Contract Law – Prepare 7 10.12.21
Unit 7 – False Preliminary Statements and Mistake
Reading 1 – Unit 4: Sub-unit 1 of the Contract Law Study Manual
1. False Preliminary Statements Made by a Contracting Party
Statements made during contractual negotiations may be:
o A mere puff – overstated belief about good to a prospective buyer with goal to sell it
No right of action in respect of this type of statement
o An express term – if untrue, innocent party will have remedy for breach of contract
o A representation – this is a statement made by one party to the contract which may
have induced the other party to enter into the contract but doesn’t form part of it
If untrue, the innocent party may have a remedy if the statement amounts
to a misrepresentation
Where a lot of money is at stake, buyers will want assurances about what they’re buying
The main difference is that in most commercial contracts, there will be a clause purporting
to exclude liability for false preliminary statements
o This means that if/when a false preliminary statement is made, initial focus is more
likely to be on the validity of the exclusion rather than on the classification of the
false statement
E.g. how a company might seek to exclude liability – Clause 2.2 of Reading 1 in Appendix
o Clause 2.2 provides, inter alia (among other things):
o The Seller's sales representatives are not authorised to do any of the following
things on behalf of the Seller:
2.2.1 ... introduce any other terms, written or oral into the Contract and
2.2.2... make any representation ...
Where sales representatives are inexperienced and/or subject to ambitious sales targets,
there will always be a risk that they might make exaggerated claims about the product
A party may also put a clause in the contract limiting liability for misrepresentation
o E.g. in Clause 8.4.1 of the Specimen Conditions of Sale
s 3 of the Misrepresentation Act 1967 provides that any clause in a non-consumer contract
which purports to exclude or restrict liability for misrepresentation will only be upheld if it
satisfies the reasonableness test set out in s 11 of the UCTA 1977
s 3 UCTA 1977 – when one party deals on the other party’s written standard terms, it is only
possible to exclude liability for breach of an express term if it is reasonable to do so
o By contrast, where there is no such exclusion, the initial focus will be on the
classification of the false preliminary statement(s) as that will determine the
remedies available to the innocent party
2. Distinguishing Between Terms and Representations
The remedies for breach of contract and misrepresentation differ, so it is important to
determine whether a false preliminary statement is a term or only a representation
In practice, C might claim both breach of contract and misrepresentation in the alternative,
but there will be no double recovery
1
, Contract Law – Prepare 7 10.12.21
The primary test for determining whether a statement is a term or a representation, is the
common intention of the parties when they entered the contract
If the intention behind a statement being a contractual term or a representation is unclear,
then the court will consider a number of guidelines
Oscar Chess Ltd v Williams [1957] & Dick Bentley Productions Ltd v Harold Smith Ltd [1965]
are cases with guidelines for identifying whether a statement is a term or a representation
o In deciding whether a statement is a term of the contract, the court looks at what an
intelligent bystander would reasonably infer – meaning that the court applies an
objective test and asks what conclusion a reasonable person would draw
Factors which might encourage the court to decide that a statement is a term include:
o A party states a fact which is or should be within his own knowledge and of which
the other party is ignorant (i.e. if one party has greater skill and/or knowledge)
o A party makes a statement about something which is or should be under his own
control, as in Birch v Paramount Estates Ltd (1956) where the seller gave an oral
promise that C’s house would be as good as the show house
Bannerman v White (1861) – a statement is likely to be a term if it makes clear that the
statement is of vital importance
A factor which may encourage the court to decide that a statement is just a representation
is where a party makes it clear that he has no knowledge of his own but has got his
information from elsewhere and is just passing it on
Dick Bentley Productions – statement was held to be a term of the contract as it had been
made by a car dealer who was in a position to know or find out about the history of the car
Oscar Chess Ltd – statement about the age of the car was held to be a representation
because the statement was made by the seller who was just a private individual with no
personal knowledge of when the car was made and was relying on the logbook
o Buyer was a motor dealer and so could’ve checked the accuracy of seller's statement
Another factor not specifically mentioned in the cases is where the contract has been
reduced into writing – if a preliminary oral statement is repeated in a written document,
this is good evidence that it was intended to be a term of the contract
Equally, if it wasn’t repeated in it, the statement was simply meant to be a representation
As with all the factors, this one is not conclusive – e.g. Birch v Paramount Estates the
seller’s oral promise was not repeated in the written contract, but the court still decided it
was a term of the contract
o This meant that the contract in Birch was partly written and partly oral
3. Summary
Does one party have greater skill or knowledge?
o If the maker of the statement has the greater skill or knowledge, as in Dick Bentley,
then the statement is more likely to be a term
o If it is the recipient of the statement who has the greater skill or knowledge, as in
Oscar Chess Ltd, then the statement is more likely to be only a representation
Is the oral statement repeated in the written contract?
