Chapter 9 Representations and Terms

REVIEW QUESTIONS
1. A pre-contractual representation is designed to induce another party to enter into a
contract but it does not form part of the contract itself. For example, someone says, if
you paint the exterior of my house, my neighbours are sure to admire your work and will
hire you to paint their houses. The individual who makes this statement is not legally
obligated to ensure that his neighbours employ the painter. He simply made a statement
that was designed to encourage the other party to enter into an agreement. A contractual
term is a promissory statement intended to specify a legally enforceable obligation, for
example, I promise to pay you $100 if you paint the exterior of my house. The
individual who makes such a promise is legally obligated to pay the painter $100 as per
the terms of their agreement.

The distinction is important because of the different consequences that result when such
statements turn out to be false. When a pre-contractual representation turns out to be
false, the law of misrepresentation applies. When a contractual statement turns out to be
false, the rules for breach of contract apply.

2. A misrepresentation is a false statement of fact inducing a contract. As there is no

fault element built into the definition, a person can make a misrepresentation without
knowing that they have spoken falsely. In order to prove misrepresentation one must be
able to demonstrate that the recipient of the statement relied on it and entered into the
contract as a result of it.

3. An opinion is a statement of belief or judgment; often it looks to the future. By contrast a

statement of fact is about something that already exists, and therefore refers to the past or the
present.

4. If a negotiating party only tells part of the truth about a situation or topic the
half-truth may be treated as a misrepresentation. This is because only telling part of the
truth can mislead the other party into thinking they have full information when in fact
some of the relevant information may be concealed from them.

5. The person can make explicit statements that they do not intend to be bound by
the contract. The person should not delay in making it clear that they do not intend to be
bound by the contract or in seeking to get out of it.

6. You would seek restitution when you want to get back whatever you gave to the other
party as part of your contract. This remedy attempts to restore the parties to their precontractual
positions.

7. Rescission is a discretionary remedy available only to courts of equitable

jurisdiction. It is a giving back and a taking back on both sides, aiming to restore parties

9-1
Copyright 2014 Pearson Canada Inc.
 Chapter 9 Representations and Terms

to their pre-contractual state. If such a restoration has become impossible, the courts are
unlikely to make an order for rescission. Rescission differs from repudiation in that
repudiation is a self-help remedy in which one of the parties announces that it no longer
intends to be bound by the contract.

8. Rescission is often accompanied by an order for restitution. Restitution is

unavailable in situations where:
the party claiming misrepresentation has affirmed the contract either through
words or conduct
restitution has become impossible due to some irrevocable change in the subject
matter of the contract, for example where a house has been extensively renovated
or a car has been crashed
the rights of an innocent third party will be negatively affected

The common thread that ties these circumstances together is that for some reason the
giving back and taking back to return the parties to their pre-contractual positions
would create an unfair result. As an equitable remedy, courts will be hesitant to order
rescission where the results would be unfair. For example, once you have affirmed a
contract, the other party will rely on your affirmation and arrange their affairs in a certain
way. To order restitution would require that party to default on other business deals in a
manner that affects third parties.

9. An express term is a contractual term that can be reasonably understood as having

been intended by both parties to result in a legally enforceable obligation. It can be
difficult to determine the meaning of an express term because of the inherent ambiguities
of language. Parties can disagree as to what certain terms mean. For example, an
individual may have intended to use the word in its ordinary meaning while the other
party believed that the word was being used in a particular context.

10. Parol evidence is evidence of the parties intentions that is not contained within
the four corners of the document. Once a document has been reduced to writing, oral
evidence is not allowed to be given so as to add or subtract from, or in any manner to
vary or qualify, the written contract.

Business people are advised to understand the parol evidence rule because it is common
to sign a written agreement on the assurance that certain terms included in the document
will not be enforced or on the assurance that certain terms discussed during negotiations
are part of the deal even though they are not included in the written document.

11. If two contracting parties wish to change the terms of a standard contract they
should enter into a collateral contract and it should be in writing. They should not rely on
verbal assurances that certain provisions in the standard form contract will not form part
of the contract because an oral contract will be caught by the parol evidence rule and the
parties will not be able to rely on the verbal assurances. The collateral contract is a
separate agreement made by one party in exchange for the other partys agreement to
enter into the main contract. It operates independently alongside the main contract.

