Chapter 9 - Representations and Terms

Question 1

Contractual Term

Answer 1

a provision in an agreement that creates a legally enforceable obligation

Question 2

Pre-Contractual Term

Answer 2

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

Question 3

Puffs

Answer 3

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

Question 4

Pre-Contractual Representation

Answer 4

“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

Question 5

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

Answer 5

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

Question 6

Misrepresentation

Answer 6

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

Question 7

Misrepresentation

Plaintiff must prove:

Answer 7

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

Question 8

Statements that are Not Actionable:

1. Opinion based on speculation

Answer 8

• 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

Question 9

Statements that are Not Actionable:

2. Statement regarding Future Intent

Answer 9

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

Question 10

Statements that are Not Actionable:

3. Statement Regarding Law

Answer 10

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

Question 11

Silence as Misrepresentation:

General Rule

Answer 11

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.

Question 12

Silence as Misrepresentation:

6 Exceptions to the General Rule

Answer 12

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

Question 13

Silence as Misrepresentation:
6 Exceptions to the General Rule

1. When silence would distort previous assertion

Answer 13

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)

Question 14

Silence as Misrepresentation:
6 Exceptions to the General Rule

2. Statement is a half-truth

Answer 14

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.

Question 15

Silence as Misrepresentation:
6 Exceptions to the General Rule

3. When the Contract requires Duty of utmost good faith

Answer 15

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.

Question 16

Silence as Misrepresentation:
6 Exceptions to the General Rule

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

Answer 16

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.

Question 17

Silence as Misrepresentation:
6 Exceptions to the General Rule

5. Statutory requirement of disclosure

Answer 17

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

Question 18

Silence as Misrepresentation:
6 Exceptions to the General Rule

6. Facts are actively concealed

Answer 18

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

Question 19

Inducement

Answer 19

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

Question 20

A misrepresentation is not actionable if:

Answer 20

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)

Question 21

Rescission

Answer 21

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

Question 22

Restitution

Answer 22

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

Question 23

Restitution:

3 Circumstances that court will not grant restitution

Answer 23

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

Question 24

Misrepresentation - Damages (Remedy)

Answer 24

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”.

Question 25

Types of Misrepresentation:

Answer 25

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

Question 26

Types of Misrepresentation:

Innocent Misrepresentation - and remedy(s)

Answer 26

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

Question 27

Types of Misrepresentation:

Negligent Misrepresentation - and remedy(s)

Answer 27

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

Question 28

Types of Misrepresentation:

Fraudulent Misrepresentation - and remedy(s)

Answer 28

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.

Question 29

Contractual Term

Answer 29

A contractual term is an enforceable obligation within contract.

Promise of future performance
Actionable breach if not fulfilled

Question 30

Express Term

Answer 30

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)

Question 31

Can the Court look at extrinsic evidence (ie. Evidence of an oral agreement prior to the formation of the contract, or, a document that was prepared during negotiation, to determine the express terms of the Contract?)

Answer 31

Generally No! - Parol Evidence Rule

Question 32

Parol Evidence Rule:

General Rule

Answer 32

The Parol Evidence Rule states that, if an agreement is written, evidence not contained within the written contract cannot be used to subtract from, vary or qualify the terms of the written agreement.

In other words, all terms of the contract are contained within the written contract, and no extrinsic evidence can be introduced into Court to vary the written contract.

Question 33

Exceptions to the Parol Evidence Rule

4 following circumstances:

Answer 33

1. To rectify or fix a mistake in a contractual document; (Typo)
2. To prove a contract was never formed or is defective;
3. To resolve ambiguities in the document;
4. To prove a document is not parties’ complete agreement;

Question 34

Collateral Contract

Answer 34

A collateral contract is a contract that independently exists alongside the main contract. It is a separate agreement one party makes in exchange for the other party’s entry into the main contract. Ie. “I’ll enter into this contract with you, if you agree that…”

A party could introduce a written agreement into Court to prove the express terms of a Contract if the written agreement may be characterized as a collateral contract.

Question 35

Contractual Interpretation Rule:

o Literal approach:

Answer 35

words are assigned their plain and ordinary meaning.

Question 36

Contractual Interpretation Rule:

o Contextual approach

Answer 36

the court will consider the intentions and surrounding circumstances considered.

