When two parties want to make a contract, there may be many statements about the subject matter of the contract during negotiations. These statements may be a mere representation or a term of a contract. It is essential to distinguish the two statements in order us to decide what each party has agreed. For example if a statement is a term of a contract and later is found to be untrue, then the party who made this statement has breached the contract, likewise if the statement was a mere representation and again discovered to be untrue, then the rights of the other party have become more limited. .
The courts have developed a variety of tests to determine whether it is a representation or a contractual term. The general test which is used by the courts is to determine the intention of the parties. Although when the two parties negotiate a contract, both parties are expected to know their actual intention but neither may know the actual intention of the other. The modern law of contract has generally has taken an objective approach in assessing the parties intentions. This particular test can be described as: ".What the representor, as a reasonable person, ought to have understood the representee, to understand the statement, if the statement is made from the representee, who is to be within the representor's knowledge, and then the representation becomes a term of the contract". Contract has since developed many theories and tests, but the most general tests used are known as; time, reduction of the statement into writing, importance in the minds of the parties and special skill and knowledge.
If there is a long internal between making of a statement and the conclusion of a contract, and if the statement is made orally and is not included when the contract is induced into writing, then it is not regarded as a term. Whereas to identify it as a term, it should be seen as being important in the minds of both parties and the party who made the statement is in a better position to judge the accuracy of that statement.