproof. That 6 month lapse of time suggests that you affirmed the contract.
ii. Rescission may be disqualified if restitution is impossible. If a party cannot be substantially
returned to their pre-contractual positions, a court is reluctant to grant rescission. – The more
that has been done under the contract; the less likely the court is to grant rescission.
iii. Rescission may be unavailable if it would affect a third party. In this case, it is the right of the
3 party that makes restitution impossible.
A court may responds to misrepresentation by awarding damages against the party that made the
o Damages: are intended to provide monetary compensation for the losses that a person suffered as a
result of relying upon a misrepresentation.
Damages may be awarded for a breach of contract. However, if damages are awarded for
misrepresentation, the plaintiff’s claim arises not in contract, but a tort.
Tort law is based on the principle that “a person who by his/her fault causes damage to
another may be held responsible. – depends upon the nature of misrepresentation.
Type of Misrepresentation
1. Innocent Misrepresentation: is a statement a person makes carefully and without knowledge of the
fact that it is false.
If the speaker is innocent of fraudulent or negligent conduct, the general rule is that the
deceived party is not entitled to recover damages.
The only legal remedy available for innocent misrepresentation is rescission which is only
available when there is a substantial diff b/t what the deceived party had bargained for and
what was, in fact, obtained.
2. Negligent Misrepresentation: is a false, inducing statement made in an unreasonable or careless