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LAW 122 (616)
Chapter 9

ch. 9 -Representation and Terms .docx

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Ryerson University
Law and Business
LAW 122
Theresa Miedema

Chapter 9 – Representation and Terms - Once contract formed, there are legal effects of statements made or adopted by parties in connection with their contracts: o Statements made by parties during contract negotiation o Effect of making statements that are false o How terms can be incorporated into contract o Standard form agreements in consumer transactions, including use of plain language Pre-contractual and contractual statements • Acontractual term is a provision in an agreement that creates a legally enforceable obligation o It’s a promissory statement, meaning the person who makes it voluntarily agrees to do something in the future. o Provides a promise of future performance o Breach of contract is false o Puffs: mere sales words – no consequences o Representations – induce contract – possible consequences o Contractual promises – certain consequences  Ex. The statements you make in an offer become the terms of the contract upon acceptance • 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. o Does not impose a contractual obligation or form part of a contract o Misrepresentation is false Misrepresentation - Distinguish misrepresentations from other false statement made during contractual negotiations - If a non-contractual statement is false, the parties have made a misrepresentation - a false statement of an existing fact that causes a recipient to enter into a contract. - When a contractual statement is not fulfilled, one of the parties is in breach of contract - Distinction is impt. b/c misreps and breach of contract have diff. legal effects - Nature of misreps - false statement of fact, causes recipient to enter into contract, incorrect statement of existing fact, unlike contractual term which provides promise of future performance - Misstatement of fact o – Courts say: who is better placed to provide the relevant info? Was it reasonable to rely on the contract, or to go out and investigate? Who had better access to the info? o Not every misstatement during pre-contractual negotiations is a misrep. Misrep occurs only if speaker claims to state a fact, not an opinion (non-factual statements) which is statement of belief or judgment - personal opinion not usually misrep even if false, but risky to offer opinion if no reason to believe it is true  If an opinion is shared in a way that it makes someone thinks it must be true than it’s a misrep – offering an opinion within your area of expertise  Risky to offer an opinion if you have no reason to believe that it is actually true o Astatement of future conduct is not a statement of fact; it is a statement about a person’s future intentions.  Can be misrepresentation if it is made fraudulently or if the future conduct is described in terms of a present intention - Court may find a misrep if you inaccurately describe the consequences of a law b/c those consequences are treated as a matter of fact, rather than law. It’s not a misstep if you incorrectly tell me that zoning laws don’t apply to the property, but it is a misrep. If you inaccurately tell me that zoning approval has been granted Silence as Misrepresentations - General rule: parties not required to disclose material facts during pre-contractual negotiations no matter how unethical non-disclosure may be - For statement to be actionable as misrepresentation, deceived party must prove that false statement induced contract – statement must have mislead recipient into creating the contract - Six occasions when failure to speak will amount to misrepresentation: o When silence would distort a previous assertion – duty to update  Aparty’s silence sometimes has the effect of falsifying a previous statement or 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. Failure to do so amounts to misrepresentation o When a statement is a half-truth  Misrepresentation occurs if a party tells half the truth and remains silent on the other half.  Aparty 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. o When the contract requires a duty of utmost good faith  Contracts of utmost good faith require a party to make full disclosure of the material facts  The requirement of utmost good faith arises when one party is in a unique position to know the material facts.  Example – insurance contracts. An insurance company needs to know how much to charge for coverage and the only person who has that info is the customer so the law states that the customer must disclose all of the relevant facts.Abreach of that obligation is usually treated as a misrep that allows the insurance company to avoid the contract • Health insurance o When a special relationship exists between the parties  When the relationship between two parties is one of trust or when one of the parties has some other form of special influence over the other, a duty of disclosure may occur.  Example – if your accountant sells her cottage to a stranger, she is not obliged to share any structural defects unless the strangers asks the relevant question but she cannot remain silent if she is selling the cottage to you as you trust her on the basis of your special relationship. • Lawyers, doctors – have to disclose everything (defects) to clients unless not professional o When a statutory provision requires disclosure (pg. 212 examples)  Some statutes require the disclosure of material facts in a contractual setting.  Insurance – not disclosing relevant info, financial officers, domestic contracts o When facts are actively concealed  If a party to a contract actively conceals the truth it may be treated as a misrepresentation.  Example – if a building vendor takes steps to hide evidence of structural damage to the building, a court will consider the act of concealment as a form of misrepresentation and the sale may be rescinded on that basis. Inducement - In order to me a misrep, the false statement of fact must have induced party to enter into contract o misrep doesn’t have to be the only inducing factor.Aparty can claim relief for misrep even if other factors were also influential o misrep not actionable if:  Statement didn’t affect the recipient’s decision even if the other party made the representation with an intention to deceive  If the recipient conducted an independent inquiry into the matter - If you did any investigation and you missed something, you weren’t induced – no misrep. – you give up rights to be protected if you investigated Legal Consequences of Misrepresentation - Two possible consequences of misrepresentation, deceived party may receive: o The remedy of Rescission  Rescission – the cancellation of a contract, by the parties or the court, with the aim of restoring the parties to the greatest extent possible, to their pre-contractual state.  Difficult to know in advance if court will grant rescission b/c it’s a discretionary remedy – one that’s not available as of right – awarded on basis of the courts judgement about what is best according to the rules of reason and justice  Remedy of recession is often accompanied by an order of restitution • Restitution involves giving back and taking back on both sides – cancels or unravels contract – no contract – treated as if it never existed – parties restored to pre-contractual status if possible – one party recovers its money, supplier recovers its product o Restitution may be denied if:  Affirmation: misled party declares intention to carry out contract or otherwise act as though it is bound by it  Impossibility: parties cannot be substantially returned to pre- contractual positions – ex. paint is already used  Third parties: rights of third party impacted, makes restitution impossible to carry out o The right to damages  Damages are intended to provide monetary compensation for the losses that a person suffered as a result of relying upon a misrepresentation (breach of contract - Ch. 12, damages for misrep – tort) Types of Misrepresentations • Innocent misrepresentation – is a statement a person makes carefully and without knowledge of the fact that it is fa
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