Chapter 2 Law of Contract

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 by
the 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:Lecture notes copyrights Mr. Ravi Nagarathanam

Page 1

Chapter 2 Law of Contract

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.
Lecture notes copyrights Mr. Ravi Nagarathanam

Page 2

Chapter 2 Law of Contract

Poussard v Spiers and Pond

Fact:

Mrs.

Poussardwas

an opera

singer.

She

agreed

to sing

in opera.

On 28th November, she became ill and was unable to sing until 4th December. 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.

Bettini 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 in
London 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 and not
a term. That meant it was not a basic part of the contract.

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.
Lecture notes copyrights Mr. Ravi Nagarathanam

Page 3

Chapter 2 Law of Contract

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 preferentum rule;
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.

Lecture notes copyrights Mr. Ravi Nagarathanam

Page 4

Chapter 2 Law of Contract

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 commercial
contracts and consumer contracts.

Lecture notes copyrights Mr. Ravi Nagarathanam

Page 5