Term of a contract

8/10/2019 Term of a contract

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Chapter 2 Law of Contract

Lecture notes copyrights Mr. Ravi Nagarathanam Page 1

2.1.7 Privity of Contract

1. As a general rule, only the persons who are parties to the contract can acquire rights and

incure liabilities under it.

2.

A person who is not a party to a contract has no right to sue on the contract.

3. The position of third parties is that obligation under a contract generally cannot be

transferred unless all the parties consent (novation).

4. This is a tripartite agreement where the original parties agree to rescind their contract in

consideration of a new contract being entered into on the same terms between one

original parties and a third party.

2.2 Terms of a Contract

1. A term is basically a statement which creates contractual obligations between the parties,

breach of which will the result in the injured party being able to sue.

2. Once the court decides that a statement is a term of a contract, it is then necessary to

consider the statements significance because the remedies available to the injured party

differ.

3.

Not all obligations created by a contract are of equal importance and this is recognized bythe law. Thus it is necessary to make a distinction between a condition and a warranty.

4. A condition is a term that is vital to the contract.

a. The parties consider it so important that its non-performance may considered by

the injured party as amounting to a substantial failure to honour the contract at all

and thus may be regarded as grounds for setting the contract aside and/ or suing

for damages.

5. A warranty is a type of term considered by the parties to be of lesser importance to the

main purpose of the contract but they have the right to sue for damages for any loss that

they may suffer as a result of the breach.

6. A contract may contain a number of terms that the parties or the courts may read into

the contact. This is known as implied terms and the conditions that had to be satisfied

for a term to be implied into a contract, must be:-


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a. Reasonable and equitable;

b. Necessary to give business efficacy to the contract, so that no term will be implied

in the contract if effective without it;

c. So obvious that it goes without saying;

d. Capable of clear expression; and

e. Not in contradiction of any express term of the contract.

7. Terms can be implied by;

a. Custom and usage pertaining to a particular type of transaction;

b. Statutory provisions; and

c. The courts, based on the intention of the parties.

2.2.1 Conditions and warranties

1. A term which is essential to contract. Breach of it would allow the other party to treat the

contract as repudiated, according to section 12(2) Sale of Goods Acts)

2. If the condition is breached, the party not in default entitled to repudiate the contract

because the contract can be deemed to be void.

3. A condition is a term or oral written which goes directly 'to the root of the contract, or is

so essential to its very nature that if it is broken, the innocent party can treat the contract

as discharged.

a. That party will not therefore be bound to do anything further under that contract.

4. A warranty would be a less vital term of a contract (collateral to the main purpose),

breach of it would give rise to a claim for damages, not a right to discharge/reject the

goods. (section 12(3) Sale of Goods Act)

5. If the warranty is breached, the party not in default is not entitled to repudiate the contract

because it is not voidable. However, party in default is entitled for damages.6. A warranty is a term of the contract which is collateral or subsidiary to the main purpose

of the contract.

a. It is therefore not so vital as to affect a discharge of the contract.

b. A breach of warranty only entitles the party to an action for damages so, he

cannot treat the contract as discharge.


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2.2.2 Standard Contracts and Exemption Clauses

1. It is not unusual to find a party trying to limit or execute their liability in certain

situations by including an exception, exemption or exclusion clause in the contract.

2. It normally found in standard form contracts.

Poussard v Spiers and Pond

Fact: Mrs. Poussardwas an opera singer. She agreed to sing in opera.

On 28thNovember, she became ill and was unable to sing until 4 thDecember. The opera

company had to hire another singer so that the opera could start on 28 November. They

could only get another singer if they hired her for all the performances of the opera.

They did this and refused the services of Mrs. Poussard once she was better. Mrs.

Poussard raised a court action, to try to make the company pay her.

Held:The court said that, Mrs. Poussard breached a Condition of the contract when she

was unable to perform on 28 November. This was a basic term of the contract.

Bettin i v Gye

Facts:Bettini was an opera singer. He agreed to sing in London in a number of theatres

beginning on 30 March. He also agrees that he would arrive in London 6 days before the

first performance in order to practise. Bettini then, became ill and did not arrive inLondon until 3 days before the first performance. The opera company refused to allow

him to sing and said he had breached the contract.

Held: The court said the part of the agreement about practicing was a Warranty andnot

a term. That meant it was not a basic part of the contract.


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3. The effectiveness of an exclusion clause is a matter of construction of the contract as a

whole, taking into account the bargaining position of the parties.

4. Let say the exclusion clause has been properly incorporated into the contract, one must

note the three possibilities for ones approach to interpretation:

a. The contra preferentumrule;

i. There is rule means that there is strict construction against the party

relying on the clause or term.

ii.

The exclusion clause has been correctly incorporated into the contract, it

will strictly constructed against the party who attempts to rely on it.


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b. The four corners rule;

i. Means, exclusion clauses do not apply to actions outside the contract.

ii. They will not apply to situations involving deliberate breach, or for

conduct that is outside the objects of the contract.

c. Interpretation according to the express agreement;

i. The effectiveness of an exclusion clause is a matter of construction.

ii. Courts seem more prepared to accept the validity of exclusion clauses;

sometimes, even where they have harsh consequences in commercialcontracts and consumer contracts.

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Term of a contract