9-2
Copyright 2014 Pearson Canada Inc.
 Chapter 9 Representations and Terms

12. A contractual term is ambiguous when it can be assigned more than one meaning
and the parties disagree as to which of the meanings was intended. These types of
disputes are often resolved through the courts application of several rules of
interpretation, including: the literal approach, the contextual approach, the contra
proferentem rule, and the golden rule of interpretation.

13. A literal approach focuses on the ordinary meaning of the words used within the contract.
This approach to interpretation will be preferred when the contract reflects the parties agreement
without the need for attributing any special meaning to the parties. By contrast, a contextual
approach goes beyond the four corners of the contract and looks at the context in which the
contract was drafted. This would be the preferred approach if the contract contains terms that
have special meaning to the parties.

14. The golden rule dictates that words be given their plain, ordinary meaning unless
doing so would result in absurdity. The golden rule favours the literal approach to
interpretation, but never at the expense of reason. If the ordinary use of words makes no
sense in a particular context, the golden rule says that the context must be taken into
account in assigning a reasonable understanding of the words in dispute.

15. The contra proferentem rule ensures that the meaning least favourable to the
drafter of the provision will prevail. The rule is aimed at getting parties to set out their
contractual intentions as unambiguously as possible. It also has the effect of motivating
the drafter to be as clear as possible because, should they ever end up in a dispute, the
court will side with the non-drafting party.

16. No matter how careful parties are, it is impossible to address every scenario in a contract.
Implied terms are often required to bring a contract in line with the intentions of the parties.

17. Courts will find an implied term is necessary when it is an obvious consequence
of the agreement made by the parties, where business efficacy requires it, where such a
term has become customary, or where justice demands it. Courts are often hesitant to
imply terms when those terms are not within the reasonable expectations of both parties.
It is not generally for the courts to rewrite contracts. Their job is to interpret them.

18. The standard form contract has gained increasing significance in modern
commercial transactions as more and more businesses turn to them to save money and
increase efficiency. By setting out the agreement in a standard form, businesses are able
to reduce the transactions costs generated by lengthy negotiations, carefully choosing
terms that limit the business liability exposure to an acceptable level. These savings can
be passed along to consumers. The downside of this is that consumers are in a weaker
position when it comes to negotiating the terms of a contract.

9-3
Copyright 2014 Pearson Canada Inc.
 Chapter 9 Representations and Terms

A business can more directly limit its potential liability by including an exclusion clause
in its standard form contract. In order to be most effective, the clause should be drafted in
clear, unambiguous language. It should give reasonable notice of the exclusion clause to
the party signing the contract. Depending on the clause reasonable notice may range from
giving the other party sufficient time to read the terms if they choose to do so to explicitly
drawing it to their attention. Finally, it should have the other party sign the form as this is
the best evidence that the party knew of the clause and agreed that it would form part of
the agreement.

19. The company needs to give reasonable notice. If possible, it is best to have a company
representative provide notice at the point of sale. Where this is not possible, it could do so
through signage, bright colourful printing to draw attention, borders, highlighted and large font,
etc.

20. A boilerplate clause is a clause that is used repeatedly and without variation in
contracts. Often the goal of using a boilerplate clause is business efficacy. If it is used
without problems over a long period of time then there is a greater chance that it is a good
clause to include because it can stand up to potential legal or interpretational challenges.
It can serve to quickly and efficiently allocate risk and can limit exposure to legal
liability.

CASES AND PROBLEMS

1. (a) Although it is difficult to say for sure without additional context, this
statement appears to be a pre-contractual representation. Seymour is stating it as though it
is a fact and the statement is meant to induce a contract. Since the statement is not
promissory in nature it is doubtful that it will form part of the contract.

(b) Seymour makes this statement in the form of a mere opinion. As such, it
will not be treated as a pre-contractual representation. Thus, even if the opinion induces a
contract, it will not be actionable as misrepresentation.

(c) As a statement of fact, this will likely be understood as pre-contractual

representation intended to induce the contract. If it proves false, it will be actionable
misrepresentation so long as its recipient relied on it when entering into the contract.

(d) This statement is likely a collateral warranty. Although it is promissory in

nature, the promise goes to a matter external to the original contract of sale.

