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Valerie Irie

1 READING NOTES Chapter 9: Grounds Upon Which a Contract May Be Impeached (Ended) Misrepresentation, Undue Influence and Duress Misrepresentation and Torts • Misrepresentations can provide a cause of action in both contract and tort • Three types of misrepresentation 1) Fraudulent 2) Negligent 3) Innocent  Note that an innocent misrepresentation becomes fraudulent or negligent if the party responsible fails to correct it when in a position to do so • In tort, only 1) fraudulent and 2) negligent misrepresentation give rise to remedy, recover loss from wrongdoer • In contract, all three forms of misrepresentation allow for the remedy of recission o As soon as any misrepresentation is found, the court will provide recission o But, in recission you’re put back to how you started, what if it involved an intangible product (ie. Hamburger)? o If it had been a tangible product you’d be able to return it Misrepresentation and Contracts • If a misrepresentation is innocent and material, that is could be expected to influence a party’s decision in favour of entering a contract, a court may set the contract aside at request of innocent party o Remedy is restricted to right to rescind o Need to prove that a misrepresentation became a term o the subsequent contract in order for remedy based on breach of contract • If the maker of the misrepresentation acted fraudulently or negligently then the court will grant damages against the wrongdoer • Note: There is a general rule of law in that a plaintiff will not be granted a remedy he does not claim. o Thus, if you sue for damages as a result of fraudulent or negligent misrepresentation you may only receive damages and the contract will not be rescinded o If you fail to prove fraud or negligence above, you get nothing Consequences of Misrepresentation in Contracts • When a party who’s relied on an innocent misrepresentation learns the true facts, they must renounce the agreement promptly o If you allow an unreasonable length of time to pass or take further benefits you lose your right to rescind 2 • If you sustained out-of-pocket expenses in performing the contract, or paid money to the other party before becoming aware of the right to rescind, then you are entitled to indemnity which is given as a supplement to recission for losses sustained in the contract • Purpose of rescission is to restore the parties as nearly as possible to their position before entering the contract, such as returning any out-of-pocket expenses in performing the contract • But, in contracts for the sale of land, the right to recission for innocent misrepresentation is lost once title to the property is transferred o Why? Purchaser’s are expected to search title, exercise right to rescind before completion of transaction • Note: Beware any standard form contract excluding representatives o Known as an entirety clause  Eg. WLU has small print in the calendar stating that “this is the entire contract, there are no collateral agreements, items… • Covers all loopholes  Eg. VISA has a clause that allows it to change contract at any time Opinion vs. Fact • Misrepresentations are not opinion, only statements of fact… experts are the exception o Law is lenient towards sellers who over-enthusiastically sell their wares “best textbook in the world”, disillusioned people are left without remedy • Law must distinguish between statements made as fact, and those as opinion o Eg. Merchant trying to sell foreign goods says that a certain good can be imported under low tariff rate in section # of a statute, buyer later learns they can’t import under that section o Courts may find that seller merely gave his opinion, but if they are seen as an expert in the marketing of these goods (or told someone they were) then the court may find that he made a misrepresentation • Thus, expert opinion is equivalent to a statement of fact… experts beware! Misrepresentation by Omission • No hiding any nitty gritty’s in contracts, must bring them forward to attention of signee • Noted in Chap. 5 that signing a document creates a presumption that that signer accepts all terms o This presumption can be denied if a party can demonstrate that they were expected to sign a document hurriedly and without an opportunity to read or understand it 3 o Also must prove that the other party has good reason to suspect that the signer may not fully comprehend the implications of the agreement • “Special onus [responsibility] on the supplier to point out any terms in a printed form that differ from what the consumer might reasonably expect. If he fails to do so he will be found guilty of misrepresentation by omission… the signer is bound by the terms of the document only if the other party believes on reasonable grounds that those terms truly express the signer’s intention.” Contracts Requiring Disclosure • When one party has special knowledge o Concept of misrepresentation also includes failure to disclose pertinent information because one of the parties has access to such information not available to the other o Party in superior position of knowledge has a duty to inform the other in order to demonstrate the risks of a proposed contract o It would be a mistake to assume that all contracts require the utmost good faith [duty owed when special measure of trust is placed in one party by another] simply because one party knows something that another doesn’t • Insurance contracts o Requires utmost good faith and full disclosure o Party seeking insurance must disclose all pertinent aspects of the risk he is asking the company to assume so they can properly adjust rate  Eg. If you have AIDS you must literally tell the insurance company, silence is not compliance! o Insurer can legally withhold insurance money to the estate or beneficiaries of if the insured person withheld such information while applying • Sale of Corporation Securities o Directors naturally know more about the company’s affairs and its future prospects than the investing public o Thus, when providing a prospectus [statement issued to inform public about new issue of share or bonds] securities statutes are strict and require sufficient details regarding the omission of pertinent information • Sale of Goods vs. Sale of Land o Caveat emptor [buyer beware] applies only to the quality of the goods, not to ownership, 4  By offering goods for sale, a
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