University of Calgary Continuing Education Construction Contract Law and Documents Week 4 Review of Assignment Discharge of Contracts Tendering

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 3 rd 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.