Transcript Contracts - schuettlaw

University of Calgary Continuing Education
Construction
Contract
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Week 3 Leftovers
Representations
A representation is a statement, spoken or written, at
the time the contract was being finalized.
A representation may end up being a term but not
necessarily.
The difference between a statement that ends up as
a term and a representation has to do with the intent
of the person making the statement.
If the intent is that the statement will be enforceable
by the contract, then the statement is a term.
Otherwise, the statement is considered to be made
to induce the formation of the contract.
Representations
An example might be, “On all our past projects, all
deficiencies were completed within 90 days of final
completion.”
Here, the speaker was making a statement about his
past work performance; this could be either a “puff”
or a representation depending on the context in
which it was offered.
If he added: “We will do the same on your project”
then this would certainly be a representation unless
the statement ended up in the contract.
Then it would be a term.
Certainty of Terms
The terms of an agreement must be clear and
unequivocal.
The courts will give the literal meaning to the words
in the agreement and will not look beyond them.
In the case of a oral agreement, more latitude is
given to the type of evidence that is considered.
Certainty of Terms
For example, if a person offers to sell an object to 2
different people at a certain price and one person
accepts the offer and there is, later, a question as to
whether the condition of the object when it was sold
was a term of the sale, the evidence of the other
potential purchaser might be allowed by the court.
Parol Evidence Rule
As a rule, if a contract is in writing, no oral (Parol)
evidence is permitted to clarify the intentions of the
parties at the time of contracting.
The written agreement is deemed to be the entire
agreement unless it says otherwise.
Some contracts include specific wording to this effect,
so as to eliminate any possible misunderstanding.
Parol Evidence Rule
If there is a question of the meaning of a contract – for example
an ambiguity – the court will determine the meaning by taking a
literal interpretation of the words in the agreement unless such
an interpretation would lead to uncertainty, an absurdity or an
injustice and the text was unambiguous and grammatically
correct.
If there still remains an ambiguity, it will be resolved against the
author of the agreement.
This is a generalization and should not be relied upon strictly
but describes the way courts will probably deal with this type of
situation.
Contract Avoidance and
Rescission
When is a contract not a contract?
When can a contract be reversed?
These are two common questions posed to lawyers
by clients – generally when the client finds
himself/herself in a bad deal.
Contract Avoidance and
Rescission
Misrepresentation


One of the most common situations where one wants out of
a contract is the situation when a party feels that they have
been misled.
The remedy that is offered to the contracting party depends
on the nature of the misrepresentation.
Misrepresentation
Joe, wants to sell his used car to Harry.
He shows the car, which has 110,000Km on the
odometer, to Harry.
Joe tells Harry that he wasn’t the original owner but
the mileage when he (Joe) bought it was 40,000km
and the previous owner had been an old lady who
used it to go to church every week.
Harry buys the car.
Misrepresentation
After a month he takes it to the original car dealer for an oil
change.
While there the mechanic asks about Alice.
“Who is Alice?” says Harry.
“Alice is the cab driver who used to own this car before some
guy named Joe bought it.” said the mechanic.
Subsequently, Harry found out, through checking the dealer’s
records, that Alice put 200,000km on the car before selling it.
Apparently, Alice used to do a lot of her own repairs and had
replaced the speedometer at one time.
Alice had always kept her cars spotless.
What can Harry do?
Misrepresentation
Since the mileage on the car was not a term of the
contract, there was no term of the contract that was
violated.
The mileage on the car was important to Harry when
he bought the car and the statement regarding
mileage was made with the intention to induce the
sale of the vehicle.
Thus, there was a representation; however, the
representation was false.
Misrepresentation
There are three kinds of misrepresentation:



