Representations and Terms Flashcards
Statements made during the course of negotiations fall into three broad categories
- mere puffs, “sales talk”
- Representations
- construed as a term of the contract
Recession
legally voiding an agreement. Erasing both parties sets of obligations
- Each of the parties need to restore to pre- contract situation
remedy for innocent Misrepresentation
rescission
remedy for Negligent Misrepresentation
rescission (contract law), damages (tort law)
remedy for Fraudulent Misrepresentation
rescission/partial rescission + restitution (contract), damages (tort)
Test for innocent Misrepresentation
- Untrue assertion of fact, but it was not unreasonable to be true
- Assertion relates to material fact
- Second party relies on that statement
- Reasonable for them to rely on that statement
Test for fraudulent misrepresentation
- 1st party makes untrue assertion of fact
- Assertion made with knowledge of falsity or reckless disregard for whether it was true or false
- 1st party intends for 2nd party to rely on statement
- 2nd party is in fact induced to enter K in reliance upon the false representation
Redgrave v. Hurd facts
Redgrave advertised to sell his business, representing that it brought in between £400 a year when it truly grossed less than £200 - he provided a box of receipts for Hurd to review but he chose not to look at them. Hurd purchased the partnership in the law practice on the basis of this representation. However, when he discovered that the law practice was “utterly worthless” he refused to complete his payments. Redgrave sued for specific performance
Redgrave v. Hurd ratio
No due diligence requirement to investigate statements of other parties. Remedy for innocent misrepresentation only is rescission of the contract.
Smith v. Land and House Property Corp facts
Land contracted with Smith to buy the title of a Hotel. Smith say that Mr. Fleck (tenet) is a desirable tenant, in reality he was bad on paying his rent, and he went into bankruptcy. Land refuses to complete transaction — Smith tried to sue for specific performance (ie. force them to buy); Land said only reason why they entered into contract to pay is because Smith induced them into it based on misrepresentation; Land wants to rescind the contract.
Smith v. Land and House Property Corp issue
When does a statement of opinion gain factual force for the purpose of a finding there was a representation?
Smith v. Land and House Property Corp reasoning
Information imbalance -> the statement of opinion from one party who knows all the facts, to another who does not, implies the speaker knows certain facts upon which their opinion is based
Gronau v Schlamp facts
- Df vendor of an apartment building discovered, prior to sale, a serious crack in one of the walls of the building
- When advised by an engineer that repairing the crack would be quite expensive, the vendor decided to conceal the crack by covering it over with matching brick
- Pl purchaser was held entitled to rescind
Gronau v Schlamp ratio
Conduct which conceals facts may equal misrepresentation
With v O’Flanagan facts
Seller of a medical practice accurately represented the current income of the practice, but committed a misrepresentation by failing to disclose subsequently changed conditions rendering the practice worthless
With v O’Flanagan ratio
Failing to disclose change in facts may equal misrepresentation
Notts Patent Brick v Butler facts
- A purchaser of land, intending to use the property as a brickyard, asked the vendor’s solicitor whether the land was subject to any restrictive covenants.
- The solicitor responded that he was not aware of any.
- In fact, there was a covenant prohibiting its use as a brickyard
Notts Patent Brick v Butler reasoning
Court found misrepresentations because manner which it was conveyed made it seem like lawyer had made an inquiry that turned up to show no restrictions, when in reality had made no inquiry
Notts Patent Brick v Butler ratio
Half-truths may be misrepresentations
Defences to rescission
- Affirmation
- Laches
Affirmation
did the party elect to adhere or affirm the contract (by words or actions) after being put on notice of the fraud?
Laches
delay of time amounts to waiver of a right to rescission (starts from when you get notice of the fraud)
Kupchak v. Dayson Holdings Ltd facts
Kupchak bought shares of a motel from Dayson in return for 2 properties (Haro and a hotel). K took possession of the hotel and began to operate the business. K learned that representations made by D about the past earnings of the hotel were false, and stopped making payments on the mortgage. D then sold their interest in the Haro property – existing building was torn down and an apartment building was built. K brought action for rescission.
