Petar Vasilev STUDENT NUMBER: 7242380

Classification of Terms

In contract law, the terms of a contract can be defined as three types. However, it wasn't always like that. First and foremost, a contract was formed only by two types of terms rather than three. This was called the traditional classification of terms. It consisted of Condtions and Warranties.

  1. Conditions

A condition, is a fundamentally important part of the contract. It is so important, that if a party to a contract breaks a condition, that entitles the other party, not only to sue for damages but also to terminate the contract itself. However, it's of importance to note that the injured party, could also affirm the contract and claim damages rather than terminating the whole contract. An example of this could be the case of Poussard v Spiers and Pond, where an actress missed the opening day of an opera play and was substituted. Once she came back and requested to be put back on the play, her contract was terminated. When she brought her claim to the courts, it was rejected as the courts viewed her absence on the opening night as a broken condition of the contract. Therefore, the opposing party was in their full right to terminate the contract.

2. Warranties

In contrast of what was said above, a warranty is a lesser term of the contract. In essence, it's regarded as a minor term and one which does not interfere with the main purpose of the contract in force. If this type of term is breached, the opposing party could only be awarded damages and nothing more. In Bettini v Gye, much like the previous case a singer was required to perform at various theatres. In this case, the term in question was described as a warranty. It stated that the artist should appear six days in advance, where in fact he only appeared three days before the event. When, like in the previous case they sought to terminate the singer's contract, the courts concluded that that's unlawful, since this term was merely ancillary to the main purpose of the contract. Therefore, the only available remedy to the party was damages, rather than termination.

As it was stated earlier, the original classification of terms consisted of only Conditions and Warranties. However, Innominate terms are also a new part of the classification.

3. Innominate/Intermediate terms

Innominate or also called intermediate terms appear, when it is not clear for the courts whether the breach of a term imposed in the contract is serious enough to be viewed as a condition or a warranty. An example of an innominate terms could be, for instance the requirement of a car to be "roadworhty". As you can see, that is a quite broad term, which can mean a lot of things. If a term is serious enough to be considered a condition then the injured party, could claim damages or termination of the contract, while if the term is seen as a warranty, then only damages are available. The case that introduced innominate terms, was:

Hong Kong Fir Shipping Co. Ltd v Kawasaki Kisen Kaisha Ltd (1962)

In that case, the defendants had chartered a ship from the plaintiffs for two years. They requested that the ship was ". . .in every way fitted for ordinary cargo service." and that they would "maintain her in a thoroughly efficient state in hull and machinery during service." The ship was in good condition, however, due to the crew being incompetent, 20 weeks use of ship was lost and the claimants, terminated the contract. The claimants brought legal action, claiming that the defendant terminated the contract unlawfully as the term was rather a warranty than a condition. The plaintiffs succeeded in their claim. In that decision, a test was born. When a term is found by the court to be an innominate term the rights of an innocent party in the event of a breach are found by applying the test to whether they have been substantially deprived of the full benefit of the contract. If they have, they'll be given the chance to seek termination of the contract and if not the party in question would have to suit for damages. Therefore, an innominate terms only becomes repudiatory if the party has been deprived of the benefit of the contract. There has been an approach, where terms have been classified only as repudiatory and non-repudiatory. However, that approach is generally rejected. The three way classification of terms is generally seen as the most certain one. Nevertheless it could easily be seen how that's not the case. In order for a party to be completely certain which term of their contract is repudiatory they would have to bring a legal action against the other party every time. Of course, they could, and one could argue it's in their interest to specify in their contract which term is repudiatory and which is not. Or simply put, which term is a condition and which a warranty. It can be seen how intermediate terms can create problems with certainty. For example, in the case of The Mihalis Angelos (1970), a charterparty was entered into on 25 may 1965 providing that the ship in question would be "expected to be ready to load under this charter about 1st July 1965 at Haiphong." They specified in their contract that if the charter is not ready to load before 20th July 1965 then they are free to cancel the contract. When in fact the charter was not ready and they cancelled their contract, an action suit was brought for wrongful termination, where the litigants pressed the court to take the Hong Kong Fir approach. The court declined to do so and the classic approach of labeling terms as condition and warranties was rather taken, thus, increasing certainty in the contracting parties. From this it's clearly seen that courts have tried to limit the scope of the Hong Kong Fir test.

CONCLUSION

As a conclusion, I would say that in a perfect world scenario, one would only need the first and second classification of a term. However, as we all know our world is far from perfect. Therefore, there is a clear need of the existence of innominate terms. From all that is stated above, and all the case examples, one could clearly see the importance of specifying each term in every contract we sign, so we are completely sure that the opposing party and the courts as well understand our exact intent in signing the specific contract.

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Petar Vasilev
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