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Damages in the event of misrepresentation

When an individual makes statements that have the purpose of inducing an individual to enter into a contract, then a representation (a convincing statement) and possibly a warranty (a guarantee of a period of fitness, or some other quantity) will exist. The statements that are made when negotiating a contract are legally binding.

INNOCENT MISTAKES

When a contract is entered into, misrepresentation of the contracted-for item will allow an individual to successfully sue for damages only under certain circumstances. Fraudulent misrepresentation will hold in court only if the defendant can prove that the plaintiff had the intent to misrepresent or if the defendant acts in a reckless and careless manner in which the defendant, under normal circumstances, should know that the information had been misrepresented.

Heilbut, Symons & Co v Buckleton [1912] UKHL 2 stands as precedent for this. In that case, Heilbut, Symons & Co (Heilbut) were rubber merchants who were underwriting shares of what Buckleton assumed was a rubber company. Buckleton inquired about the shares and was told by an agent that we are bringing out a rubber company. Buckleton purchased a large number of shares in the company. However, the shares were not for a rubber company and the shares performed poorly. Buckleton sued for breach of warranty. The court found that the agent for Heilbut had warranted that the company would be a rubber company but that this misrepresentation had neither been fraudulent, nor had it resulted from careless and reckless actions. The agent had believed that Heilbut was in fact unwriting shares for a rubber company. The court found that because the agent had made an innocent misrepresentation, Heilbut was not liable for damages. Heilbut would be bound to a contract if there was an intentially fraudulent misrepresentation. This and thus Buckleton was not awarded damages resulting from his purchase. If there is an innocent misrepresentation by a party, then the contract entered into by the parties can be rescinded. You cannot receive damages that result from innocent misrepresentation.

MISLEADING STATEMENTS If misrepresentations are made, whether innocently made or not, the misrepresenting party can be held liable for damages. When determining whether misrepresentations will lead to damages, the court will look at.

If misrepresentations are made, whether innocently made or not, the misrepresenting party can be held liable for damages. When determining whether misrepresentations will lead to damages, the court will look at the intention of the parties when entering into the contract.

The words and behavior of the parties will be analyzed. The court will use an objective test to determine the intent of the parties; if, for example, a representation is intended to be acted upon and lead to a contract, then it is a warranty. If, for example, a seller, who should have extensive knowledge of the item being sold, misrepresents the item sold, then the buyer may be able to recover damages. Consider Bentley (Dick) Productions v. Harold Smith [1965 CA] in which the plaintiff (Bentley) purchased a car from the defendant (Smith). Following the purchase, Bentley discovered that the car had been driven much farther and required further repairs. Bentley’s purchase replied on the representation that the car had only travelled 20,000 miles since being refitted with a new engine and gearbox. Bentley successfully issued an action for breach of the warranty that the car would be fit for use for some time to come (on the basis that, with only 20,000 miles of wear and tear, the car was implicity warranted to be in good driving condition for the foreseeable future this was held by the court to be the warranty). The court found that there was a prima facie representation made in the course of the agreement. More importantly, the court stated that the representation had been made for the purpose of inducing Bentley into the contract. The court concluded that the representation included a warranty and subsequently awarded Bentley damages worth £400. The foregoing issues can be avoided by clearly stating the length of the warranty period and avoiding the use of metaphorical language or untrue representations of product fitness.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Information in a brochure can be held against a seller

Information within a manufacturer’s brochure can act as a warranty. In several scenarios, the manufacturer will not be a party to the written contract; however, if the manufacturer publishes a brochure that includes information on a product that is then sold by a seller, that brochure is intended to be a sales tool, and the information within the brochure can be treated as a representation, and may also include a warranty.

Thus, if you are the manufacturer of a product, ensure that you are aware of the representations made within the promotional material that you publish. Murray v. Sperry Rand [1979 Ont HC] stands as precedent for these rules. In this case, the plaintiff bought farm machinery based on representations made within a brochure. The brochure was published by the manufacturer of the product, a third party to the transaction. The seller had not made the same representations as for the manufacturer, nor did the contract refer to the representations or the brochure.

The plaintiff found that the farm machinery did not work as the brochure representations stated that it will. The court found that the manufacturer is said to have entered a collateral (secondary) contract with the buyer.

