Chapter 9.docx

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15 Apr 2012
Chapter 9 Representations and terms
Pre-contractual & contractual statements
Not every statement communicated during the negotiation process is a contractual
o Statement becomes a contractual term only if it is included in the agreement as a
legally enforceable obligation
It is a promissory statement
Person who makes it is voluntarily agreeing to do something in the future
Pre-contractual representation is a statement 1 party makes by words or conduct with
the intention of persuading another party to enter into a contract
o It does not impose a contractual obligation
o Although it persuade the creation of a contract but does not actually make the
o Fig 9.1 on pg 202
Difference btwn contractual term & pre-contractual representations is important if a
statement is false
If a non-contractual statement is false, we say that 1 of the parties has made a
If a contractual statement is false, we say that 1 of the parties is in a breach of contract
This difference is important cuz misrepresentation & breach of contract have different
legal effects
The nature of misrepresentation
Misrepresentation is a false statement that causes the person to enter into a contract
o The statement can be made about the past or the present
But, contractual term statements cannot be made in the present but rather it provides a
promise of future performance
o Breach of contract occurs when 1 of the parties fail to perform as promised
Misstatement of fact
o Not every misstatement during pre-contractual negotiations is a misrepresentation
o Misrepresentation happens only if the speaker claimed to state a fact
o Ppl often make non-factual statements during negotiations
o They sometimes state their own opinions
o Opinion is the statement of a belief or judgment (ex. On pg 203)
o Personal opinion is not a misrepresentation even if its false
o There r situations in which it is risky to offer an opinion
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If u say an opinion in a way that leads a person to think that it must be
true, court will say that ur statement is not only an opinion but also an
indirect statement of fact that can be a misrepresentation
It is also risky to offer an opinion if u have no reason to believe that it is
actually true (ex. On pg 203)
o During pre-contractual negotiations, a person may describe how they will act in
the future
o Statement of future conduct is not a statement of fact but it is a statement about a
person’s future intentions
These statements r not treated as misrepresentations
It is misrepresentation if it is made fraudulently or if the future conduct is
described in terms of a present intention (ex. On pg 203)
Misrepresentation does not arise only cuz u inaccurately describe a
particular law itself
But court may find a misrepresentation if u inaccurately describe the
consequences of a law (ex. On pg 204)
Concept summary 9.1 on pg 204 & Business decision 9.1 on pg 204
Silence as misrepresentation
o As a general rule, parties r not required to reveal material facts during pre-
contractual negotiations (ex. on pg 205)
o However, there r 6 occasions when the failure to speak will cause
When silence would distort a previous assertion (statement)
A party’s silence sometimes has the effect of making a statement
false that was true b4
When a change in a statement occurs, the party that made that
statement must reveal that change to other party, if they don’t,
misrepresentation can happen
When a statement is a half-truth
Misrepresentation can also occur if a party tells half the truth &
remains silent on the other half (ex. on pg 205)
When the contract requires a duty of greatest good faith
Some contracts require a party to make full revelation of the
material facts that is called contracts of utmost (greatest) good
Requirement of utmost good faith happens when 1 party is in a
unique position to know the material facts (ex. on pg 205)
When a special relationship exists btwn the parties
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When the relationship btwn 2 parties is one of trust or when 1 of
the parties has some other form of special influence over the other,
duty of revelation may happen (ex. on pg 206)
When a statutory provision (condition) requires disclosure
More on pg 206-207
When facts r actively concealed
If a party to a contract actively hides the truth, it may be treated as
a misrepresentation (ex. on pg 207)
o For a statement to be called as a misrepresentation, the deceived party must prove
that the false statement induced the contract
o The statement must have misled its receiving person into creating the contract
o Statement does not have to be the only inducing factor
A party can claim relief for misrepresentation even if other factors were
o A statement will not be called misrepresentation if it did not affect the receiving
person’s decision, even if the other party made the statement with an intention to
It will also not be misleading if the receiving person performed an
independent inquiry into the matter
o You Be the Judge 9.1 on pg 207
Legal consequences of misrepresentation
There r 2 possible consequences of an actionable misrepresentation
Remedy of recession
o Recession 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
o Remedy is awarded on the basis of the court’s judgment about what is best
according to the rules of reason & justice
o Remedy of rescission is accompanied by an order for restitution
Restitution involves a giving back on both sides (ex. on pg 208)
o Victim of misrepresentation may be stopped from rescission in certain situation
First, if the misled party affirmed the contract then rescission is not
Affirmation occurs when the misled party declares an intention to
carry out the contract or act as it follows the contract’s rules (ex.
on pg 209)
Second, rescission may be stopped if restitution is impossible
If the parties cannot be returned to their pre-contractual position, a
court will not grant rescission (ex. on pg 209)
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