353. Distinction between contractual terms and mere representations.

The legal effect of a contractual term differs from that of a mere representation; accordingly, it is necessary to determine into which of these two categories fall statements made by the parties during negotiations leading to a binding contract. The problem is one of determining the intention of the parties as evidenced by their words and conduct, so that no general principle of interpretation can be universally true. Because, however, the intention of the parties seldom clearly appears, the courts have had regard to any one or more of a number of factors for attributing an intention. These factors should be regarded as valuable, though not decisive, tests.

The factors taken into account by the courts are as follows:

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    (1)     if only a brief period of time elapses between the making of the statement and the formation of the contract, the court may be disposed to hold that the statement is a term of the contract;

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    (2)     where the party to whom the statement is made makes it clear that he regards the matter as so important that he would not contract without the assurance being given, that is evidence of an intention of the parties that the statement is to be a term of the contract;

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    (3)     where the party making the statement is stating a fact which is or should be within his own knowledge and of which the other party is ignorant, that is evidence that the statement is intended to be a term of the contract;

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    (4)     where, subsequent to negotiations, the parties enter into a written contract and that contract does not contain the statement in question, that may point towards the statement being a mere representation, though there have been cases where it has been found that such a preliminary statement constitutes a collateral contract;

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    (5)     where the party making the statement suggests that the listener takes an independent survey or opinion, that may show that no warranty was intended;

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    (6)     it has been said that the maker of a statement can rebut an inference of warranty if he can show that he was innocent of fault in making it, and that it would not be reasonable in the circumstances to hold him bound by it.

Contractual terms must also be distinguished from words of expectation or estimate, which do not form part of the contract; such statements may not even give rise to liability as misrepresentations if they amount to no more than a statement of opinion or belief.

Finally, a pre-contractual statement may amount to both a misrepresentation and a contractual term; and it may therefore be necessary to consider the position on both alternatives.

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