Term or Mere Representation

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Many statements are made by the parties before a contract is completed. These can be divided into terms and mere representations.

TERMS

These are statements that the parties intend to be contractually binding.

An unperformed term is a breach of contract. The innocent party can choice whether to terminate the contract and claim damages, or carry on with the contract and claim damages.

MERE REPRESENTATIONS

These are statements that the parties do not intend to be binding. They merely induced the parties into the contract.

If a representation turns out to be false a party can bring a claim for damages in Misrepresentation but they cannot terminate the contract.

To ascertain whether a statement is a term or a representation the court must decide whether the maker of the statement intended to be bound by the statement. This is an objective test; what would the reasonable man believe to be the intention of the parties taking into account all of the circumstances?

There are several factors that the court will take into consideration when considering this question;

IMPORTANCE OF THE STATEMENT

When a statement is of such importance to the overall contract that one party would not have contracted without it, and both parties are (or should be) aware of its importance, then it will be considered a term rather than a representation (Bannerman v White (1861) (Court of Common Pleas)).

White bought hops from Bannerman for beer making. White made it known that he would not buy hops treated with sulphur as this would ruin the beer. Bannerman promised White that his hops had not been treated with sulphur but when White received the goods he discovered that they had been. The importance of this statement to White, and the fact that Bannerman had been aware of its importance, meant that it was a term and not a representation.

SPECIALIST KNOWLEDGE OR SKILL

Any specialist knowledge or skill of the person making the statement will be taken into consideration. Compare the two cases below…

In Oscar Chess Ltd v Williams (1957) (CoA) Oscar Chess bought a car from a private seller, Williams, who sold the car as a 1948 model when in fact it was a 1939 model worth much less. This was considered a mere representation because Williams had no specialist knowledge, he had simply relied upon an incorrect registration document, whereas the buyer was a specialist car dealer who could have noticed the mistake.

In Dick Bentley Productions v Harold Smith Motors (1965) (CoA) when Dick Bentley Productions bought a car from Harold Smith Motors it was sold as only having done 20,000 miles. This was untrue. It was held to be a term of the contract because Harold Smith Motors had specialist knowledge as a car salesmen and could or should have known that this fact was wrong.

ACCEPTING RESPONSIBILITY

If the maker of the statement takes responsibility for the truth of the statement then it is more likely to be considered a term. Compare these two cases…

In Schawel v Reade (1913) Schawel wanted to buy a horse from Reade for breeding. Whilst Schawel was examining the horse Reade assured him that the examination was unnecessary and the horse was fit for purpose. By doing this Reade took responsibility for the quality of the horse and it was therefore taken as a term and not a mere representation.

In Ecay v Godfrey (1947) (HC) Godfrey sold a boat to Ecay saying that he thought the boat was probably sound but that Ecay should get a survey to check. This demonstrated a lack of responsibility for the truth of the statement of quality by Godfrey and was therefore a mere representation.

TIMING OF THE STATEMENT

The amount of time between the statement and the formation of the contract can also be important. The longer the gap between the two the less likely it is to be a term (Routledge v Mckay (1954) (CoA)).

Routledge was given information by Mckay about a motorcycle that was for sale. Routledge returned two days later and agreed to buy the motorcycle. Routledge discovered that the date given for the model was incorrect. This was deemed to be only a mere representation because it was not mentioned in the written agreement, neither of the parties were professionals AND there was a long enough lapse between the statement and the conclusion of the contract.

WRITTEN CONTRACT

The Parole Evidence Rule states that if a contract is wholly in writing then the terms in that document are final and the parties cannot submit evidence to ‘add to, vary or contradict that writing’ (Henderson v Arthur (1907)). This applies to express terms only.

However, evidence can be submitted to prove that the parties intended the contract to be partly oral and partly written. If this is the case then the Parole Evidence Rule does not apply (J Evans v Andrea Merzario (1976) (CoA)).

If the contract is both oral and written and the statement has been included in the written document it is more likely to be a term, see Routledge v Mckay.

Parties can enforce the Parole Evidence Rule by inserting an entire agreement clause into their contract that states that the written document contains the entire agreement (Inntrepreneur v East Crown (2000) (HC)). The courts can also label an oral promise as a separate collateral contract to a written contract to circumvent the Parole Evidence Rule (City and Westminster Properties v Mudd (1959) (HC)).