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Chapter 9 Exam Notes

7 Pages

Law and Business
Course Code
LAW 122
Henry Ojambo

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George Nico Business Law (Exam Notes) Chapter 9: Representations and Terms Pre­Contractual Statements ­ Statements made during negotiations o Puffs: mere sales words – no consequences o Representations: induce contract – possible consequences o Terms: contractual promises – certain consequences  Eg. The statements you make in an offer become the terms of the contract upon  acceptance ­ Test: parties’ objective intentions Statements During Negotiation Pre­Contractual Representations ­ Statements made to induce contract ­ Do not become contractual promises ­ May be actionable if they falsely induce contract o Actionable if statement amounts to a “misrepresentation” Misrepresentation ­ Definition: o Misrepresentation is a false statement of an existing fact that causes recipient to enter into  a contract  A statement of an existing fact…  That is false when made…  May be actionable if it induced a contract Statement of Fact ­ Misrepresentation must be statement of fact – not:  o Opinions, predictions, or statement of law Type of Statement Example Can Become Statement of Fact Example Opinion based on  “I think car is reliable” ­Expert opinion or Car repair man says  speculation ­Stated in way that makes it appear car is reliable George Nico Business Law (Exam Notes) true Future conduct “I will be promoted in  Statement of present intenti“I don’t intend to sell  five years” land” Statement regarding law“Zoning laws don’t  Statement regarding legal  “Zoning approval has  apply” consequences been granted” Silence as Misrepresentation ­ General rule: o Parties are not required to disclose material facts during negotiations, unless:  Silence distorts a previous assertion • Duty to disclose a change in circumstances that affects accuracy of  earlier representation  A statement is a half­truth • Cannot give a partial account if unspoken words would substantially  alter the meaning of the actual statement o Eg. Spoken “liability excluded for damage caused to silk…”  Unspoken “… and for any other damage to any kind  of fabric”  Contract being negotiated is of utmost good faith • Nature of these contracts requires party to make full disclosure of  material facts o Eg. Insurance customer must disclose illness  A special relationship exists between the parties of trust and confidence • Due to fiduciary duty o Eg. Lawyer selling house to client  Lawyer may exercise great influence over client  A statutory provision requires disclosure • Some statutes require disclosure of material facts o Eg. Insurance contracts o Eg. Director having interest in contract with company o Eg. Division of domestic property upon separation  Facts are actively concealed o Eg. Building vender hides evidence of structural damage to a  building. Inducement ­ In order to be a “misrepresentation”, the false statement of fact must have induced deceived party  to enter into a contract o Misrepresentation need not be only inducing factor ­ Misrepresentation not actionable if: o It did not induce, even if made with intent to deceive o Recipient conducts independent inquiry into the matter Remedies for Misrepresentation George Nico Business Law (Exam Notes) ­ Potential remedies o Recession  Cancellation of contract with aim of restoring parties to pre­contractual state o Restitution  Restoring parties to original position o Damages in tort  Monetarily reparation of losses Rescission ­ Discretionary equitable remedy ­ Cancels (or unravels contract) o Contract treated as if it never existed o Parties restored to pre­contractual status if possible ­ Often accompanied by order for restitution ­ Available for all types of misrepresentation o Innocent, negligent, fraudulent Restitution ­ Restoration of money, land, or goods ­ Available for all types of misrepresentations ­ Restitution may be denied o If restoration is impossible, (Eg. Paint already applied) o If third party rights would be affected (Eg. Purchased mall already be rented to tenants) o Restitution may be denied if contract affirmed   Deceived party benefits after discovery of misrepresentation Damages ­ Monetary award to repair wrongful loss ­ Claim lies in tort and not contract ­ Claim lies for fraud or negligence only Types of Misrepresentation ­ Three types of misrepresentation: o Fraudulent misrepresentation: tort of deceit  A statement or misleading silence • Known to be false, or • Made with no honest belief in its truth, or • Made recklessly  Remedies:  • Rescission (law of contract • Possibly restitution • Damages (tort of deceit)  o Negligent misrepresentation: tort of negligence George Nico Business Law (Exam Notes)  Misrepresentation made carelessly or unreasonably • Liability even if party making statement does know it’s false • Must prove all elements of negligence o Statement made in careless disregard of facts  Remedies: • Rescission (law of contract • Possibly restitution • Damages (tort of negligence)  o Innocent misrepresentation: no tort  Defendant innocent of wrongdoing • No knowledge of falsity of statement • No carelessness in making statement  Remedy • Rescission (law of contract) • Possibly restitution • No damages (no tort) Contractual Terms ­ Statement made during nego
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