Chapter 9 - Representations and Terms Flashcards Preview

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Flashcards in Chapter 9 - Representations and Terms Deck (53)
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Contractual Term

a provision in an agreement that creates a legally enforceable obligation


Pre-Contractual Term

a statement one party makes by words or conduct with the intention of inducing another party to enter into a contract



boastful claims (have not legal consequence) "my restaurant makes the best spaghetti in the world, and so you should buy my restaurant"


Pre-Contractual Representation

“I know you want to buy a fast car, well, my car can go up to 200km/hour in 10 seconds.” - If false, it does have legal consequence


If there is a verbal contract, use an objective test which is:

Would an objective person believe, in the circumstances, that both parties intended “it” to be a binding term in their contract?



a false statement of an existing fact that causes a recipient to enter into a contract


Plaintiff must prove:

o The defendant made a false statement of an existing fact directed at the plaintiff
o That caused or induced the plaintiff to enter into the contract


Statements that are Not Actionable:
1. Opinion based on speculation

- Statement of a belief or judgement

Eg.) You ask a friend if he recommends investing in Company X, he says yes. – Not actionable
Eg.) You ask your financial advisor to review and give advice on an investment prospect – can become statement of fact because a false expert opinion IS actionable


Statements that are Not Actionable:
2. Statement regarding Future Intent

A Statement of future conduct is not a statement of fact; it is a statement about a person's future intentions
- Description of another's future intent is non-factual, but description of one's present intent is factual

o Eg.) Your boss tells you, “you’ll make manager in 4 years.” – Not actionable
o Eg.) You’re considering a job but it’s below your skill set, but the prospective employer tells you “if you take this job, I will make you Manager in 2 years.” – can become statement of fact because future conduct expressed as statement of present intention and is actionable if it is fraudulent


Statements that are Not Actionable:
3. Statement Regarding Law

Statement of law is not factual, but statement of legal consequences is factual

o Eg.) You’re thinking of buying some land but worried about whether land has zoning to allow you to build a shopping mall. The seller says “don’t worry about it, zoning laws don’t apply here – not actionable
o Eg.) Becomes statement of fact when a false statement regarding legal consequences is made – seller has already applied for zoning approval, so you ask if he’s received approval and he says “yes” even though he hasn’t


Silence as Misrepresentation:
General Rule

The General rule: Silence will not constitute misrepresentation because parties are not required to disclose material facts during pre-contractual negotiations.

o Eg.1) I’m selling a shopping mall, I am not obliged to let the buyer know the lights in the office are burnt out, or the sidewalk is cracked.
o Eg.2) Fred is buying shares from Sam. Fred knows that the shares will go up in 6 months, but he doesn’t have to reveal this to Sam.


Silence as Misrepresentation:
6 Exceptions to the General Rule

1. Silence would distort a previous assertion;
2. A statement is a half-truth
3.The Contract being negotiated is of “utmost good faith”
4. A special relationship exists between the parties
5. A statutory provision requires disclosure, or
6. Facts are actively concealed


Silence as Misrepresentation:
6 Exceptions to the General Rule

1. When silence would distort 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 disclose the change to the other party and if they fail to do so, they could be liable for misrepresentation.

Eg.) I am selling a company to you. You have set a purchase price based on the Net Income of the company of $5 million. 3 months before the deal closes, I lose a major contract, resulting in my company’s Net Income dropping to $2 million. I must disclose this to you. (You may not wish to go through with the sale now, or you may want to re-negotiate the purchase price)


Silence as Misrepresentation:
6 Exceptions to the General Rule

2. Statement is a half-truth

You cannot give a partial account if the unspoken words would substantially alter the meaning of the actual statement

Eg.) I bring an expensive dress made of silk and ask the drycleaner, “If the dry cleaning destroys an item of clothing, do you have insurance to pay the value of the destroyed item?” The employee tells me “yes.” Unfortunately, he fails to mention that his insurance policy excludes coverage for silk items.


Silence as Misrepresentation:
6 Exceptions to the General Rule

3. When the Contract requires Duty of utmost good faith

Some contracts require a party to make full disclosure of material facts. This requirement may arise when one party is in a unique position to know the material facts. (Insurance Contracts).