The manufacturer’s brochure was intended to be a sales tool to entice buyers into entering into contracts with the sellers. It can be inferred from the court’s conclusion that when Party C makes a representation induce Party A into entering a contract with Party B , then the representation can draw Party C into a collateral contract with Party A and B.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Consulting Contract Should Include Standard of Care that is Reasonable for the Particular Profession of the Consultant

It is a good idea to have a clause in your contract that defines the standard of care, for example: “In providing services under this Agreement, the Consultant will endeavor to perform in a manner consistent with that degree of care and skill ordinarily exercised by members of the same profession currently practising under similar circumstances.” It is important to ensure that the other party does not attempt to include a higher standard, which may be interpreted as a warranty.

Some clients may attempt to raise the standard of care beyond what is reasonable. For example, by including contract language that requires you to “perform to the highest standard of practice”, or guaranteeing to perform services in a “non-negligent manner”, the client is attempting to make the consultant responsible for every mistake, however reasonable in the circumstances. This would exceed the best professional standards established by any professional licensing body. Consultants should negotiate to remove such language.

Take away:

  • The standard of care in a professional consulting agreement should be ‘reasonable’, and not so onerous as to constitute an unrealistic warranty of performance.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Representations May Be Limited by the Schedules to the Asset Purchase Agreement

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Specific exceptions to representations are generally contained in the schedules to the agreement. Vendors can use this drafting mechanism to ensure that their representations are accurate, thus increasing the likelihood that they will receive the full benefit of what they have bargained for. Purchasers need to pay close attention to the schedules to ensure that they are receiving what they expected to purchase, and to determine how to focus their due diligence efforts.

Read the article here.

Take away:

  • Parties must pay close attention to the schedules to determine whether the details of the deal have been accurately recorded.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Due Diligence is Required before developing software that operates with a social media platform

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Website Terms of Use for application program interfaces (“API’s”) for programs that are designed to work with that website often contain a representation that the developer owns the intellectual property (“IP”) connected with that API, and that the software does not infringe on the IP rights of third parties. This can often be a source for problems, even if challenges by third parties are not well-founded.This article cautions developers to conduct proper due diligence to ensure there is no infringement of third-party IP in their software, as violation of the Terms of Use could result in the inability to use the host website.

The article discusses three legal sources for third party challenges: trade-marks (branding of the software); copyrights (copying of code); and patents.

Read the article here.

Take away:

  • Due diligence before embarking on the development of software for use with a social media platform should include a consideration of all three sources of third party IP claims.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Anti-Dilution Clause May Prevent Company from Issuing Additional Shares

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The representation that the company may issue additional shares in the future means that the company may dilute the shares of the subscriber at will. A subscriber who does not wish to give the issuer the ability to dilute their shareholding may require that anti-dilution provisions to be included in the subscription agreement.

The largest shareholder (Caitlyn Limited) of Azumah Resources holding 13% of the shares reinvested $2.1 million. As part of the investment, the subscription agreement contained an anti-dilution clause where the shareholder was to maintain its 13% equity holding for 12 months.

Read the article here.

Take away:

  • When subscribing to shares of a company, consider negotiating an anti-dilution provision in your subscription agreement to avoid having your equity holding in the company significantly diluted.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Keep the Fine Print Up to Date: The Website Terms and Conditions are Important

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This article recommends a number of provisions for website owners and internet service providers to consider when drafting their terms and conditions. The topics discussed include: information about the company; intellectual property; defamation; website content; liability; information about the user and its visits to the site; and transactions concluded through the site. The article advises website operators with social media content to be especially careful to include warranties and indemnities provisions in case a user infringes third party IP or defames someone on the website.

Read the article here.

Take away:

  • Website terms and conditions are extremely important, and should be updated with any change in product or service, and after any change in relevant legislation.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Developer Hacks Mobile App with Harmful Malware

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The developer of the app ‘Prized’ was caught using its users’ smartphones and other electronic devices to mine for cryptocurrency, which was damaging for the hardware, with the potential to leave it barely functional. The hardware owners also faced the possibility of increased electricity and data costs, as well as the time and expense of removing the malware. Consumers were promised that the app would allow them to earn points which would be redeemable for prizes and gift cards. In many instances, consumers did not receive the redeemable points that the app promised to deliver.

The Terms of Use of ‘Prized’ contained a provision that the apps “are and will be free of malware, spyware, time bombs, and viruses.” The opposite was true. The New Jersey Division of Consumer Affairs and the FTC combined to investigate complaints about the app. The developers entered into a settlement agreement with the two government agencies, requiring payment of legal and investigative costs, and obliging the developers to report annually for the next 20 years.

They will be required to file financial, personnel and other records annually to ensure compliance with the prohibition on “marketing or selling products that function as malware, and from using misrepresentations in the sale or advertisement of software products”.

Read the article here.

Take away:

  • Website operators should be careful not to breach the representations in their own Terms of Use.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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