RSM225 - Misrepresentation

Misrepresentation

• A misrepresentation is a statement that is wrong

• Must be statement of fact

• Opinions are not misrepresentations

• But expert opinions can be taken as facts

Types of Misrepresentation

• Innocent – the party making it does not realize it is untrue

• Negligent – the party making it is careless and it is untrue

Fraudulent – the party making it knows it is untrue and is trying to deceive

Effect on Contracts

The effect of the misrepresentation varies depending on what the party making the statement knows

• Can only seek rescission if aggrieved party can restore the subject matter

  • If goods have been resold, consumed or if the goods have deteriorated, the aggrieved party cannot restore them

  • Then the aggrieved party may have no remedy

If the misrepresentation is material

• Reasonably expected to influence the party hearing or reading it to enter into the contract on the specified terms

• Court will allow the party harmed by the misrepresentation to rescind (terminate) the contract

• If the misrepresentation is material and fraudulent or negligent

• Court will also allow the party harmed to recover damages against the wrongdoer

• But if innocent, have right to rescind (or money as compensation)

When does the misrepresentation become a term?

• Aggrieved party may claim the misrepresentation was a term of the contract (even if it was not written in)

• If accepted, aggrieved party can sue for breach of contract

• Term: Statement was an important inducement to enter the contract

• Aggrieved party suffered substantial loss

• Misrepresentation was made at time of entering into the agreement

• Aggrieved party must ask for rescission promptly after learning of the misrepresentation, or lose the right

• Sales of land, aggrieved party must ask for rescission of contract for before accepting title at closing

• Aggrieved party may ask for damages for expenses incurred under the contract in addition to rescission

Contracts and Duty of Utmost Good Faith

• Special Knowledge and the Duty of Utmost Good Faith

• X has superior knowledge that Y reasonably relies on that knowledge

• Relationship between the parties implies a special trust on X

• X must disclose all knowledge to Y

• Very few contracts have this duty of utmost good faith. Ex: Insurance Contracts.

Sale of Goods

• In general, the buyer has no recourse for poor quality goods

• The buyer does, however, have an implied warranty of title and can rescind (refund) if the seller does not really own the goods

Sale of Land

• In general, sellers of land need not disclose anything about the land

• If, however, there are dangerous defects in buildings, and they are not obvious, the seller must disclose them

Undue Influence

• Undue Influence: is when one person unfairly pressures or controls another person’s decisions, taking away their ability to choose freely.

  • Generally arises in situations of special relationship

  • Implications: contract is voidable.

Duress.

• Actual or threatened violence or imprisonment as a means of coercing a party to enter into a contract

  • Implications: contract is voidable.

Requirement of Writing

• In general, the fact that a contract is oral does not affect its validity

• Benefit of writing = certainty and better evidence

Statute of Frauds

• May render otherwise valid oral contracts invalid unless evidenced in writing

• May render otherwise valid oral contracts invalid unless evidenced in writing

• Applies to guarantees, land interests, and contracts lasting over a year.

Guarantees

• : A guarantee is an agreement to meet someone else's agreement to do something – usually to make a payment. 

indemnity

• An indemnity is an agreement to pay for a cost or reimburse a loss incurred by someone else. A guarantee must be in writing, unlike indemnities, which can be verbal.