Contract - Representation & Terms

Contract: Representation & Terms

Not everything that’s said during the negotiations for a contract end up being actual terms of the contract; some information only amounts to a representation.

Suppose you buy a car from a second-hand car dealer. He tells you the car has alloy wheels. You buy it, but you later discover the wheels aren’t alloy, and they’re starting to rust. If the car having alloy wheels was a term of the sale contract, then clearly the dealer has breached the contract and you can sue him. But if it was just a representation, you might have more difficulty suing him.

Remember, if it’s a term, the buyer always wins and always gets damages!

These four factors can help us distinguish between a term and a representation:

• Relative knowledge. Does one party have expert knowledge of the subject matter? In our example, if a car dealer tells you something about a car, it’s more likely to be a term; but if you tell the dealer something, it’s more likely to be a representation.

• Reliance. Did one party obviously rely on what was said when they entered into the contract? If you were particular about wanting a car with alloy wheels, if you told the dealer that and if you made it clear you were buying the car because of its alloy wheels – then it’s more likely to be a term of the contract.

• The strength of the statement. If it’s strong, it’s more likely to be a term (unless both parties understood that it wasn’t!). In one well-known case, the seller said, “there’s no need to inspect the horse, I assure you it’s a good horse”. That’s a pretty strong statement, and the court held it to be a term of the contract.

• Timing. Did the statement immediately precede the making of the contract? If the seller said “this car has alloy wheels” and you immediately said “I’ll buy it right now”, then the alloy wheels are more likely to be a term of the contract.

Do remember that these factors are only guides – they’re not intended to be decisive. You have to decide each case on its own facts. Lord Moulton said in 1913 that “the intention of the parties can only be deduced from the totality of the evidence, and no secondary principles of such a kind can be universally true”.

Also note that if the parties have produced a written contract, then that document probably contains all the terms of the contract; statements excluded from that document are more likely to be representations. A written contract definitely can’t be contradicted by evidence of prior oral or written statements.