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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 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)
                                                             (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:

Contractual term or representation