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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 and 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:
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The parole evidence rule
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Relative expertise of the parties
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Importance of the statement
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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:
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:
4. Timing
The longer the time lapse between making the statement and entering the contract the more likely it will be a representation:
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