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Friday, September 14, 2012

Terms and Representations - UK Contract Law Essays

Understanding the Concepts of Terms and Representations

In UK Contract Law essays, it is important to distinguish between terms, representations and mere sales puff.

Before the parties enter into a binding contract the parties negotiate to each other.  In this scenario, one or both parties make promises and statements.  Some of the statements will be expressly agreed upon and made part of the contract while there are some statements which will not be expressly agreed upon.

For example, X makes the decision to sell his old car at £9000 to Y.  Before Y agreed to buy the car, Y asked X about the mileage, the year X bought the car, and the condition of the car.   X said that he bought the car in the year 2003 and that it has run for 8, 000 miles and that it does not have scratches or dents.  X also said that the car still feels like brand new even if X has been using it for years.  Not every statement made before the sale was made can be considered as a term of the contract. Some will only be considered as Representations while some are mere sales puff.

From the point of view of the law on contracts, not all of these statements will form part of the contract.

In this case, the term of the contract is that X shall deliver to Y his old car. Y will pay £900 in exchange for the car.

Whether or not the statement about the year it was bought, the mileage, and the scratches on the car, is a contractual term is a matter which is not clear.  There is no supporting evidence that Y bought the car because he wanted to buy a 2003 model car, which has run for no more than 8,000 miles.  There is no supporting evidence as well that Y would not have bought the car if he knew that it did have scratches or dents.

Why is it important to Distinguish?
The courts will not treat every statement as a term.  Distinction should be made between terms and representation.  Terms are part of the contract while representations are not.  Representations are merely statement of fact and opinion which are not part of the contract.

The distinction whether a statement is a term or a representation becomes important in case the statement is found to be untrue. If it is a term of the contract and there is a breach then the injured party will have a remedy for the breach of contract such as damages.  On the other hand, if it is not a term then the injured party will not have a remedy for the breach of contract except when fraud or negligence is established.

If the misstatement is not a Term of the Contract and the person who misrepresented acted wholly innocently the injured party will only be entitled to Rescission but the court may order damages instead (Ramage, 2004).

Guidelines in Determining whether a Statement is a Term or a Representation
1. Strength of the Statement.  Whether the courts will consider a statement as a term of the contract it is necessary to determine the strength of the statement. In the case of Ecay v. Godfrey (1947), the seller said that the boat subject of sale is in sound condition.  However, he suggested to the buyer to have the boat surveyed before buying it.  The advice to have the boat surveyed was considered as evidence that the seller did not intend the statement to be a part of the contract.

In the case of Schawel v. Reade (1913), the buyer wanted to inspect the horse if it was fit for stud purposes before agreeing to buy it.   The seller told the prospective buyer that "You need not look for anything: the horse is perfectly sound.  If there was anything the matter with the horse, I would tell you." Because of the statement of the seller, the buyer was induced to buy the horse who later found that the horse was not fit for stud purposes. The House of Lords said that the statement was a term of the contract.

2. The Importance to the Representee.  If the person to whom the statement has been made has expressed that he considered the statement to be very important to him then the statement is a contractual term.

In the case of Bannerman v. White (1861), 10 CB NS 844, a buyer of hops has indicated to the farmer that he wanted to sell the hops to the brewers of beer in Burton and that he would not buy hops that have been treated with sulphur.  Before the sale was made, the local farmer had assured the buyer that the hops being sold had not been treated with sulphur.  On the contrary, out of the 300 acres of hops being sold 5 acres were treated with sulphur. The court said that the statement was a term which is part of the contract.

3. Relative Degree of Knowledge.  If one of the parties to a contract has special knowledge or expertise than the other party about the subject matter of the contract then his statements are more likely to be considered as a contractual term.  On the other hand, statements made by a party who has lesser knowledge than the other party are more likely to be considered as mere representations.

In the case of Oscar Chess Ltd v. Williams (1957) 1 WLR 370, the defendant who was a private motorist trade in his car to a car dealer for £290.  The defendant represented to the car dealer that the car was a 1948 model based on the entry on the registration book that he saw when he bought the car.  It was found that the car was a 1939 model which only cost £175.  When the car dealer discovered that the car was in fact a 1939 model, he sued the defendant for breach of contract.  It was held that the defendant was not liable for breach of contract because his statement was a mere representation not a Term.  Compared to the buyer who was engaged in car dealership, the defendant had little knowledge about cars.

In the case of Dick Bentley Productions Ltd v. Harold Smith Motors Ltd (1965) 1 WLF 623, the buyer asked the defendant who was a car dealer that he was interested in buying a "well vetted second-hand British car, the history of which was known.  The defendant presented to the buyer a car which he said had a mileage of 20,000 miles.  When the car broke down it was found that the car’s actual mileage was 100,000 miles.  It was held that the car dealer’s statement was a term making him liable for breach of contract.