o YES – it will usually be a term
o NO – it is more likely to be a representation as in Routledge v McKay
o N.B. the court may decide that the oral statement is in fact a term and that the
contract is made partly in writing and partly orally (Birch v Paramount Estates)
2
Unit 7 – False Preliminary Statements and Mistake
Reading 1 – Unit 4: Sub-unit 1 of the Contract Law Study Manual
1. False Preliminary Statements Made by a Contracting Party
Statements made during contractual negotiations may be:
o A mere puff – overstated belief about good to a prospective buyer with goal to sell it
No right of action in respect of this type of statement
o An express term – if untrue, innocent party will have remedy for breach of contract
o A representation – this is a statement made by one party to the contract which may
have induced the other party to enter into the contract but doesn’t form part of it
If untrue, the innocent party may have a remedy if the statement amounts
to a misrepresentation
Where a lot of money is at stake, buyers will want assurances about what they’re buying
The main difference is that in most commercial contracts, there will be a clause purporting
to exclude liability for false preliminary statements
o This means that if/when a false preliminary statement is made, initial focus is more
likely to be on the validity of the exclusion rather than on the classification of the
false statement
E.g. how a company might seek to exclude liability – Clause 2.2 of Reading 1 in Appendix
o Clause 2.2 provides, inter alia (among other things):
o The Seller's sales representatives are not authorised to do any of the following
things on behalf of the Seller:
2.2.1 ... introduce any other terms, written or oral into the Contract and
2.2.2... make any representation ...
Where sales representatives are inexperienced and/or subject to ambitious sales targets,
there will always be a risk that they might make exaggerated claims about the product
A party may also put a clause in the contract limiting liability for misrepresentation
o E.g. in Clause 8.4.1 of the Specimen Conditions of Sale
s 3 of the Misrepresentation Act 1967 provides that any clause in a non-consumer contract
which purports to exclude or restrict liability for misrepresentation will only be upheld if it
satisfies the reasonableness test set out in s 11 of the UCTA 1977
s 3 UCTA 1977 – when one party deals on the other party’s written standard terms, it is only
possible to exclude liability for breach of an express term if it is reasonable to do so
o By contrast, where there is no such exclusion, the initial focus will be on the
classification of the false preliminary statement(s) as that will determine the
remedies available to the innocent party
2. Distinguishing Between Terms and Representations
The remedies for breach of contract and misrepresentation differ, so it is important to
determine whether a false preliminary statement is a term or only a representation
In practice, C might claim both breach of contract and misrepresentation in the alternative,
but there will be no double recovery
1
, Contract Law – Prepare 7 10.12.21
The primary test for determining whether a statement is a term or a representation, is the
common intention of the parties when they entered the contract
If the intention behind a statement being a contractual term or a representation is unclear,
then the court will consider a number of guidelines
Oscar Chess Ltd v Williams [1957] & Dick Bentley Productions Ltd v Harold Smith Ltd [1965]
are cases with guidelines for identifying whether a statement is a term or a representation
o In deciding whether a statement is a term of the contract, the court looks at what an
intelligent bystander would reasonably infer – meaning that the court applies an
objective test and asks what conclusion a reasonable person would draw
Factors which might encourage the court to decide that a statement is a term include:
o A party states a fact which is or should be within his own knowledge and of which
the other party is ignorant (i.e. if one party has greater skill and/or knowledge)
o A party makes a statement about something which is or should be under his own
control, as in Birch v Paramount Estates Ltd (1956) where the seller gave an oral
promise that C’s house would be as good as the show house
Bannerman v White (1861) – a statement is likely to be a term if it makes clear that the
statement is of vital importance
A factor which may encourage the court to decide that a statement is just a representation
is where a party makes it clear that he has no knowledge of his own but has got his
information from elsewhere and is just passing it on
Dick Bentley Productions – statement was held to be a term of the contract as it had been
made by a car dealer who was in a position to know or find out about the history of the car
Oscar Chess Ltd – statement about the age of the car was held to be a representation
because the statement was made by the seller who was just a private individual with no
personal knowledge of when the car was made and was relying on the logbook
o Buyer was a motor dealer and so could’ve checked the accuracy of seller's statement
Another factor not specifically mentioned in the cases is where the contract has been
reduced into writing – if a preliminary oral statement is repeated in a written document,
this is good evidence that it was intended to be a term of the contract
Equally, if it wasn’t repeated in it, the statement was simply meant to be a representation
As with all the factors, this one is not conclusive – e.g. Birch v Paramount Estates the
seller’s oral promise was not repeated in the written contract, but the court still decided it
was a term of the contract
o This meant that the contract in Birch was partly written and partly oral
3. Summary
Does one party have greater skill or knowledge?
o If the maker of the statement has the greater skill or knowledge, as in Dick Bentley,
then the statement is more likely to be a term
o If it is the recipient of the statement who has the greater skill or knowledge, as in
Oscar Chess Ltd, then the statement is more likely to be only a representation
Is the oral statement repeated in the written contract?
o YES – it will usually be a term
o NO – it is more likely to be a representation as in Routledge v McKay
o N.B. the court may decide that the oral statement is in fact a term and that the
contract is made partly in writing and partly orally (Birch v Paramount Estates)
2
