Contractual term or representation

Statements made during the course of negotiations could amount to a contractual term or a representation. It is important to know whether a particular statement is a contractual term or if it is a representation as this will determine the appropriate cause of action and remedy available. If the statement amounts to a term of the contract which is not fulfilled, the innocent party may sue for breach of contract. If the statement is merely a representation which turns out to be untrue, the innocent party may bring an action for misrepresentation. 

 In deciding whether a statement amounts to a term or representation the courts look at four factors:

1. The parole evidence rule

2. Relative expertise of the parties

3. Importance of the statement

4. Time
   

1. The parole evidence rule:

Where the contract has been put into writing only the terms included in the written document are terms any verbal statements will be representations

2. Relative expertise:

If the representor has the greater knowledge, it is more likely to be a contractual term. Conversely if the representee has the greater knowledge it is more likely to be a representation:

Oscar Chess v Williams [1957] 1 WLR 370   (Case summary)

Dick Bentley v Harold Smith Motors [1965] 1 WLR 623  (Case summary) 

3. The importance of the statement and reliance:

Where the representee indicates to the representor the importance of the statement, this is likely to be held to be a term:  

Bannerman v White (1861) 10 CBNS 844.  (Case summary)   

Ecay v Godfrey [1947] 80 Lloyds Rep 286   (Case summary)    

Schawel v Reade [1913] 2 IR 81    (Case summary)

4. Timing

The longer the time lapse between making the statement and entering the contract the more likely it will be a representation:

Routledge v Mckay [1954] 1 WLR 615        (Case summary)  

Contractual term or representation