The Terms of a Contract

The Terms of a Contract

Quick Review A B CCC’s • A contract is a legally binding agreement • In order to create a valid contract, there must be • An offer + Acceptance = Agreement (A) • Intention to be legally bound (B) • Consideration (C) • Capacity to contract (C) • Certainty of Terms (C)

Terms of a Contract • Now that we know how to create a valid contract, we need to think about what is in a contract • A contract is an agreement • The terms of a contract express what the parties to the contract have agreed • A term in a written contract is often called a clause

Terms v. Representations • It is often important to identify whether a statement is a term of the contract or a representation made during negotiations about the contract such as puff or an opinion not intended to be relied upon • This is because a term is part of the contract and is binding on the parties

Terms v. Representations (cont.) • On the other hand, a representation does not form part of the contract so the parties to not have to do what it says • A representation is a statement made to try to get someone to enter into a contract • But sometimes a representation ( statement) can become a term

Terms v. Representations (cont.) There are 4 tests to help us decide if a statement is a term or a representation • The importance of the statement • The time between making the statement and making the contract • The reasonable person test • Where one party to the contract has special skill or knowledge

Importance of the Statement • If the statement is so important that someone would not have entered into the contract without it, then it is a term of the contract (and not a representation) • Eg: Angela is a vegetarian. She does not eat any meat. When she orders a pizza she asks the restaurant if it contains any meat. They say, “No.” • The reply made by the restaurant would be a term of the contract because Angela would not buy a pizza which contains meat.

Timing • If some time passes between the statement being made and the contract being created, then the statement is likely to be a representation • However, if the time between the statement and the contract is quite short then it may not be a representation

Oral Statement / Reasonable Bystander Test • One party makes the statement verbally (ie it is spoken) • The contract is made in writing and does not include the spoken statement • In this case, the spoken statement is likely to be a representation • Unless the Reasonable Bystander Test is applied

Oral Statement / Reasonable Bystander Test • Reasonable Bystander Test: • Which statements (representations) overheard by a reasonable bystander, aware of the circumstances of the case, be regarded as promissory ( meant to be taken as promising something is true?) Thus they can be terms • The test is objective • Parties actual intention is irrelevant

Special Skill or Knowledge • If one of the parties to the contract has special skill or knowledge then statements made by him will be terms of the contract • Eg 1: If a garage sells a car to Fred then statements made by the garage to Fred would be terms of the contract because the garage are experts on cars. They have special knowledge

Types of Terms • Once we know that a statement is a term in a contract, we need to identify what kind of statement it is • This is important as different kinds of statements have different remedies when a party breaches them • A breach of contract occurs when one party does not follow an agreed term of the contract

Types of Term (cont.) There are 2 types of term: • Conditions • Warranties

Conditions • A condition is a basic and important part of the contract • If one party breaches a condition then the other party may • End the contract • Refuse to perform their part of the contract • Continue with the contract but then sue for damages

Warranties • On the other hand, a warranty is not vital to the contract • If one party breaches a warranty then the other party can only continue with the contract and then sue for damages

Conditions v. Warranties • Two cases involving opera singers show the difference between conditions and warranties • In Poussard v Spiers and Pond, Mrs Poussard was an opera singer. She agreed to sing in an opera starting on 28 November. However, she became ill and was unable to sing until 4 December.

Conditions v. Warranties (cont.) • 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

Conditions v. Warranties (cont.) • Mrs Poussard raised a court action to try to make the company pay her • However, 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

Conditions v. Warranties (cont.) • The position was different in Bettini v Gye • Bettini was an opera singer • He agreed to sing in London in a number of theatres beginning on 30 March • He also agree that he would arrive in London 6 days before the first performance in order to practise

Conditions v. Warranties (cont.) • Bettini became ill and did not arrive in London until 3 days before the first performance • The opera company refused to allow him to sing • They said he had breached the contract

The Terms of a Contract