General principles of contracts series; (part 10) The Terms

The terms of the contract are the obligations, conditions and provisions of the contract. Thus, they describe and control the conduct of the parties in terms of the agreement. In a contract that requires no formalities, the terms might be verbal or implied (tacit). The terms of every contract are different (except, of course for those form-type contracts you sign, e.g. when taking out a cell-phone contract).

If the contract is to be written, it is important that the lawyer drawing up the document understands what it is that the parties want to achieve, the background leading up to the contract, negotiations and the specific agreements reached. The lawyer will then "dress" the contract up in the correct legal style, add certain clauses that he knows will be necessary to give effect (as far as possible in law) to what the parties have agreed and add certain clauses that are either required by the law, or have become standard practice, in order to make contracts more effective.

There are certain standard terms that you will also sometimes come across in music (and most other) contracts. These standard clauses are listed here as;

Breach clause

A clause that tells the parties what remedies and consequences will be if either of them breaches the contract (see below).

Condition

A term that renders the operation and consequences of the contract dependent on the occurrence or non-occurrence of a specified future event. For example, Bernie agrees to hire a mixing desk from Benjie if he gets a R100,000 bank loan to finance his tour by 1 June.

There is no contract regarding the mixer until the bank loan is approved.

This is called a suspensive condition. The opposite is a resolution condition, which renders the continued existence of the contract dependant on the condition: for example Bernie agrees to hire Benjie's Pro Tools recording system for R2,000 per month while it has the latest Pro Tools software. At the time of agreement, the latest software is Version 10.3. Six months later, Version 11 is introduced. At this point, the contract is undone by the fulfillment of this resolutive condition.

Time clause

A term that determines a specific time when (i.e. a date) or period within which (e.g. 6 months from signature) that the contract will become operative or dissolved. (For example Abner agrees with Aphiwe that he will rent Aphiwe's country recording studio for a period of six months from signature, at R10,000 per month. For the sake of accuracy, this is called a "resolutive" time clause because it extinguishes the contract). Exactly six months from the date of signature, the obligations are extinguished.

Supposition

A term that renders the existence of the contract dependant on an event which has already taken place, or on a state of affairs which exists at the time of concluding the contract. For example, Owen owns a Ludwig drum kit that was apparently left in South Africa when Black Sabbath toured here. Oscar wants to buy the kit, but only if it was the actual one played by Sabbath's great drummer, Bill Ward. Owen is not 100% sure that this is indeed the same kit that Ward played. Therefore they agree that Oscar will purchase the kit if indeed it was Bill Ward's kit (and this is later established, after an enquiry).

Warranty

A term that relates to the absence of defects in the warrantor's products or service, or to the fact that the warrantor can, in fact, deliver the performance, or deliver it to a particular quality, standard or quantity. A warranty is, in tact, an additional obligation to the standard performance obligations included in the contract. For example, Oliver signs a record deal with Olson Records. One of the terms is that Oliver promises that his first album will go gold or win a Grammy.

This would be a warranty - i.e. an additional obligation relating to the quality, quantity or standard. Another example would be that Oliver promises, as a term of the contract his songwriting partner on the album will be Colin Shapiro. If it turns out that Colin Shapiro has never heard of Oliver and will not write with him, Oliver is in breach of warranty. (Remember, this is different to misrepresentation, where the statement is not made a term of the agreement).

Modus

This is a contractual term that additionally burdens a contractual party. For example, Willie agrees to lend his PA system to Werner for Werner's upcoming tour, on the condition that Werner plays only originals and no covers during the tour. If Werner plays covers, he will be in breach;

Penalty clause

Where one party breaches the contract, a clause may be included that provides for remedies designed by the parties (as opposed to automatically applying by law). Usually this is a sum of money, e.g. Gustav agrees to finish building Gary's recording studio by 1st November, failing which he will pay R1,000 per day penalty, until it is finished;

Cancellation

This is a clause that entitles one party to cancel the contract if the other is in breach, or in other circumstances. (This might in many cases apply automatically by law in any event. Several artists have attempted to rely on this clause to terminate contracts, but those that fail forget that they have to prove breach or the term's other requirements, in order to do so.

Forfeiture

Normally, when a contract is cancelled, restitution takes place (i.e. each party gets back his performance). When a forfeiture clause exists, however, one (or even both) of the parties loses this right. For example, Clancy agrees to purchase a guitar from Clement for R10,000, payable in ten equal monthly instalments of R1,000 each. A clause is inserted to the effect that if Clement defaults on any of his payments, he will forfeit all payments made up until then (when the contract will be cancelled). If Clement has made five payments and then stops paying, he will have to hand the guitar back and will lose the R5,000 he has already paid.

Domicilium

Fancy legal terminology for your registered "home" in terms of the agreement (i.e. where papers may be served).

Entrenchment

This is a clause that provides that a written agreement may only be altered by written amendment, signed by the contract signatories.

Arbitration

This is a clause providing that the parties will refer a contractual dispute to an arbitrator for settlement instead of going to court. It is designed to save time and costs.

Indulgence

This is a clause providing that any relaxation of a party's contractual rights should not be seen as an abandonment of those rights (e.g. the seller gives the buyer a few more days than agreed to make payment - this does not deprive him of his right to claim payment).

Severability

This is a provision that allows a clause that is for any reason invalid (a good example would be an unreasonable restraint of trade) to be 'severed' from the contract without affecting the remainder of the agreement.

Jurisdiction

This is a clause indicating which court has jurisdiction over any dispute arising from the contract. Usually, the parties will choose the Magistrate's Court in order to avoid the potentially high costs of the High Court, which would otherwise have jurisdiction over larger claims).