(e) This statement fits into none of the above categories. It is neither a
statement of fact nor a promise to perform upon the fulfillment of some condition. The
statement is mere sales talk or, as contracts lawyers sometimes call it, a puff. This
example will test students on their understanding of contract formation.

2. The dealers statement was a half-truth that could meet the threshold for
misrepresentation. For Shawna and Sheila to succeed they will need to prove that the
statement was one of fact (and not opinion) and that it induced them to enter into the

9-4
Copyright 2014 Pearson Canada Inc.
 Chapter 9 Representations and Terms

contract. That is, they will need to convince the court that they would not have purchased
the truck if they had known about the full extent of the damage. The trial judge accepted
that the plaintiffs reasonably relied on the dealers statement about the damages, and held
that once the dealer undertook to make a statement about how much damage there was,
he had an obligation to make reasonable inquiries to find out whether he had the correct
information. To fail to do so was negligent in the circumstances.

Usually, the contractual remedy for misrepresentation is rescission (aiming to put the
parties back into their pre-contractual states). The difficulty in this case is that the parties
cannot be returned to their pre-contractual state, since the plaintiffs ditched the truck and
put a number of kilometres on it. Consequently Shawna and Sheila should seek damages,
which would most likely be assessed as the difference in the value of the truck they
bought against the value of the same truck without the prior damage.

[Based on Brook v. Wheaton Pacific Pontiac Buick GMC Ltd. (1997), 1997 CarswellBC
1035 (B.C. S.C.) reversed in part on other grounds (2000), [2000] B.C.J. No. 1045
(BCCA) which is discussed below in Case Briefs.]

3. Contracts of insurance fall into the category of contracts uberrimae fidei. This
class of contracts is such that the insured owes a duty of utmost good faith to disclose
various facts if known whether or not an inquiry was made. Without the disclosure of
such facts, insurers would not be able to determine the insurable risk of their policy
holders. Marias failure to disclose several of these items, when she had relevant
information. renders the policy unenforceable. Although Peace of Mind could have
requested more complete documentation before signing the agreement, it was not obliged
to do so because of Marias duty of good faith.

The original contract will not stand. If Peace of Mind was induced to enter into the
contract on the basis of Marias breach of her duty to disclose, it should be in a position
to seek rescission from the courts and thereby avoid the contract altogether.

[Based on Silva v. Sizoo (1997), [1999] I.L.R. I-3682, [1997] O.J. No. 4910, 50 C.C.L.I.
(2d) 293, 1997 CarswellOnt 4677 (Ont. Gen. Div.), discussed below in Case Briefs.]

4. In the actual case upon which this question is based, the court concluded that the
advertisement contained statements of fact and not merely a statement of opinion. Statements
that the companys method had the capacity to cause loss of fat in 90 minutes and to bring
guaranteed results can certainly be seen as statements of fact. However, even if this were a
statement of opinion, the unhappy customers may still be successful in suing the company on the
basis that it includes an implied statement of fact that induced them into buying the product. The
way the statement is presented, particularly the inclusion of a guarantee, could lead customers to
think that it must be true. As a seller of products focused on fat-loss, a court may see the
statement as within the companys area of expertise and decide that it was reasonable for
customers to rely on it.

9-5
Copyright 2014 Pearson Canada Inc.
 Chapter 9 Representations and Terms

Replacing RESULTS GUARANTEED with RESULTS MAY VARY or RESULTS NOT

GUARANTEED, in addition to removing You get and stating simply Sensational results in
90 minutes would help reduce the risk associated with a product that might not work for all
customers. As noted in the Case Briefs section, the court in this case also focused on the meaning
of fat to determine that the statements regarding the capacity to cause loss of fat were false.
It is important to ensure the accuracy of purported or implied statements of fact.

[Based on the case: R v Contour Slim Ltd. - [1972] OJ No 782, 9 CCC (2d) 482, 9 CPR
(2d) 107, discussed below in Case Briefs]

5. If Shirley had not discovered the water issues immediately upon taking possession
then rescission might be granted. However, as the facts are explained, even though she
ran into troubles with the water supply right away, she continued to farm throughout the
year, and even dug extra wells. By delaying before speaking to a lawyer it may be that a
court will decide that she affirmed the contract. Affirmation occurs where the misled
party acts as though they are bound by the contract. If a court does not find Shirleys
delay to be an affirmation of the contract then rescission may be available, assuming that
the property is still in more or less the same condition as when Shirley took possession.
This will come down to a question of whether or not Shirley having dug the extra wells
has altered the property to the point that it is substantially different. If, however, Shirley
had paved over part of the property, then rescission will almost certainly be unavailable
because the property is so substantially altered. In that situation, Mike may have to pay
damages for his misrepresentation, most likely based on the difference in value (at the
time of the sale) between a property with reliable water and one without..

