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Law and Business
LAW 122
Leigh Lampert

CH 9 – Representations and Terms -Legal effects of statements made/adopted by parties in connection with their contracts and what happens when those statements are false.And consider how terms can be incorporated into a contract and the standard form agreements in consumer transactions. Pre-Contractual and Contractual Statements Astatement is contractual only if it is included in the agreement as a legally enforceable obligation; it is a promissory statement (promise of future performance & breach of contract if false).Apre-contractual representation is a statement one party makes by words or conduct with the intention of inducing another party to enter into a contract (statement of existing fact). It doesn’t impose a contractual obligation but may induce the creation of a contract (misrepresentation if false). It is made during negotiations: puff—mere sales words with no consequences, representations—statement with intent to induce a contract with possible consequences but do not become contractual promises (it is actionable if it is a MIS- representation, term—provisions that create legally enforceable obligation with contractual promises and certain consequences. Test is a parties’objective intentions. Misrepresentation If non-contractual statement is false, then one of the parties has made a misrepresentation. The Nature of Misrepresentation: Amisrepresentation is a false statement of an existing fact that is false when made which may cause a recipient to enter into a contract. Misstatement of Fact- Misrepresentation occurs only if the speaker claimed to state a fact. People often make non-factual statements during negotiations like opinions—the statement of a belief of judgment, which is not a misrepresentation. However if you state an opinion in a way that leads someone to think that it MUST be true, a court may say that your statement included an opinion and an implied statement of fact which is treated as a misrepresentation; especially true if you offer an opinion in your area of expertise. Or a statement containing an opinion may be misrepresented, if someone may reasonably rely on your statement as an implied statement of fact, and not just a personal opinion. Astatement of future conduct is not a statement of fact; it is a statement about a person’s future intention and is not usually a misrepresentation. But, it is if the statement of future conduct is made fraudulently or if the future conduct is described in terms of a present intention.A statement of law is not a misrepresentation because it is a matter of law but can be a misrepresentation if it is inaccurately representing facts; it is an issue of fact.Acourt may find a misrepresentation if you inaccurately describe the consequences of a law, because those are treated as a matter of fact rather than 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. However these occasions will amount to misrepresentation when failed to be disclosed. When silence would distort a previous assertion- when silence falsifies a previous statement/presumed set of circumstances; 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. When a statement is a half-truth- Despite the right to remain silent, a party cannot give a partial account if the unspoken words would substantially alter the meaning of the actual statement, even if the actual words are literally true. When the contract requires a duty of utmost good faith- the law imposes an obligation of utmost good faith that requires customers to disclose all relevant facts. When a special relationship exists between the parties- When the relationships between the parties is one of trust, or one party has special influence over the other, a duty of disclosure may arise. Since with a relationship, one party would naturally trust the other one based on the special relationships. When a statutory provision requires disclosure- insurance legislations, financial officers, crown corporations, and some provinces include it for the formation of domestic contracts too. When facts are actively concealed- a party taking the steps to conceal facts, which is an act of concealment and it’s a form of misrepresentation. Inducement: For a statement to be actionable as a misrepresentation, the deceived party must prove that the false statement induced the contract. The statement must have misled its recipient into creating the contract. The statement will not be actionable if the recipient conducted an independent inquiry into the matter, or it did not affect the recipient’s decision. The Legal Consequences/Remedies of Misrepresentation: There are two possible consequences of an actionable misrepresentation. The party deceived may receive: the remedy of rescission or the right to damages. Rescission is the only contractual consequence of misrepresentation. Rescission: is the cancellation of a contract with the aim of restoring the parties, to the greatest extent possible, to their pre-contractual state. It is hard to determine if a court will grant such because it is a discretionary remedy—one that isn’t available as of right. This remedy is often accompanied by an order for restitution. Restitution involves a giving back and taking back on both sides/restoring parties to original position. The victim of a misrepresentation may be barred from rescission in a certain circumstances. First, 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.Aperson who has been misled is said to “affirm” the contract only if the person discovered the misrepresentation prior to the declaration or act of affirmation. Second, rescission may be barred if restitution is impossible. If the parties 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 a court is to grant rescission. Third, rescission may be unavailable if it would affect a third party. It is the rights of a third party that make restitution impossible. Damages: 