Question 37

Contractual Interpretation Rule:

o Golden rule:

Answer 37

words given ordinary meaning unless result is absurdity (similar to literal approach).

Question 38

Contractual Interpretation Rule:

o Contra proferentem:

Answer 38

ambiguities interpreted against person relying on clause (meaning least favorable to the author will prevail).

Question 39

Implied Term

Answer 39

A contract may also contain implied terms and they arise by operation of law through:

common law (implied by court) or
statutory law (implied by statute)

Question 40

Terms Implied by Court

Answer 40

A court will not imply a term unless:

• a term is necessary to implement the parties’ intentions
• it is an obvious consequence of the parties’ agreement or required for the purpose of business efficacy
• it is reasonable, necessary, capable of exact formulation and clearly justified with regard to the parties’ intentions when they contracted
• it reflects a standard practice (in the industry)
• it reflects the basis of the contract’s legal characteristics

Question 41

Terms Implied by Statute

Answer 41

A Statute may also automatically import a term;
o Some implied terms are mandatory;
o Some implied terms are default terms that the parties may expressly modify/opt out of.

Question 42

Standard Form Agreements

Answer 42

Mass-produced documents - to reduce transaction costs, no need of negotiation

Potential for abuse - often written by economically dominant party, few customers actually read them

Question 43

Exclusion Clauses (or Waiver)

Answer 43

Exclusion clause (also known as limitation clause or waiver) is a contractual term, usually contained in a standard form agreement, used to exclude or limit liability

May exempt the party entirely, partially, or limit the damages

Question 44

Exclusion Clauses:

Requirements for Enforceability

Answer 44

1. Exclusion clause is clear and unambiguous. (pursuant to contra proferentem rule)
2. The affected party assented. (signature is best)
3. The affected party was given reasonable notice of the term and its effect. (Tilden Rent a Car v. Clendenning)

Question 45

Signed Standard Form Contracts

Exceptions:

Answer 45

Signature is usually proof of assent to terms
o Signer bound even if document not read
o Signer bound even if terms not understood

Possible exception if no reasonable chance to read
o i.e. Customer rushed
Possible exception of unexpected, onerous and unusual terms unless reasonable notice of such terms provided.

Question 46

Standard Form Ticket Contracts

Requirements

Answer 46

Terms are often printed on tickets and receipts

Requirements for Enforceability are the same as for regular contracts;
o Reasonable notice must occur before contract is created (sign in the parking lot)

Question 47

Boilerplate Clause

Answer 47

Standard provisions that can be re-used in various contractual settings

Question 48

Boilerplate Clause

Exclusion clause - Fundamental Breach

Answer 48

No absolute law

storing your car in garage and he damages it example

Question 49

Boilerplate Clause

Force majeure clause:

Answer 49

A term which protects parties for non-performance due to unpreventable event outside their control. You should draft this clause as broadly as possibly to include as many unpredictable events as are imaginable.

BROAD

Eg.) Shipping goods but tornado, civil war, hurricane etc.

Question 50

Boilerplate Clause

Confidentiality clauses;

Answer 50

A term which restricts disclosure and sometimes use of confidential information. Since Courts prefer information to not be restricted, you should draft this clause as narrowly as possible to apply to specific, limited information and be prepared to justify the rationale for the confidentiality clause.

NARROW

Question 51

Boilerplate Clause

Arbitration Clauses;

Answer 51

A term in which parties agree to resolve disputes through arbitration rather than litigation

Question 52

Boilerplate Clause

Jurisdiction clauses;

Answer 52

A term which predetermines the locale of the court whose laws will apply in event of legal dispute;

I.e. one party is in Brazil, the other is in Canada, their contract has a Jurisdiction clause that if a dispute arises, the parties will consent to the laws of the jurisdiction of Alberta, Canada applying.

Question 53

Boilerplate Clause

Entire Agreement clause;

Answer 53

This term stipulates, “The entire agreement is contained within the four corners of this contract”. The Parol Evidence Rule states this as well, but there are exceptions in the Parol Evidence Rule; this clause in a contract further protects a party from the other party trying to vary the contract by, for example, bringing in extrinsic, oral evidence of an agreement outside of the written contract.