[Based on Shortt v MacLennan [1959] SCR 3, 16 DLR (2d) 161 which is discussed
below in Case Briefs]

6. Clause 4 of the agreement stipulates a writing requirement in order to restrict Take

Care Tankers freedom to determine for itself how best to handle and transport goods. At
issue in this case is whether this writing requirement is binding. The issue can only be
solved by determining whether parol evidence can be used to modify the writing
requirement found in Clause 4. In other words, can the court take into account the
telephoned instructions to store the machines below deck? Although there is a general
rule against the use of parol evidence for contracts in writing, it can be argued either that
this is not purely a contract in writing (ie it is part oral, part written) or, alternatively, it
can be argued that the telephone call amounted to a collateral contract inducing Mac into
the main contract. In the case upon which this problem was based, both of these
rationales were applied by the court with the result that Clause 4 did not absolve the
shipper of liability.

[Based on J Evans & Son (Portsmouth) Ltd v Merzario (Andrea) Ltd [1976] 1 WLR 1078
(Eng CA), which is discussed below in Case Briefs]

7. This question is more difficult than it appears, as it requires students to comprehend and
apply a number of different contract formation rules alongside various legalities regarding

9-6
Copyright 2014 Pearson Canada Inc.
 Chapter 9 Representations and Terms

representations and terms. Students answering this question will likely be tempted to employ the
concept of misrepresentation, but the more appropriate focus is on collateral contracts and parol
evidence. Because the question assumes that the written contract between John and the dealer
excludes tort liability against Sperry Rand, the issue should be narrowed to an investigation of
whether John has a contractual remedy against Sperry Rand. Consequently, although many
students will focus their analysis on misrepresentation, this will miss the mark as actions for
misrepresentation tend to provide tort based remedies and not contractual remedies. The issue is
whether the representations made in the brochure somehow gave rise to a contractual obligation
that Sperry Rand must stand by and there are only two ways that this can occur: (i) by way of a
collateral contract; or (ii) through the usual means of offer/acceptance. Many students might
think of the brochure as giving rise to a collateral contract (i.e., a contract that is collateral to
the main agreement between John and the dealer). Strictly speaking, this is not true since the
second contract, if there is one, would be between different parties, as Sperry Rand (not the
dealer) made the representations in the brochure. Still, because of the intricate relationship
between manufacturers and dealers (which is in many instances construed as an agency
relationship: see chapter 8 on privity), students ought to consider the manner in which the
representations in the Sperry Rand brochure induced the main contract. In order to give rise to a
collateral contract, those representations must be seen not only as promises, but must be
construed as separate promises that were made in exchange for Johns entry into the main
contract. Really strong students will not only recognize this but also that not enough facts are
provided to determine whether this is so. It is clear that John was induced by the ad, but there is
no evidence that he only agreed to buy the machine because Sperry Rand specifically promised
to stand by its advertisement. In a modern business context, this would be practically unheard
of. However, this is what John would have to prove, given that the parol evidence rule would
otherwise preclude evidence introduced by John not contained within the main contract (between
John and the dealer). The only other way to prove contractual liability for Sperry Rand is to say
that the brochure itself gave rise to an offer (and not a mere puff). The problem with this
approach is that John did not purchase the machine from the manufacturer so the doctrines of
consideration and privity would be unfavourable to John.

[Based on Thomas Equipment Ltd v Sperry Rand Canada [1982] 40 NBR (2d) 271, which is
discussed below in Case Briefs]

8. To resolve the question of whether the term dispatch system fee is ambiguous,
students can consider both the literal and contextual approach to contractual
interpretation. Under the literal approach, the ordinary meaning of the term dispatch
system fee simply refers to the fee paid to access the dispatch. There is no suggestion
that the rate of the fee cannot change. Under the contextual approach however, a court
might consider the fact that both van-cabs and car-cabs access the same dispatch service,
suggesting the fees should be equal. Such an approach might support Anwars objection
to the fee increase.