innocent misrepresentation,
negligent misrepresentation and
fraudulent misrepresentation.
Innocent Misrepresentation
In the above example, if Joe had received his
information from the old lady, Alice, who looked the
part, and accepted the information at face value,
there was no intent to misrepresent the facts.
Further, Joe had no particular obligation to search out
the facts about the mileage.
This is an innocent misrepresentation and occurs
when the person making the representation has
reasonable grounds for believing the truth of the
information that he is imparting.
Negligent Misrepresentation
Before the sale was finalized, Harry asked Joe to verify the
mileage on the car by checking again on the prior owner
because Harry thought the stated mileage was way too low.
Harry said that if the mileage checked out he would proceed
with the sale.
Joe thought Harry was being foolish and didn’t bother to do any
checking even though he knew that the car had always been
repaired at the dealer.
Joe simply looked at the wear and tear on the interior, which
seemed consistent with a low mileage car.
Joe reported to Harry that he had checked and the mileage was
correct.
Negligent Misrepresentation
Here, we have negligent misrepresentation.
Joe undertook to find out some information for Harry
and, by virtue of that, entered into a “special
relationship” with Harry.
By failing to use reasonable efforts to find out the
information, Joe was negligent and, by making the
statement confirming the mileage without checking,
Joe made a negligent misrepresentation.
Fraudulent Misrepresentation
After the sale was complete, Harry did some more
checking and found out that Joe and Alice were
running an ongoing scam where Alice bought old
taxis, cleaned them up, replaced their odometers and
sold them through Joe.
This is a case of fraudulent misrepresentation since
Joe, knowingly, passed on false information that was
relied on by Harry when he purchased the car.
Fraudulent Misrepresentation
“A fraudulent misrepresentation consists of a
representation of fact made without any belief in its
truth, with the intent that the person to whom it is
made shall act upon it and actually causing that
person to act upon it.”
Fraudulent Misrepresentation
Note that there are specific requirements to show
fraudulent misrepresentation.

There must be a positive misstatement of fact.
 Thus, a statement of opinion cannot lead to fraudulent
misrepresentation.
 Similarly, the courts deem that everyone knows the law so no
fraudulent misrepresentation can be found where a
representation as to the law occurs.
Fraudulent Misrepresentation

There can be no belief in the information being represented.
 “The misstatement must be made dishonestly or recklessly,
with lack of belief in its truth.”
 Thus, an honest but mistaken statement cannot be considered
fraudulent.
Fraudulent Misrepresentation

There must be intent that the person hearing the
representation should act and the information being
imparted was important to the decision to act.
Fraudulent Misrepresentation

The person hearing the representation must act.
Remedies For Misrepresentation
The contractual remedies pertaining to each type of
misrepresentation are:

Innocent misrepresentation:
 Here the victim may rescind the contract – it will be found
never to have existed and the parties will be restored to their
original situation.
 The victim may be able to get some indemnity and will restore
any benefits received by the contract. Note that damages
cannot be claimed for a wholly innocent misrepresentation.
Remedies For Misrepresentation

Negligent misrepresentation:
 Here a victim may rescind the contract or seek damages
resulting from the misrepresentation.
Remedies For Misrepresentation

Fraudulent Misrepresentation:
 A contract induced by fraud is voidable at the election of the
victim.
 Damages may be awarded to the innocent party and can
include all losses flowing directly from the avoided transaction.
 Rescission may be granted but this remedy is discretionary.
Bars To Rescission
As was noted above, rescission attempts to restore
the parties to the situation existing prior to the
formation of the contract.
Ideally, it would appear as if the contract never
existed.
However, there are certain events which prevent
rescission.
Bars To Rescission
Affirmation of Contract:

If the innocent party, with the full knowledge of the
misrepresentation, specifically affirms the contract or
continues with the performance of the contact for a period
which would amount to affirmation of the contract.
Bars To Rescission
Impossibility


If it is impossible to restore the parties to their original
status, there is no rescission.
For example, if a mine was sold and worked for a
considerable period, rescission would not be possible since
the contents of the mine would have been substantially
altered.
Bars To Rescission
Third Party Involvement

In a case where a 3rd party has acquired rights, for value, it
will be impossible to rescind the original contract.
Mistake
Consider the situation where Pete buys a house
located in Edmonton from Fred as an investment.
Both parties proceed on the transaction and conclude
the contract at 10:00am Friday morning.
However, unknown to both parties, the house burned
down Thursday night.
Here both parties to the contact were mistaken.
Is it just that such a contract would remain in effect.
Mistake
Fundamental to a contract is the parties agreeing with respect
to the terms and conditions.
There must be consensus ad idem.
In common law, only an error, which is fundamental – going to
the root of the contract, is sufficient to determine that a
contract is void.
A mistake that affected the intention to contract rather than the
motivation for contracting would generate relief.
The approach taken in equity is somewhat different and would
permit relief for the latter type of mistake by permitting the
contract to be voidable.
The law regarding mistake is somewhat complex and is beyond
the scope of this course.