Kupchak v. Dayson Holdings Ltd issue
Is rescission for Kupchak possible?
• Does Dayson have a defence in affirmation or laches?
Kupchak v. Dayson Holdings Ltd basis for reasoning
For innocent misrepresentation - parties must be able to fully restore the other… but where fraud is concerned court will be aggressive to achieve what is “practically just” to create a ‘practical’ restoration
what happens if fraud is involved re Kupchak v. Dayson Holdings Ltd
When fraud is on the table, the deceit-ing parting can’t rely on their dealings with the property as a defence, emphasis on innocent party to return what they received
when is rescission available until for chattel
only available until the good has been accepted
when is rescission available until for real property
available until agreement has been executed
when can rescission happen for real property after the agreement has been executed?
if there was fraudulent misrepresentation, then the appellants would have an action in rescission
Collateral Warranty
A statement that constitutes a collateral contract or term tacked onto the main contract. If breached, you can sue for damages
Heilbut, Symons & Co v. Buckleton facts
- Buckleton purchased shares from an agent of HSC in a “rubber company”
- “I understand that you’re bringing out a rubber company.” “We are.”
- “Is it alright?” “We are bringing it out.” “That’s good enough for me.”
- Later, it was determined that the company had a rubber deficiency and shares fell
- Buckleton brought action for misrepresentation and breach of warranty
Heilbut, Symons & Co v. Buckleton reasoning
Warranties must be proven strictly (prove the party’s intention was for statement to be a collateral warranty) – are therefore RARE
Heilbut, Symons test for collateral warranty
affirmation at time of sale is a warranty, provided it appears on the evidence to be so intended
• Courts more inclined to use Heilbut when…
when two parties are commercial parties
Dick Bentley Productions Ltd v. Harold Smith (Motors) facts
- Bentley purchased a car from Smith, relying on the representation that it had only traveled 20,000 miles after it had been repaired
- Subsequent to the purchase it became clear that the engine had been driven much further and repairs were required
- Bentley brought an action for breach of warranty
Dick Bentley Productions Ltd v. Harold Smith (Motors) reasoning
- Applies a broader test than Holt in Helibut v Buckleton
- If a reasonable bystander would assume that a statement was to be a warranty, that will suffice
- It was intended to be acted upon, and it was in fact acted upon
Dick Bentley Productions Ltd v. Harold Smith (Motors) ratio
If a representation is made in the course of dealings for the very purpose
of inducing the other party to act on it, and it actually induces him to act on it by entering the contract then prima facie (rebuttable) presumption that representation = warranty
defence offered in Dick Bentley Productions Ltd v. Harold Smith (Motors)
If you made a mistake when u made statement to get person to enter into agreement, if you were morally innocent will hold both parties to agreement after all
what happens if a condition is breached
If a condition is breached, can reject the good (repudiate) up until the good is accepted. After acceptance can only bring an action for damages.
what happens if a warranty is breached
If a warranty is breached, can only bring an action for damages.
Leaf v. International Galleries facts
Leaf paid £85 for a painting from International Galleries which was described in the contract as “by J. Constable”. Five years later Leaf was informed that it was not a Constable. He returned the painting to Galleries and requested his money back. The gallery insisted that it was a Constable and refused to give him back his money. Leaf brought an action for rescission claiming there was innocent misrepresentation and that he paid money on reliance.
Leaf v. International Galleries issue
Is a buyer allowed to rescind a contract in equity even though it is executed?
Leaf v. International Galleries reasoning
No – term is found to be a condition, and one cannot rescind executed contract
Leaf v. International Galleries ratio
Rescission for breach of condition/innocent misrepresentation can occur only if the claim is brought before the plaintiff is deemed to have accepted the goods (ie. within 5 years)
Statutory Reform in sask and NB
all statements made by sellers to consumers, to induce sales, are treated as warranties (contractual terms)
- Consumer protection for every statement by seller to consumer - considered terms of agreement.
