English Commercial law - Terms and Representations
Pre-contractual representations may lead to issues between the parties, especially if they later prove to be false. Pre-contractual statements come in three different forms: terms, representations, and simple marketing speak. The first two might, but not the last, have an impact on the contract. Because the solutions available when issues occur differ for words and representations, it is crucial to make this distinction. Depending on the status of the term, a pre-contractual statement that amounts to a term will be included into the contract and breach will subject the aggrieved party to the standard contractual remedies, including the right to demand damages at will and terminate the contract. In order to determine whether a statement qualifies as a term or not, the courts will consider the parties' shared objectives and, in the absence of this, will apply a variety of standards, such as the statement's significance to the contract and the ability and understanding of the party issuing it. Pre-contractual claims made during negotiations may turn out to be representations rather than genuine provisions of the agreement. A representation is a factual declaration made to the opposite party in a contract by one of the parties (although it need not be the only inducement). It will constitute a misrepresentation if it turns out to be untrue. Fraudulent, careless, and innocent misrepresentations are the three different kinds. Although it would be conceivable to seek damages under Section 2(1) of the Misrepresentation Act 1967, the principal remedy for misrepresentation is rescission. However, the innocent party may forfeit his entitlement to damages if the statement's author can demonstrate that he genuinely believed it to be true at the time it was said and that he had good reason to do so. Where one of the equitable obstacles, such as delay or affirmation, is in effect, the right to rescission may be lost. Depending on its negotiating position, the buyer may require that any pre-contractual warranties or statements be incorporated into the stated terms of the contract. A warranty is a representation made by one or more contracting parties that certain facts or statements, such as the fact that a company generates a certain amount of profit annually, are true. The buyer would then be entitled to contractual damages as of right in the case of a breach. Only where there is a remoteness issue may a claim for damages for misrepresentation be appropriate. The test for determining whether a statement is a term or a representation is objective, regardless of how the parties characterize them.
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