Classification of terms condition, warranty and INNOMINATE Terms

Condition - "the central instrument in a contract. A condition (1) invests or divests the rights and duties of the parties to the contract, or (2) stipulates that the occurrence or nonoccurrence of a certain event creates or terminates a contract". Breach of a condition constitutes breach of the contract, and entitles the aggrieved party to call for setting aside (rescission) of the contract, and to claim for damages.

Warranty - " an assurance or promise in a contract, the breach of which may give rise to a claim for damages. It is essentially a minor term of a contract ". Mostly, used in variety commercial situations, f.ex. insurance business, transactions or real estate.

Innominate terms - "an implied term of a contract which is neither classed as a condition or a warranty but somewhere in between." Contractual term the breach of which does not automatically discharge the innocent party from its obligations under the contract or entitle an injured party to damages. A court or an arbitrator must evaluate the seriousness of the breach and its effects before any such decision can be made.

Hong Kong Fir Shipping v Kovasaki Kisen Kaisha Ltd [1969] - case commentary:

A ship was chartered to the defendants for a 2 year period. The agreement included a term that the ship would be seaworthy throughout the period of hire. The problems developed with the engine of the ship and the engine crew were incompetent. Consequently the ship was out of service for a 5 week period and then a further 15 week period. The defendants treated this as a breach of condition and ended the contract. The claimants brought an action for wrongful repudiation arguing the term relating to seaworthiness was not a condition of the contract.

The case created the concept of an innominate term. The Court of Appeal agreed, asking whether the breach had resulted in the defendants being deprived of the whole of the benefit they were entitled to under the contract. This was not the case and the breach did not justify termination. The remedy for breach of an innominate term depends on the nature of the breach. If the claimant has lost the whole of the benefit of the contract he will be entitled to treat the contract as repudiated and claim damages. If not, he will be entitled to damages only.

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