(Chapter 9, p. 208-230)
PRE-CONTRACTUALAND CONTRACTUAL STATEMENTS
Not every statement communicated during the negotiation process is a contractual term.
CONTRACTUAL TERM is a provision in an agreement that creates a legally enforceable
obligation. It is a promissory statement, the person who makes it voluntarily agrees to do
something in the future.
PRE-CONTRACTUAL R EPRESENTATIONis a statement one party makes by words or conduct with
the intention of inducing another party to enter into a contract. It does not impose a contractual
obligation although it may induce the creation of a contract, it does not form part of that contract.
If a non-contractual statement is false, the parties has made a misrepresentation. When a
contractual statement is not fulfilled, we say that one of the parties is in breach of contract.
Misrepresentation and breach of contract have different legal effects. Pre-contractual
representations may result in a form of legal liability (actionable misrepresentation, but not in an
action for breach of contract).
THE NATURE OFM ISREPRESENTATION
M ISREPRESENTATIOis false statement of an existing fact that causes a recipient to enter into
Misstatement of Fact
Not every misstatement during pre-contractual negotiations is a misrepresentation. A
misrepresentation occurs only if the speaker claimed to PINIONis the statement of
a belief or judgment (IE: Offering an opinion when they estimate potential future revenue of
incoming-earning property). Opinions can range from carefree speculations to deliberate
assessments based on a substantial body of evidence. A personal opinion is not usually a misrepresentation, even if it is false. Some situations in
which it is risky to offer an opinion: state an opinion in a way that leads me to think that it must
be true. A court may find that your statement includes not only an opinion, but also an implied
statement of fact that can be treated as misinterpretation. It is true especially if you offer an
opinion within your area of expertise. It is also risky to offer an opinion if you have no reason
to believe that it is actually true.
FUTURE C ONDUCT is not a statement of fact; it is a statement about a person’s future intentions.
It is not usually treated as misrepresentations. A statement of future conduct is a
misrepresentation if it is made fraudulent or if the future conduct is described in terms of a
present intention (IE: I certainly do not intend to sell the neighboring land to Herb’s Sewage
Treatment Facility. This statement contains an indication of your present state of mind. If it is
false, it may be classified as a fraudulent misrepresentation).
A misrepresentation does not arise if you inaccurately describe a particular law itself. However,
the court may find misrepresentation if you inaccurately describe the consequences of a law -
because it is treated as matter of fact rather than matter of law (IE: Incorrectly telling zoning
laws do not apply to property = matter of law, inaccurately telling that zoning approval has been
granted and would be able to develop the land).
Types of Pre-Contractual Statements Inducing Contracts
Non-Factual Statements Factual Statements
(non-actionable as misrepresentation) (actionable as misrepresentation)
Opinion based on speculation Expert opinion
Description of another’s future intent Description of one’s present intent
Statement of law Statement of legal consequences
Silence of Misrepresentation
Parties are not required to disclose material facts during pre-contractual negotiations, no matter
how unethical non-disclosure may be. There are 6 occasions when failure to speak will amount
• When silence would distort a previous assertion
o When a change in circumstances affect accuracy of an earlier representation, the
party that made that statement has to disclose the change to the other party
• When a statement is a half-truth
o Despite the right to remain silent, a party 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
• When the contract requires a duty of utmost good faith
o Some contracts require a party to make full disclosure of the material facts
o Insurance contracts, in order to assess the risk that a particular type of loss might
occur, to determine charge for coverage, insurance company needs to know as
much as possible about situation
• When a special relationship exists between the parties
o When relationship between parties is one of trust, or when a party has some form
of special influence , duty of disclosure may arise
o Accountant selling cottage, if to stranger, not obliged to disclose about structural
defects if the purchaser does not ask relevant questions o But she cannot remain silent if she is selling it to you because there is trust in
• When a statutory provision requires disclosure
o Insurance legislation
o Financial officers have a duty to disclose material facts
o Provincial legislation regulating the formation of domestic contracts
• When facts are actively concealed
o If a party to a contract actively conceals the truth it may be treated as a
o Building vendor takes steps to hide evidence of structural damage
For a statement to be actionable as a misrepresentation, deceived party must prove that the
false statement induced the contract. The statement must have misled its recipient into creating
the contract. A party can claim relief for misrepresentation even if other factors were also
influential. However, a statement will not be actionable if it did not affect the recipient’s decision.
Nor will a statement be actionable if the recipient conducted an independent inquiry into the
matter. In that situation, the contract is induced by the results of the party’s own investigation,
rather than the other party’s representation.
THE L EGAL CONSEQUENCES OF M ISREPRESENTATION
2 possible consequences of an actionable misrepresentation. The deceived party may receive:
• Remedy of rescission
• Right to damages
R ESCISSIONis 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. It is difficult to know
whether a court will grant rescission because it is a discretionary remedy.
R ESTITUTIONinvolves a giving back and taking back on both sides (IE: Waterproof paints to sell,
it is not waterproof. Restitution will try to restore pre-contractual situation by allowing you to
recover money at same time it allows supplier to recover paint). Victim of misrepresentation
may be barred from rescission in certain circumstances:
• AFFIRMATION occurs when the misled party declares an intention to carry out the
contract or otherwise acts as though it were bound by it (IE: First shipment of not
waterproof, do nothing until second shipment 6 months later, time of 6 month lapse of
time suggests you affirmed the contract)
• If restitution is impossible, if parties cannot be substantially returned to their pre-
contractual positions (the more that’s been done under contract, less likely a court to
• If it would affect a third party
D AMAGES are intended to provide monetary compensation for the losses that a person suffered
as a result of relying upon a misrepresentation.
TYPES OF MISREPRESENTATION
INNOCENT MISREPRESENTATION is a statement a person makes carefully and without knowledge
of the fact that it is false. General rule is deceived party is not entitled to recover damages, only remedy available is rescission, and rescission is available only when there is a substantial
difference between what the deceived party had bargained for and what was obtained.
Elements of proof: false statement of fact or misleading silence, rescission of contract.
Available remedies: inducing contract.
NEGLIGENT MISREPRESENTATION is a false, inducing statement made in an unreasonable or