The terms of a contract describe the duties and obligations that each party assumes under their agreement. Although there are some contract cases where the central issue is whether or not there was a valid contract, more often both parties agree that they have made a binding agreement, but disagree as to the terms of that agreement. This is obviously more likely to occur when an agreement is purely oral with nothing in writing; but as we shall see, even where there is a written contract, there may be argument about what the written terms mean, and about whether the written document comprises the whole of the contract.
In all but the simplest transactions, there will be some negotiations before a contract is made. In these cases, oral statements will be made. Problems can arise when, although both parties agree that a certain statement was made, they disagree on whether that statement was part of the contract and therefore intended to be binding.
In looking at such questions, statements made during negotiations are classified by the courts as either representations or terms. A representation is a statement which may have encouraged one party to make the contract but is not itself part of the contract, while a term is a promise or undertaking that is part of the contract.
Disputes generally center around statements which have proved to be untrue: if that statement is a representation, it can give rise to an action for misrepresentation, whereas if it is a term, it can give rise to an action for breach of contract.
In some cases, a statement that was initially a misrepresentation later becomes incorporated into a contract as a term. In this situation the injured party has two possible causes of action: one for misrepresentation and the other for breach.
Whether a statement is a representation or a term is largely a question of the parties’ intentions. If the parties have indicated that a particular statement is a term of their contract, the court will carry out that intention.