Eg.) A person applying for motor vehicle insurance, who has epilepsy, must disclose this information, on the application. This is a material fact that must be disclosed.


Silence as Misrepresentation:
6 Exceptions to the General Rule

4. Special relationship of trust and confidence exists between the parties

A Trustee of an estate has an obligation to disclose all relevant information to the person for whom he acts as Trustee.

For example, you are your grandmother’s Trustee; you’re looking after her financial affairs. You have an obligation to disclose all relevant information to her regarding your management of her monies.


Silence as Misrepresentation:
6 Exceptions to the General Rule

5. Statutory requirement of disclosure

Some statutes require disclosure of material facts

Eg.) If a Director of a corporation has a personal interest in a contract that his company is entering into, he has a duty to disclose this, to the shareholders


Silence as Misrepresentation:
6 Exceptions to the General Rule

6. Facts are actively concealed

If a party to a contract actively conceals material facts, this may be considered misrepresentation.

For example, if a person selling land hides paperwork which reveals toxic contamination and the purchaser buys the land, not knowing about the contamination, this would be considered a misrepresentation on the part of the Vendor



For a statement to be actionable as misrepresentation, the deceived party must prove that the false statement induced or caused him to enter into the contract.

Misrepresentation need not be the only inducing factor, it is sufficient if it is one of many factors that induced the deceived party to enter into the contract


A misrepresentation is not actionable if:

o It did not induce, even if made with intent to deceive; or
o Recipient (would-be Plaintiff) conducts independent inquiry into the matter. - failure to investigate preclude a claim of misrepresentation (acted as if the contract was fine when there was suspicion)



Cancellation of contract with aim of restoring parties to pre-contractual state. Often accompanied by order for restitution.

Eg.) Rescission and Restitution - Cancellation of contract for buying car, and money is given back to the buyer and the car is given back to the original owner



Restitution involves a “giving back and taking back” whatever was initially exchanged pursuant to the contract


3 Circumstances that court will not grant restitution

1.) If the plaintiff affirmed the contract - plaintiff declares an intention to carry out a contract or otherwise acts as though it were bound by it. Also a lapse of time will indicate affirmation
2.) Restitution is not possible - firewood example
3.) If the rights of a third party would be affected - shopping mall sell back, but leases have already been signed


Misrepresentation - Damages (Remedy)

Damages are intended to provide monetary compensation for the losses a person has suffered, as a result for their reliance upon a misrepresentation. Claim lies in tort and not contract law.

• Damages in tort law are “backwards looking” because in tort law, the purpose of damages is to put the Plaintiff in their original position. In contrast, in contract law, the purpose is to fulfill the Plaintiff’s expectations, so it’s “forwards looking”.


Types of Misrepresentation:

1. Innocent misrepresentation
2. Negligent misrepresentation
3. Fraudulent misrepresentation


Types of Misrepresentation:
Innocent Misrepresentation - and remedy(s)

Defendant made a statement carefully and without knowledge of the fact that it is false. However, it was still false of an existing fact and that fact induced the plaintiff to enter into the contract and so it is actionable

Only remedy is Rescission and if applicable, restitution. No damages here


Types of Misrepresentation:
Negligent Misrepresentation - and remedy(s)

False statement made in an unreasonable or careless manner. Note: the Defendant made not know the statement he makes is false, but he is careless in making the statement and it induced the Plaintiff to enter into the contract

Remedies are now rescission, and if applicable, restitution, and now damages


Types of Misrepresentation:
Fraudulent Misrepresentation - and remedy(s)

A person makes a statement he knows is false or when a person makes a statement and has no honest belief in its truth, or when a person makes a statement recklessly

The remedies for a fraudulent MR are: rescission) and if appropriate, restitution) and damages. Note, too, that the courts may award not just compensatory damages but also punitive damages.


Contractual Term

A contractual term is an enforceable obligation within contract.

Promise of future performance
Actionable breach if not fulfilled


Express Term

A statement made by one of the parties that a reasonable person would believe was intended to create an enforceable obligation.

Proof can be oral agreement or written agreement (written is easier to prove)