#9050 - Law Of Misrepresentation And Recission - Contracts Law

TOPIC 1: LAW OF MISREPRESENTATION AND RECISSION

Misrepresentation: a pre-contractual, false statement of material fact, which induces the other party to enter into contractual relations (NOT AN OPINION). A misrepresentation happens in the negotiations in the lead up to a contract. Its remedy is recission.

TO BE ACTIONABLE, SEE TEST: 1) Was the statement one of material fact or merely an opinion? (Must be material fact) 2) The statement must be false 3) must have induced PL to enter into K

Distinction: There is a difference between a pre-contractual statement and a contractual term. A pre-contractual statement may or may not find its way into a contract, whereas a contractual term is rooted in promise and is breached if not fulfilled. Assessing an opinion depends on reliance and expertise (there is no duty to investigate a material fact).

Examples

• Reliance on a material fact coming from an expert = misrepresentation

• Situations where individual can decide on merit of statement = opinion

TYPES

Innocent: misrepresentation of fact in which someone honestly believes it to be true but later discovers that it was a falsity after the contract has been created. No knowledge or carelessness.

Remedy: recission

Fraudulent: making a statement one knows to be false or recklessly without regard for the truth

Remedy: recission and damages in tort (of deceit)

Negligent misrepresentation: statement made in careless disregard of facts (can be professional or non-professional setting). One should have known better in this case.

Remedy: Recission and damages

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The differences among the three have varying rules and remedies accompanying them. Recission is not available in either case of innocence or fraud where the party has affirmed the contract such that recission is impossible or they’ve waited too long.

Recission = puts parties back into position they would have been in had K not been created. It is the discharge of a duty under a contract or the setting aside of a contract (equitable remedy).

General Rule: Silence is not misrepresentation. Exceptions: 1) situation of utmost good faith where disclosure is required (City of Ottawa v Firefighter in which functionally blind applicant did not disclose disability but chief discovered or with insurance), 2) special relationship of trust (ex. fiduciary relationship) 3) statutory requirement (Ex. family law). Moreover, if a true representation is followed by a change in circumstances prior to agreement which renders the agreement false, there is a duty to draw change to other party’s attention (With v O’Flanagan 1936).

Dichotomy between Misrepresentation and Opinion

• misrepresentation is not a prediction of future unless prediction contains a fact (ex. I will be manager in 5 years even though I’m retired)

• A misrepresentation is not a statement of law (ex. zoning permission not required)