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 (of damages, deceit, etc). Types of Misrepresentation: 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 any fraudulent/negligent conduct, the general rule is that the deceived party is not entitled to recover damages. The only legal remedy is rescission, and it is only available if there is a substantial difference between what the deceived party had bargained for and what was, in fact, obtained. Possibly remedial by restitution. Negligent Misrepresentation: is a false, inducing statement made in an unreasonable or careless manner (they didn’t mean to lie). It may amount to a tort that supports an award of damages (CH 6- tort of negligent misrepresentation), rescission of contract and possibly restitution. Fraudulent Misrepresentation: occurs when a person makes a statement that they know is false or that they have no reason to believe is true or that they recklessly make without regard to the truth. Liability will arise under the tort of deceit (CH 5), rescission of contract and possibly restitution. Contractual Terms: enforceable obligations within contract-> promise of future performance, actionable breach if not fulfilled. The following are types of contractual terms: Express Terms: is a statement made by one of the parties that a reasonable person would believe was intended to create an enforceable obligation. It can be oral or written. Written are subject to parol evidence rule. Proof of Express Terms: Parol evidence is evidence that is not contained within the written contract. If an agreement is written, oral evidence generally cannot be used to add to, subtract from, qualify, or vary the terms of a document (parol evidence rule). There are some exceptions to the parol evidence rule. Parol evidence is admissible: 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 is one other way around the parol evidence rule; it is not applicable to a collateral contract.Acollateral contract is a separate agreement one party makes in exchange for the other party’s entry into the main contract. Interpretation of Express Terms/written documents: (How a reasonable business person would interpret the relevant clause) the literal approach assigns words their ordinary meaning. Contextual approach goes beyond the four corners of the document by looking at the parties’ presumed intentions and their circumstances. The golden rule says that words will be given their plain, ordinary meaning unless to do so would result in absurdity. The contra proferentem rule ensures that the meaning least favourable to the author will prevail; the author is in the best position to create a clear and unambiguous term. Implied Terms: arises by operation of law, either through the common law or under a statute. Terms Implied by a Court: Implied terms are inserted into a contract by the law and courts will not normally imply a term unless that term is necessary to implement the parties’presumed intentions. An implied term is necessary in this context if i) it’s an obvious consequence of the parties’agreement, or ii) it’s required for the purpose of business efficacy.Aterm will be implied only if it is reasonable, necessary, capable of exact formulation, and clearly justified with regard to the parties’intentions when they contracted. –Think reasonably- Terms Implied by Statute: Whenever a statute implies a term into a contract, the term is incorporated automatically without judicial intervention. If a dispute comes before the courts, the term is treated as if the parties expressly created it. However, if the parties expressly excluded it, it will not apply.Astatutory term in these cases are merely a default rule. Standard Form Agreements: are mass-produced documents usually drafted by a party who is in an economic position to offer certain terms on a “take-it-or-leave-it” basis. Mostly used for transactions that occurs over and over again and reduces transaction costs. The downside to such contracts is that they are often so long and complex that few customers actually read and understand them. Customers have no realistic opportunity to bargain for better terms. It lacks the usual consensus ad idem (the meeting of minds). One type of term that customers are often required to accept in standard form agreements is an exclusion clause—or limitation clause/waiver—which is a contractual term that seeks to protect one party from various sorts of legal liability. Such terms are legitimate if the following three things can be demonstrated: 1) term must have been drafted in clear, unambiguous language, 2) the party against whom the exclusion clause is meant to operate must be given reasonable notice of the term and its effect, and 3) it must be shown that the party against whom the exclusion clause is meant to operate agreed that the exclusion is part of the contract—signature is usually the best evidence. Ticket Contracts: terms often printed on tickets/receipts. Enforcement depends upon notice, notice must occur before contract is created and enforcement depends upon assent (signature is best evidence of acceptance). Signed Forms: you are bounded by all the terms expressed in a standard form agreement, even if you didn’t read/understand them. You are bounded by all the terms expressed in a standard form agreement, even if you didn’t read/understand them. By signing a document, a customer indicates a willingness to be bound by its terms, and the other party receives some assurance that the agreement is enforceable. Given that the customer was given reasonable opportunity to study its terms. Aboilerplate clause is a standard provision that can be reused in various contractual settings in a virtually unchanged form. Using a Plain Language in Contracts: Legalese is a slang expression designating the formal and technical language of traditional legal documents. By using plain language, businesses can increase the likelihood that documents they use will be understood by everyone, including people who do not have