The trial judge in Athwal took a contextual approach to interpreting this term and agreed
with Mr. Athwal that the fees should be the same for all cabs. The Court of Appeal
affirmed this outcome.

9-7
Copyright 2014 Pearson Canada Inc.
 Chapter 9 Representations and Terms

From a business perspective, Tip Top should clarify its intended meaning of dispatch
system fee in the contract, so that its interpretation is not left to the courts. For instance,
it might insert a clause that says The term dispatch system fee refers to the fee paid by
taxi drivers to access the dispatch system. It is subject to fluctuation at any time and may
vary depending on the type of vehicle used.

[Based on Athwal v Black Top Cabs Ltd. [2012] BCJ No 420, 2012 BCCA 107, which is
discussed below in Case Briefs]

9. At issue is the correct interpretation of the words use of the library card. A literal
interpretation will work against Clintons mother since she has agreed to be responsible
for damage occasioned by the use of the card. Thus she will argue that a literal
understanding of the clause is inappropriate and that the proper interpretation of the
relevant term is that she agreed to be responsible only for authorized use of the card not
for misuse of the card by an impostor. In the case upon which this problem was based, the
court sided with the library. Other documents that could have aided in the interpretation
of the signed agreement (including a letter that went out to the parents explaining to them
that they would be responsible for any use of the card and that several hundreds of dollars
could be signed out at once) were excluded for various reasons. Therefore, the court
applied a literal interpretation of the signed agreement, relying solely on the plain
meaning of the words contained therein.

[Based on City of Edmonton Library Board v Morrill (1989) 58 DLR (4th) 354 (Alta
QB), which is discussed below in Case Briefs]

10. To persuade a court to side with the academy, the principal must argue that an
implied term is necessary to understand the intentions of the parties. Although the courts
need not rewrite the entire bargain for the parties, nor should they, the principal will argue
that since the agreement authorized the principal to ensure that said child shall receive a
proper social and academic education in accordance with the highest standards of
personal conduct, this must necessarily include the ability to discipline the children
while in the care of the academy. The principle could further argue that the obligation
that said child will be kept free from danger also necessitates the authorization of some
ability to discipline the children.

[Based on Nanaimo (City) v Rascal Trucking Ltd (1998) 161 DLR (4th) 177, which is
discussed below in Case Briefs]

11. Consumers who sign standard form contracts are generally bound to the terms of
such contracts. In this case, however, Lila and Binyamin were rushed into signing a
standard form contract that had a very onerous and unusual term on the reverse side of
the contract in fine print. The salesman even told the couple not to bother reading the fine
print and also misrepresented the content of the terms and conditions, telling them they
only had to do with the manufacturers warranty. In light of this, the couple should argue

9-8
Copyright 2014 Pearson Canada Inc.
 Chapter 9 Representations and Terms

that clause 9 should be severed from the contract. Because it is an unusual or onerous
clause (and very likely one that would have affected their decision of whether or not to
buy the boat), Ned should have directed their attention to it. They should also argue that
they were induced to sign the contract by Neds misrepresentation about the terms and
condition.

It is likely that the couple would be able to have the difference in price refunded, based
on Neds misrepresentation. In the original case, the Court of Appeal decided that the
purchasers were owed the money but declined to explore whether or not the clause itself
was one that required explicit notice.

[Based on Hoffman v Sportsman Yachts Inc. (1992), 89 DLR (4th) 600]

12. This question raises the issue of using plain language in contracts. Assuming that
Option 2 achieves the necessary legal effect sought by CT (which should be confirmed
through legal advice), it is clearly the preferable option. Option 2 is clear and
understandable for everyday consumers and should achieve the desired effect account
holders will actually know that they are required to disclose any physical disabilities or
medical conditions to CT. The clarity of the plain language in Option 2 should also result
in CT employees understanding what the contract means and reduce the number of
questions from account holders. The clarity of communication might also build the trust
of CTs account holders. Option 1 could lead to confusion and increased costs. Perhaps
even more importantly, if account holders do not understand what is required of them as a
result of the confusion created by the wording in Option 1, then CT will not achieve the
desired result because account holders may not disclose disabilities or medical conditions
to CT.

9-9
Copyright 2014 Pearson Canada Inc.