Classification Of Terms

Conditions:

Conditions, in terms of contract law, is a major term in the contract that states what each party's obligations are for the contract. A breach of a condition can be considered as enough grounds for the innocent party to repudiate the contract and claim damages. a relevant case being Poussard v Spiers (1876) 1 QBD 410

Warranties:

Warranties are minor terms and do not play a central role to the contract or its existence. The breach of a warranty can not result in the innocent party terminating the contract but can lead to a claim for damages. A relevant case being Bettini v Gye (1876) QBD 183

Innominate Terms:

The innominate term approach was established in the case of Hong Kong Fir Shipping. Rather than classifying the terms themselves as conditions or warranties, the innominate term approach looks to the effect of the breach and questions whether the innocent party to the breach was deprived of substantially the whole benefit of the contract. Only where the innocent party was substantially deprived of the whole benefit, will they be able to treat the contract as at an end.

Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962] 1 All ER 474 CA.

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.

Held:

The defendants were liable for wrongful repudiation. The court introduced the innominate term approach. Rather than seeking to classify the term itself as a condition or warranty, the court should look to the effect of the breach and ask if the breach has substantially deprived the innocent party of the whole benefit of the contract. Only where this is answered affirmatively is it to be a breach of condition. 20 weeks out of a 2 year contract period did not substantially deprive the defendants of whole benefit and therefore they were not entitled to repudiate the contract.

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