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COMMERCIAL CONTRACT VOCABULARY A - Z: R - REPRESENTATIONS

A representation is a statement of fact (or law) made by one party to a contract to another and made with the intention of persuading (or ‘inducing’) the other party to enter into the contract.

Commentary:

The definition, above, is a very simplified description of a very important and complicated legal concept in English law. It is an example of what I sometimes call ‘Russian doll’ words or phrases. By this, I mean that the word or phrase has several layers. These layers include the fact that they have, not only a surface meaning, but are ‘concept’ words with legal implications and consequences when they are used, for example, in commercial contracts.

When parties negotiate a commercial contract, they will say many things. Some of these things will, and are intended, to have contractual force. We know, for example, that commercial contracts will contain clauses which set out the rights, duties, obligations, and permissions that the parties agree are legally binding and enforceable. However, not everything that is said during negotiations will become part of the substantive contract.

Statements of fact must be distinguished from statements of opinion. If I state that the sun is 151.53 kilometres from the Earth, that is a statement of fact. If I state that it is going to be sunny tomorrow, that is a statement of opinion. Although the difference between stating facts and opinions may seem obvious, there are several examples in English case law which demonstrate that this is not necessarily the case.

It is also probably obvious that statements of fact which are untrue – called ‘misrepresentations’ – can be made in several ways:

1. Fraudulently. If, for example, I offer to sell you my car and tell you that it has only travelled 10,000 kilometres since I bought it new, when I know it has travelled 50,000 kilometres, that is a false statement of fact. If I know it is false and say it anyway – trying to persuade you to buy the car – I am trying to deceive you. This is fraud.

2. Negligently. I may make a statement of fact, not knowing whether it is true or not or not caring whether it is true or not. If this is the situation, I am probably making the statement negligently – without proper care and consideration for the truth of the statement.

3. Innocently. Sometimes, people make statements and genuinely believe they are true - but they are wrong.

Although representations made during pre-contractual negotiations may eventually be incorporated into the contract, they are different to the two other major types of contract terms: conditions and warranties. There are also different legal effects and consequences which follow if, for example, a warranty is breached, to those which follow if the representation is false. These consequences are further complicated by the fact that a piece of UK legislation – called the Misrepresentation Act 1967 – provides a framework for the legal remedies which may follow.

One of these legal remedies may be ‘rescission’ [1] of the contract. This is a complex concept and may mean slightly different things in different contexts. However, it generally means that the party who has relied upon the misrepresentation (the ‘innocent party’ or ‘misrepresentee’) can terminate the contract and also claim any financial compensation – called ‘damages’ [2], from a court.


Text Notes:

[1] The verb form of the noun ‘rescission’ is ‘to rescind’.

[2] It is important to remember that ‘damages’ means financial compensation. It always has an ‘s’. It must be differentiated from ‘damage’, which means ‘harm or injury’.


EXERCISE 1

Are the following statements true or false?

1. ‘To induce a contract’ means to sign a contract.

2. A representation may be a statement of fact, law, or opinion.

3. Fraud is something, such as a false statement, which is intended to deceive someone else.

4. In 1967, the UK Parliament passed a piece of legislation which is relevant to the issue of contractual representations.

5. One of the possible legal remedies for misrepresentation is ‘recession’.


EXERCISE 2

Find a word in the Definition or Commentary which means:

1. To succeed in persuading someone to do something

2. An agreement which is enforceable – in a court, if necessary - and which requires the parties to undertake certain agreed actions.

3. Something which has a separate and independent existence

4. A law, or laws, passed by, for example, an elected body, such as a parliament.

5. Financial compensation, awarded by a court.




ANSWER KEY

EXERCISE 1

1. False. Here, it means to persuade the other party to enter into a contract.

2. False. Statements of opinion are not ‘representations’ under English law.

3. True

4. True: This was the Misrepresentation Act 1967

5. False. One possible legal remedy is ‘rescission’.


EXERCISE 2

1. to induce

2. legally binding

3. substantive

4. legislation

5. damages


Note: The material in this post is intended for study and educational purposes only. It is not intended to be or to represent legal advice. If you need legal advice, you should consult an appropriate legal advisor.


© Cambridge Legal English Academy 2021

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