Classification of Terms Katarina Thurston

If a statement becomes a term of a contract- what type of term is it classified as?

Conditions:

A condition is a major term and is at the heart of a contract. It is defined as a "declaration or provision which makes the existence of a right dependent on" a party's actions or non-actions. A breach of a condition could result in a range of remedies, usually in the form of damages or a complete termination of the contract.

Termination example case: Poussard v Spiers [1876]

In this case, an actress employed to play the leading role in an opera became too ill to perform five days before opening night. This resulted in her missing four days worth of performances. The company who employed her decided to replace her with another actress. As a result of this, the actress attempted to sue for a breach of contract, however failed. The court ruled that opening night was so important that her absence was a breach of the condition, allowing them to terminate the contract.

Warranties:

A warranty is a minor term in a contract as it is ancillary to the main purpose. It is defined as a "subdivision of contractual terms based upon the remedy to which their breach may be said to give rise". If you were to seek a remedy for a breach of a warranty, you would only have the right to sue for damages, not termination of the contract.

Example case: Bettini v Gye [1876]

A singer was employed by a company to perform at a variety of theatres. Part of the contract specified that he was required to show up six days before opening night to rehearse. However, he only showed up to three of the six mandatory sessions. The company intended to sue the singer for a breach on a condition, but failed. The singer then sued for wrongful termination of their contract and succeeded. The court found that the rehearsals were a warranty rather than a condition, meaning that the company could only sue for damages.

Innominate Terms:

A third classification has emerged, known as an innominate term, which can range from trivial to very serious. This term is known as the 'wait and see' approach to contracts as it may not be obvious what classification a term falls under. For example, this can arise from the vagueness of certain terms.

As a result, innominate terms add a degree of flexibility to the courts, which helps to protect vulnerable and unequal parties. However, this does mean that the parties have no certainty in their rights in the case of a breach.

If the effects of the breach are serious, the courts view it as acting like a condition in that particular situation. On the other hand, if the effects of the breach are minor, the courts view it as acting like a warranty. However, this does not mean parties are automatically entitled to certain remedies for these breaches.

Important case example: Hong Kong Fir Shipping v Kawasaki Kisen Kaisha Ltd [1962] (This case introduced the concept of innominate terms.)

The company rented a ship for two years. They then proceeded to sail their cargo in it from the United States to Japan. It was an old ship which meant that it's machinery needed to be maintained by experienced and capable staff in the engine room. However, there was an insufficient number of staff and a drunk chief engineer. This resulted in a multitude of serious breakdowns, adding twenty weeks to their shipping time. The company attempted to sue for breach of a condition, however, the court ruled that seaworthiness was not a condition of their contract. They made this ruling as, despite the number of breakdowns, none of that was so great to break the commercial purpose of the charter. The important question to ask when deciding the remedy for an innominate term is: was the party deprived of the whole benefit of the contract? In this case, the answer was no.

You can test a breach of an innominate term for its remedy using these steps:

  1. Look at the consequences of the breach of the term.
  2. Make an assessment of the seriousness of the breach.
  3. Come to a decision as to whether the term is acting as more of a condition or a warranty.
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Katarina Thurston
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