The Terms of a Contract

2 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)

3 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

4 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

5 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

6 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

7 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.

8 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

9 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

10 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

11 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

12 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

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

14 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

15 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

16 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.

17 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

18 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

19 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

20 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