Hong Kong Fir Shipping facts
- HKF agreed to rent their ship to Kawasaki for 24 months
- The engine room staff was inefficient, the engines were very old, so the ship was held up for 5 weeks, and needed 15 weeks’ worth of repairs after the deal was made
- Freight rates fell, and the deal was no longer profitable for Kawasaki
- Kawasaki claimed breach of clause 3 (a condition), and repudiated the contract
Hong Kong Fir Shipping issue
Could the defendant repudiate the contract? Was clause 3 a warranty or a condition?
Hong Kong Fir Shipping finding
Clause 3 is a warranty, not a condition, so contract not repudiated
Hong Kong Fir Shipping ratio
• Consequentialist approach: ask if the breach deprives the other party of substantially whole benefit of the contract
term identified in Hong kong fir
“Innominate” / “Intermediate” terms.
what are “Innominate” / “Intermediate” terms.
With one set of facts, where the breach results in deprivation of ‘substantively the whole benefit’ of the contract, repudiation may be possible. For a different set of facts, breach only allows an action in damages.
Wickman Machine Tool Sales facts
- In the terms of the agreement, Wickman was to visit 6 of Schuler’s major clients each week for the duration (4 years), 1400 visits in total which they failed to do
- It said in the contract that this was a “condition” of the agreement
Wickman Machine Tool Salesartio
Even if contract defines term as “condition”, if interpretation of terms leads to unreasonable result, court may, where contract is unclear, adopt more reasonable reading because absurdity cannot be the intention of the parties.
Bhasin v. Hrynew issue
Is there a general duty of good faith in Canadian contract law? If so, was it breached here?
Bhasin v. Hrynew ratio
Good faith as an organizing principle -> parties generally must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily
Beckman v. Little Salmon/Carmacks First Nation facts
- The FN relinquished their claim to a vast swath of their traditional territory in exchange for compensation
- Treaty authorized the Crown to allocate grants of land within the territory to members of the public – one of these grants was approved
- The FN objected as the application process did not include consulting the FN
Beckman v. Little Salmon/Carmacks First Nation issue
Can the Crown contract out of its duty to consult?
Beckman v. Little Salmon/Carmacks First Nation finding
No – cannot contract out of duty to consult
Beckman v. Little Salmon/Carmacks First Nation ratio
There is a general contract law duty to consult, therefore the Crown cannot contract out of the duty (as it arises from sources outside the contract = relationship between Crown and FN groups), and contracts cannot displace it
Hedley Byrne facts
- HB was a company that received some advice from a bank about the “creditworthiness” of another company they were considering doing business with
- Bank said the company was “good”, so HB entered into a contract with them
- The company went bankrupt, and HB lost a lot of money
Hedley Byrne ratio
HL found there could be liability in tort for negligent misrepresentation casing peculiar loss where a “special relationship” exists between two parties.
what does Esso Petroleum show
when a pre-contractual negligent misrepresentation can found an action in tort
concurrent liability in the Canadian context
Sodd Corp v. N. Tessis
Sodd Corp v. N. Tessis facts
- Tessis, a chartered accountant, advertised sale of the stock of a furniture business which had gone bankrupt
- Sodd submitted a tender after being told by Tessis that the retail value was double the wholesale cost, which they relied upon in submitting the tender
- The contract contained a clause that there was no warranty or condition as to the quality or condition of the stock
- The stock turned out to be significantly overvalued and Sodd sued
Sodd Corp v. N. Tessis finding
Court said where the negligent misrep induces the party into the contract, the liability should flow from the Hedley Bryne and Esso cases.
• There is a special relationship = accountant and trustee in bankruptcy, which created a duty of care to Sodd
Sodd Corp v. N. Tessis finding wrt exemption clause
• Exemption clause does not apply - can’t rely on an exemption clause in a contract that you’ve induced the other side into the contract using negligent misstatements
Leading Authority in Canada – Concurrent Liability
BG Checo
BG Checo facts
BG Checo successfully bid to erect transmission towers on BC Hydro’s property. The contract said that BC Hydro would clear their land before the towers were erected, but they did not. As a result, BG Checo’s work was more difficult and expensive. They sued in breach of contract and negligent misrepresentation.