legal training. It will reduce many difficulties that arise from the misunderstanding of complicated contracts. Boilerplate Clauses: Astandard provision that can be reused in various contractual settings in a virtually unchanged form. It helps provide a framework for commercial agreements. It helps for those who need a contract in a hurt, at the least expense. Some common types of boilerplate clauses include: Exclusion Clauses: Terms that are designed to protect one party from various sorts of legal liability.Above includes what requirements they must meet to be legitimate. The courts have held that an exclusion clause should generally be enforced according to its true meaning, even if the party relying on the exclusion clause has failed to live up to its end of the bargain and thereby deprived the other party of substantially the whole benefit to be obtained under the contract. It also held that an exclusion clause will not be enforced if it is “unconscionable” or it would be “unfair or unreasonable” to enforce the exclusion clause. Force Majeure Clauses: aims to protect the parties when part of the contract cannot be performed because of some event that is outside of their control and could not have been prevented by their exercise of due care.An effective force majeure clause will be drafted as broadly as possible to include as many unpredictable events as are imaginable. Confidentiality Clauses: prevents disclosure of certain information about the agreement to third parties. It should be drafted narrowly to apply to only specific, limited information. It requires that materials be expressly designated as confidential by the party seeking confidential treatment and that the other party to the agreement have a sufficient time to register objections. It provides that information is presumed not to be confidential and that the burden lies with the party seeking confidential treatment to justify such treatment. Arbitration Clauses: outlines who should act to resolve the dispute and what method of arbitration should be used. Business people should consider these features of arbitration clauses: 1) well-drafted arbitration clause is drafted in a clear, straightforward manner, 2) an effective clause stipulates how the expenses incurred in the course of arbitration are to be divided, 3) clause determines, in advance, the number, qualifications, and role of the arbitrators, 4) the clause settles the procedural aspects of the arbitration, including the order in which the parties will present their cases and the amount of time allowed for each presentation, 5) clause ensures that any information discussed at the arbitration will be kept confidential and 6) the clause contemplates whether the parties will require written reasons in support of the decision and whether there are avenues of appeal available to the parties. Jurisdiction Clauses: predetermines the locale of the court and whose law will apply in the event of a legal dispute between parties. EntireAgreement Clauses: is a provision stating that the entire agreement between the parties is contained within the four corners of the contract. It ensures that none of the exceptions to the parol evidence will operate to defeat the written document. CH 10 – Contractual Defects Incapacity to Contract: Aperson cannot enter into a contract unless they have the legal power to give consent. Capacity is the legal power to give consent. Seven groups of persons who may have no capacity or only limited capacity to create a contract are: minors, mental incapacitated persons, intoxicated persons, corporations, associations, Indian bands/aboriginal persons and public authorities. Minors: The age of majority is the age at which a person is held fully accountable in law. Those otherwise are minors whom are people who have no reached the age of majority.Anyone other the age of majority lacks capacity. It shields minors from exploitation and the consequences of their own inexperience.Acontract is voidable if a minor is entitled to avoid the legal obligations that the contract would have otherwise created. Not all contracts with minors are voidable because minors may choose to carry out the contract, making the obligations binding. Once a minor reaches the age of majority they must decide if they want to avoid a contract that they created as a minor. Meaning they must give back any benefits that they received. Some contracts minors cannot avoid—contracts for necessary goods and services such as food, clothing, education, medical treatment, and legal advice, which are to their benefit. They also can’t avoid contracts of employment that are to their benefit. Mental Incapacity: If a court has declared a person to be lacking in mental capacity, their contracts are void and cannot be enforced at all. Even if there is no court declaration, a person may still be considered mentally incompetent if they lack the mental capacity to contract at the time the contract is formed. They can avoid the agreement within a reasonable time of becoming competent. Key difference between mental incapacity and minority: a minor’s contract is voidable even if the other party was unaware of the age issue; the contract of a person with a mental incapacity is avoidable only if the other party should have recognized the problem. Intoxication: If the person must be so drunk that they could not know or appreciate what they were doing and the other contractual party must have been alerted to that fact. To set aside the contract, the drunken person must take prompt election to avoid it once sober; failure to do so will be taken as affirmation of the agreement. Business Corporations: are treated as legal persons. Chartered corporations are treated the same as individuals who have reached the age of majority. If a chartered corporation enters into contracts in breach of its charter, its charter may be forfeited, but the contracts made in breach of the corporate charter will still be binding. The vast