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LAW122 - CHAPTER 8-12 NOTES.docx

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Law and Business
LAW 122
Jane Monro

CHAPTER 9: REPRESENTATIONS AND TERMS previous chapters: seen how a contract is formed; now we examine the legal effect of statements made/adopted by parties in connection with their contracts Chapter 9 overview: misrepresentation: what happens when statements are false? contractual terms: how are terms incorporated into a contract? standard form agreements o using plain language in contracts Pre-Contractual and Contractual Statements (PG. 202) focus on statements made during the negotiation of a contract Statements made before the contract o during negotiations Statements that become part of the contract o terms of contract which statements are part of the negotiation vs. which are part of actual contract ? distinguish between contractual terms and pre-contractual reps not every statement communicated during the negotiation is a contractual term contractual term = a provision in an agreement that creates a legally enforceable obligation pre-contractual representation = a statement made by words or conduct with the intention of inducing another party to enter into a contract Misrepresentation (PG. 202-210) Misrepresentation defined: a statement of an existing fact (not an opinion) that is false when made (as opposed to future performance) may be actionable if it induced a contract Misrepresentation vs. breach of contract if a non-contractual statement (representation) is false, one of the parties has made a misrepresentation if contractual obligation is not fulfilled, one of the parties is in breach of contract they have different legal consequences and remedies Not A Misrepresentation: personal opinion is not a misrepresentation (even if false) Ex; (I think this is a reliable car) prediction of future is not a misrepresentation (I will be manager in five years) exceptions if those statements imply facts that are to be relied on Silence as Misrepresentation General Rule = parties not required to disclose material facts during pre-contractual negotiations (even if unethical) 6 exceptions, where silence will amount to misrepresentation 1. Silence Would Distort a Previous Assertion: ie. if you represent that there is no mould in house then you find mould, you can`t be silent you need to disclose 2. When a Statement is a Half-Truth: misrepresentation if party tells half-truth and remains silent on other half; party cannot give partial account if unspoken words alter meaning ie. cleaners says not responsible for silk or velvet (but is silent on other fabrics) 3. When Contract Requires Duty of Utmost Good Faith: some contracts require a party to make full disclosure of material facts one party is in unique position to know the material facts ie. insurance contracts need to know as much info as possible 4. When a Special Relationship Exists Between the Parties: when relationship is one of trust, or if there is some form of influence over the other party there may be a duty of disclosure ie. accountant selling cottage to her client vs. a stranger 5. When a Statutory Provision Requires Disclosure: there are statutes that require disclosure of material facts in a contractual setting 6. When Facts are Actively Concealed: party to contract can`t actively conceal the truth ie. building vendor can`t take steps to hide evidence of structural damage (the sale may be rescinded) Inducement in order to raise a cause of action (ie. a claim) on the grounds of misrepresentation, must prove that false statement induced the contract statement must have misled recipient into creating or entering into contract statement does not have to be the only inducing factor no cause of action if the misrepresentation did not affect decision to enter into contract (even if there is intent to deceive) what happens if recipient has opportunity to investigate the statement ? generally, not obliged to investigate every representation Remedies For Misrepresentation there are 2 possible remedies of an actionable misrepresentation 1. Rescission: is the cancellation of a contract with the aim of restoring the parties to their pre-contractual state contract treated as if it never existed available for all types of misrepresentation (innocent, negligent, and fraudulent) it is often accompanied by order of restitution restitution = a giving back and taking back on both sides restoration could be of money, land, goods court tries to restore the pre-contractual situation ie. paid for waterproof paint, and realize that it is not waterproof restitution may be denied if: restoration is impossible (ie. paint is already been applied to snowboards) restoration would affect 3 party (ie. boards may already be resold to another) contract is affirmed or viewed to have been carried out (ie. do nothing about the paint, then wait for next shipment before complaining) 2. Damages: court may award damages against the party that made the misrepresentation damages are designed to provide monetary compensation for the losses suffered as a result of relying upon a misrepresentation here the monetary damages are for a tort of misrepresentation not for a breach of contract even though the misrepresentation induced the contract this is a misrepresentation of a statement not a breach of a contractual term Types of Misrepresentation Law distinguishes between three types of misrepresentation: 1. Innocent Misrepresentation: a statement a person makes carefully and without knowledge that it is false no carelessness in making statement general rule is that deceived party is not entitled to recover damages only remedy available is: rescission (possibly with restitution) 2. Negligent Misrepresentation: a false , inducing statement made in an unreasonable or careless manner statement made in careless disregard of facts (no need to know that it was false) remedies now include: rescission possibly restitution, and even damages 3. Fraudulent Misrepresentation: a statement or misleading silence known to be false, or made with no honest belief in its truth, or made recklessly knew it could be false and did not investigate remedies rescission (law of contract) or possibly restitution or compensatory and punitive damages (tort of deceit) liability arises under tort of deceit; fraud is very serious matter in business courts therefore require an allegation of fraud to be supported by clear evidence; if proven then courts eager to award damages Contractual Terms (PG 211-219) we have looked at pre-contractual statements, now we will look at statements that become part of the contract contractual terms (unlike representations) impose obligations under the contract a contractual term is an enforceable obligation within the contract its a promise of future performance 2 types of contractual terms: express terms and implied terms 1. Express Terms: terms expressly included by the parties in the contract how do you prove ? oral agreements: primarily a question of evidence; need to prove the words that were spoken court determines whose version of events is more believable risk management: get the agreement in writing (contemplate more carefully) written agreements: easier to prove (not always easy though ie. several conflicting docs) subject to the parole evidence rule (oral evidence cannot vary written terms) - parole evidence refers to evidence that is not contained within the written contract - therefore need to be extremely suspicious of any oral assurances as they are generally unenforceable Contractual Interpretation of Express Terms: even if parties agree on terms and write them into a contract they may disagree on the interpretation of those words a ton of litigation results from differences in interpretation different approaches to interpretation: literal approach = assigns words their plain and ordinary meaning contextual approach = goes beyond the literal and considers intentions and surrounding circumstances golden rule = words given their ordinary meaning unless the result is absurdity contra proferentum rule = ensures that the meaning that is least favourable to the author will prevail; ambiguities interpreted against person relying on clause 2. Implied Terms: express terms may not fully reflect the parties intentions even if agreement is written, document may not contain all the relevant terms therefore the parties remaining intentions may be implied imp
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