Chapter 9 Representation and Terms.docx

6 Pages
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Department
Management (MGS)
Course Code
MGSC30H3
Professor
Professor Rybak

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Chapter 9 Representation and Terms Pre-contractual and Contractual Statements • Not every statement communicated during the negotiations process is a contractual term. A statement becomes a contractual term only if it is included in the agreement as a legally enforceable obligation. A contractual term is by its very nature, a promissory statement. The person who makes it voluntarily agrees to do something in the future. • A pre-contractual representation is a statement one party makes by words or conduct with the intention of inducing another party to enter into a contract. By definition, it does not impose a contractual obligation. Pre-CoontractuallStatemeentss Contractual Term Pre-contractual Representation (Promise of future (Statement of Existing Fact) performance) Breach of contract if Misrepresentation if false False Misrepresentation • The distinction between contractual terms and pre-contractual representations is especially important if a statement is false. • If a non-contractual statement is false, we say that one of the parties has made a misrepresentation. Where a contractual statement is not fulfilled, we say that one of the parties is in breach of contract. • This distinction is important because misrepresentation and breach of contract have different legal effects. Pre-contractual representations may result in a form of legal liability, such as actionable misrepresentation. The Nature of Misrepresentation • A misrepresentation is an incorrect statement of an existing fact. In contrast, a contractual term is not meant to describe an existing state of facts, but rather it provides a promise of future performance. Given its promissory nature, a contractual term cannot be false when it is given. Nor can a breach of contract occur as soon as such a promise is made. A breach occurs only when one of the parties fails to perform precisely as promised. • Misstatement of Fact- A misrepresentation only occurs if the speaker claimed to state a fact. The difficulty with that requirement is that people often make non-factual statements during negotiations. E.g. they sometimes state their own opinions. • A personal opinion is not usually a misrepresentation, even if it is false. There are exceptions in which it is risky to offer an opinion. If you state an opinion that leads people to think it is fact a court may find that the statement not only includes an opinion, but also an implied statement of fact that can be treated as a misrepresentation. That 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. • During pre-contractual negotiations, a person may describe how they or someone else will act in the future. A statement of future conduct is not a statement of fact. Rather, it is a statement about a person’s future intentions. Such statements are not treated as misrepresentations, however only if it is made fraudulently or if the future conduct is described in terms of a present intention. E.g. You do not intend to sell your piece of property to another customer. That statement contains an indication of your present state of mind that will be characterized as an implied statement of present fact. If it is false, it may be classified as a fraudulent misrepresentation. • We are all presumed to know the law. However, the court may find a misrepresentation if you inaccurately describe the consequences of a law, because those consequences are treated as matter of fact rather than law. • Silence as Misrepresentation- As a general fact, parties are not required to disclose material facts during pre-contractual negotiations, no matter how unethical non disclosure may be. There are at least six occasions when the failure to speak will amount to misrepresentation: o Silence distorts a previous assertion- A party’s silence sometimes has the effect of falsifying a statement that was previously true. When a change in circumstances affects the accuracy of an earlier representation, the party that made that statement has a duty to describe the change to the other party. o Statement is Half Truth- A party cannot give a partial account if the unspoken words would substantially alter the meaning of the actual statement. o Contract Requires Duty of Utmost Good Faith- Some contracts require a party to make full disclosure of the material facts. Best examples are insurance contracts. An insurance company needs to know as much as possible about the situation to assess risk of loss and how much to charge. o Special Relationship Exists Between the Parties-When the relationship between two parties is one built on trust, or when of the parties has some sort of special influence over the other, a duty of disclosure may arise. Suppose your accountant sells her cottage to a stranger. She does not need to disclose information to the purchaser about its structural defects if the purchaser does not ask relevant questions. However, she must disclose it to you because you would trust her on the basis of your special relationship. o Facts are actively Concealed- If a party to a contract actively conceals the truth it may be treated as a misrepresentation. E.g. you try to hide structural damages from the purchaser. Inducement • For a statement to be actionable as misrepresentation, the deceived party must prove that the false statement induced the contract. In other words, the statement must have misled its recipient into creating the contract. The statement does not only have to be the inducing factor. • However, a statement will not be actionable if it did not affect the recipient’s decision, even if the other party made the representation with an intention to deceive. Nor will it be actionable if the recipient conducted an independent inquiry into the matter. In that case, the contract is induced by the results of the party’s own investigation rather than the other party’s representation. Legal Consequences of Misrepresentation • The deceived party may receive: • Recission- The cancellation of a contract with the aim of restoring the parties to the greatest extent possible, to their pre-contractual state. The remedy of recission is often accompanied by an order for restitution. Restitution involves a giving back and taking back on both sides. • The victim of a misrepresentation may be barred from rescission in certain circumstances. First, if the deceived party affirmed the contract, then recission is not available. A person who is misled is said to affirm the co
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