Law 122 Chapter 9
Pre Contractual and Contractual Statements.
• Contractual term: Is a provision in an agreement that creates a legally
enforceable obligation. When a contractual statement is not fulfilled then that
party is in breach of contract.
• A pre contractual obligation: Is a statement one party makes by words or
conduct with the intention of inducing another party to enter into a contract.
• Misrepresentation: is a false statement of fact that causes the recipient to enter
into a contract. Misrepresentation may result in a form of legal liability but not in
an action for breach of contract.
• Non factual statements that are not a form of misrepresentation:
An Opinion: is the statement of a belief or judgment.
A statement of future conduct: Is not a statement of fact as it is only an
indication of a persons future intentions.
A statement of law
• Factual Statements
Description of ones present intent
Statement of legal consequences.
• Silence as misprepresentaion: As a general rule parties are not required to
disclose material facts during precontractual negotiations. There are however six
occasions when the failure to speak will amount to misrepresentation.
1. When silence would distort a previous assertion: When a change in
circumstances affects the accuracy of an earlier representation, the party
that made the statement has the duty to disclose the change to the other
2. When a statement is a half truth: When a party tells half the truth and
remains silent for the other half.
3. When the contract requires the duty of utmost good faith: Some
contracts require to make full disclosure of the material facts.
4. When a special relationship exists between the parties: When the
relationship between the 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 arise.
5. When a statutory provision requires disclosure: Some statutes require
the disclosure of material facts in a contractual setting.
6. When facts are actively concealed: If a party to a contract actively hides
the truth it may be treated as a misrepresentation.
• Inducement: For a statement to be actionable as a misrepresentation, the
deceived party must prove that the false statement induced the contract. The statement must have mislead the recipient into creating the contract. The
statement does not have to be the only inducing factor.
The legal consequences of misrepresentation
• The remedy of rescission
Rescission: is 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. However it is hard to know in advance whether a court will
grant rescission because is is a discretionary remedy and one that is not
available as a right.
Restitution: Involves a giving back on both sides.
Rescission is not available if
Affirmation: Occurs when the misled party declares an intention to
carry out the contract or otherwise acts as though it is bound by it.
Rescission may be barred if restitution is impossible.
Rescission may be unavailable if it effects a third party.
• The right to damages: are intended to provide monetary compensation for the
losses that a person suffered as a result of relying upon a misrepresentation.
Types of Misrepresentation
• An innocent misrepresentation: is a statement a person makes carefully and
without knowledge of the fact that it is false.
Possible remedy: Rescission
False statement of fact or misleading silence
• Negligent misrepresentation: is a false, inducing statement made in an
unreasonable or careless manner.
Possible remedy: Rescission and damages in tort
Made in an unreasonable and careless manner
Inducing a contract
Causing a loss not always sufficiently remedied by recission
• A Fraudulent misrepresentation: Occurs when a person makes a statement they
know is false or they have no reason to believe is true or that is reckless.
Possible Remedies: Rescission and damages in tort
False statement or misleading silence