Contract Terms

Lecture Delivered
By
Dr. MUHAMMAD MANSOOR JAVED

PhD. Islamic Banking & Finance

Fellow Member of ACCA, UK

1
Nature of Contract Terms
• The terms of a contract are the statement within a contract that form part of the agreement
between the parties.
• The parties to contract are legally bound to perform any promise that they have agreed to within
the terms of the contract.
• If either party fails to keep to his performance, he is in breech of contract.
• When a case to breach of contract comes to court, and the court decides that a breach has
occurred, it will decide the remedy that should be applied
• The nature of the remedy will depend on the nature of the term that has been broken.
Terms Vs Representation
• Statements made by the parties may be classified as terms or representations
• Term is a part of contract (Dick Bentley Productions v Arnold Smith Motors)
• A representation is something which induces the formation of a contract but which does not
become a term of the contract. (Routledge v McKay)
• The importance of the distinction is that different remedies are available depending on whether a
term is broken or a representation turns out to be untrue.
Dick Bentley Productions v Arnold Smith
Motors
• The facts: The defendants sold the claimants a car which they stated to have done only 20,000
miles since a replacement engine and gear-box had been fitted. In fact the car had covered
100,000 miles since then and was unsatisfactory.
• Decision: The defendants' statement was a term of the contract and the claimants were entitled
to damages.
Routledge v McKay
• The facts: The defendant, in discussing the possible sale of his motorcycle to the claimant, said on
23 October that the motorcycle was a 1942 model; he took this information from the registration
document. On 30 October the parties made a written contract which did not refer to the year of
the model and the purchaser had not indicated that the age of the cycle was of critical
importance to him. The actual date was 1930.
• Decision: The buyer's claim for damages failed. The reference to a 1942 model was a
representation made prior to the contract
Conditions and Warranties
• The terms of a contract are usually classified by their relative importance as conditions or
warranties.
• Conditions is an important term which is vital to a contract so that its breach will destroy the
basis of the agreement. (Poussard v Spiers)
• A warranty is a minor term in a contract. If broken, the injured party must continue
performance but may claim damages for the loss suffered. (Bettini v Gye)
Poussard v Spiers
• The facts: Poussard agreed to sing in an opera throughout a series of performances. Owing to
illness she was unable to appear on the opening night and the next few days. The producer
engaged a substitute who insisted that she should be engaged for the whole run. When Poussard
recovered, the producer declined to accept her services for the remaining performances.
• Decision: Failure to sing on the opening night was a breach of condition which entitled the
producer to treat the contract for the remaining performances as discharged.
Bettini v Gye
• The facts: An opera singer was engaged for a series of performances under a contract by which
he had to be in London for rehearsals six days before the opening performance. Owing to illness
he did not arrive until the third day before the opening. The defendant refused to accept his
services, treating the contract as discharged.
• Decision: The rehearsal clause was subsidiary to the main purpose of the contract.