Chapter 9: Representation & Terms of Contract
Pre-Contractual Statements (pg 202)
• Statements made during negotiations:
o Puffs: mere sales words => no consequences.
o Contractual terms: provisions in the contract that create legally enforceable
Certain consequences: if failure => breach of contract.
o Pre-contractual representations: statements that one party makes (by words
or conduct) with the intention of inducing the other party to enter into the contract.
Possible consequences: if falsely induce contract => misrepresentation.
• Test: parties’ objective intentions.
Misrepresentation (pg 202)
o a statement of an existing fact;
o that is false or incorrect when made;
o may be actionable if it induced a contract:
Sufficient that misrepresentation was one inducement.
Inducement presumed if inducement intended.
Recipient not obliged to investigate.
• Misrepresentation is not:
o Personal opinion, unless opinion contains fact.
o Prediction of future, unless prediction contains fact.
o Statement of law, unless statement contains statement of fact.
Silence as Misrepresentation (pg 205)
• General rule: parties are not required to disclose material facts during pre-contractual
• Silence cannot be misrepresentation.
o Silence distorts previous assertion
o Statement is half-truth
o Contracts of “utmost good faith” (e.g. insurance contracts)
o Special relationship between the parties (e.g. trust or influence)
o Statutory provision requires disclosure (e.g. insurance, securities, directors,
o Facts are actively concealed. Remedies (pg 207)
• Rescission = cancellation of contract
o Contract treated as if it never existed.
o Discretionary remedy of the court.
o Available for all types of misrepresentation (innocent, negligent, fraudulent).
o Often accompanied by an order for restitution.
• Restitution = restoring parties to pre-contractual state.
o Available for all types of misrepresentation.
o Not available if impossible, if contract has been affirmed by the innocent party, or
if rescission will affect a third party.
• Damages = monetarily reparation of losses
o Claim lies in tort and not contract.
o Available for fraud or negligence only.
Types of Misrepresentation & Possible Remedies (pg 209)
• Innocent misrepresentation: a statement made carefully and without knowledge that it
is false rescission and restitution.
• Negligent misrepresentation: a statement made unreasonably or carelessly that
induces recipient to enter into the contract rescission, restitution and damages in tort
(fraud or negligence)
• Fraudulent misrepresentation: a statement made recklessly, knowing it is false, or
having no reason to believe that it is true rescission, restitution and damages in tort
(fraud or negligence)
Contractual Term (pg. 211)
• Enforceable obligation within contract:
o Promise of future performance
o Actionable breach if not fulfilled
• Types of contractual terms:
o Express terms: a statement made by one of the parties that a reasonable
person would believe was intended to create an enforceable obligation.
o Implied terms
• Where contract is oral, the parties may encounter problems of evidence.
• With written contracts, a common problem is conflicting documents. Parol Evidence Rule (CONCEPT SUMMARY PG. 212)
• Where a contract is written, oral evidence cannot usually be used to add to, subtract
from, qualify, or vary the ter