majority, today are: Statutory corporations have limited contractual capacity. Since they are statutory creations, their capacity to contract is limited by the powers given to them through legislation. If a statutory corporation attempts to contract in a manner that exceeds its statutory powers, it acts ultra vires (beyond the authority), and lacks the capacity to contract. Associations: are usually unincorporated business organizations, including private clubs, charities, and religious societies. They don’t enjoy independent legal existence and are thus incapable of contracting. Some provinces have legislations that give contractual capacity to associations involved in activities like education, religion and charity/trade unions. One member of an association can enter into a contract, as an individual person, but all liability is on that one person. Indian Bands andAboriginal Persons: Indian band is a body ofAboriginal people whose land and money are held by the Crown. They have contractual capacity in the same way as corporations; they can sue or be sued. But individualAboriginal persons who qualify as “Indians” under theAct is not true- restricted against their capacity to contract in relation to reserve land. Other than that,Aboriginal persons generally have capacity and are free to contract just like everyone. PublicAuthorities: Public authority acting on behalf of a governmental body has the capacity to contract, independent of any specific statutory authority. The only limit on a particular official’s capacity to contract is the division of powers section of the ConstitutionAct—in order to have capacity, the action must be consistent with that division of powers. Absence of Writing: more recently consumer protection legislation requires some types of contracts to be made in writing, both discussed below. Statute of Frauds: required some contracts to be evidenced in writing as a way of reducing the risk of perjury, or lying in legal proceedings. Intended to discourage people from falsely claiming the existence of oral contracts, however many jurisdictions have edited their legislation because of electronic commerce. Types of Contracts That Must be evidenced in Writing: Three types of contracts Guarantees- are a contractual promise by a third party, called a guarantor, to satisfy a debtor’s obligation if that debtor fails to do so.An indemnity is an unconditional promise to assume another’s debt completely. Contracts for the sale of an Interest in Land- they are unenforceable without evidence of writing. Ex: long-term lease of land, but not to repair a building. Contracts not to be performed within a Year- must be written. Writing Requirements: if a contract falls within the Statute, the court must decide if the writing requirement was satisfied. Form and Content of the Note or Memorandum- It can be in writing or there must be a note/memorandum that provides evidence of it. It has to i) provide evidence of the essential elements of the contract, and ii) be signed by the party against whom the agreement is being enforced. Effect of Non-Compliance: Contracts without evidence in writing cannot support an action for breach of contract where the defendant pleads the Statute of Frauds as a defence. Their contract is not void, it is merely unenforceable. If a party provides whatever under an oral contract and the other party accepts it, the contract is found unenforceable under the Statue of frauds, and then the doctrine of quantum meruit may require the party who accepts the goods to pay for the benefit it received. Consumer Protection and Writing Requirements: Ontario’s Consumer ProtectionAct 2002 states that all personal development services contracts must be made in writing in cases where the consumer’s payment in advance is required. If it is not, the business is not permitted to require or accept payment from the consumer. Ontario’s consumer protection law required businesses to deliver a written copy of an Internet contract in cases where the consumer is required to pay more than a prescribed amount under the contract in advance. Cell phone, insurance and auto renewing contracted/warranty contracts included as well. This helps prevent the exploitation of consumers and to reduce the incidence of disputes. Mistakes General Principles: Contracts require a meeting of the minds, or consensus ad idem, which is a shared mutual agreement to enter into an enforceable transaction on a particular basis. However people are sometimes mistaken about their agreements at the time that they are made. Some mistakes occur when an error affects the basic process of contract formation; when that happens, the mistake may negate the existence of an agreement between the parties and without an agreement, there cannot be a contract. Mistakes affect the very existence of the contract’s subject matter not the process of contract formation; in which it may be defective. Mistakes Preventing the Creation of Contracts Mistaken Identity: will not render a contract defective unless i) the mistake was known to the other contractual party, and ii) the mistake was material.A material mistake is one that matters to the mistaken party in an important way. Mistake about Subject Matter: mutual mistake on a subject matter, which prevents a true agreement or the creation of a contract. Mistakes Rendering Impossible the Purpose of the Contract: Mistake about Existence of the Subject Matter: The parties’mistake may render the contract impossible to perform. Both parties make the same mistake, one that is usually based on a false assumption. However it doesn’t always prevent the enforcement of the agreement. So to protect yourself, you should always insert into a contract a force majeure or “irresistible force” clause, stating which party bears the hardship if the subject matter of the contract is destroyed or if some other unexpected event occurs. The Doctrine of Frustration: Afrustrating eve
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