Classification of Terms Types of terms

A term is an obligation under (within) the contract. After establishing the statement as a term, the subsequent question is what type of term it is.

There Are 3 types of terms:

Conditions

Warranties

Innominate terms

Terms are classified by their importance to the parties. Traditionally, the law recognized two:

  • conditions (major terms)
  • warranties (subsidiary terms)
Conditions:

Conditions are major terms of the contract. They go directly to the root of the contract and breaching them gives the right to claim damages or even terminate the contract.

A great example of it is the case of Poussard v Spiers [1876] where the absence of the main actress in opera for 4 first opening nights was considered a breach of the contract. The presence of her for beginning of the show was regarded as a condition, as it went "to the root of the matter", and entitled the producer to terminate the contract.

If the parties lebel a term as a condition, then the court may uphold this although not always.

In Schuler v Wickman [1974] Wickman signed a contract in which one of the condition was to send representatives to manofacturer at least once a week. He failed to make number of visit. Consequently, Schuler terminated the contract. Despite the fact that the parties expressly agreed to establish the condition the court held it was only a warranty.

Warranties:

A warranty is a minor term of a contract. They are supplementary to the contract and the breach of it may lead to damages only.

The perfect exapmle is Bettini v Gye (1876) where a singer failed to attend 3 first rehearsals for the show. The absence was treated as a breach of condition by the producer. However, in court it was established that presence at rehearsals is minor and amounting only to warranty. Therefore, the producer can sue only for damages, not termination of a contract.

Some legislation classifies some terms, for exaple: The Sale of Goods Act 1979. It indicates if its implied term is a condition or a warranty.
Innominate terms:

Innominate terms are the newest 3rd classification. The courts adopt the 'wait and see' approach. The remedy depends not on the status of the term but on the effects of the breach.

This approach allows a greater remedial flexibility, as the courts may look at the consequences of the breach and then decide whether to consider it as a condition or a warranty. Therefore, it may lead to damages or even termination of a contract.

The case that introduced it is:

Hong Kong Fir Shipping v Kawasaki Kisen Kaisha Ltd [1962]

This case resolves around selling a “seaworthy” ship. The sold ship was maintained by insufficient number of stuff and careless engineer. consequently, it had number of serious breakdown which led to losing about 20 weeks of work. New owner claimed for damages and termination of the contract.

According to Lord Diplock:

"No doubt there are many simple contractual undertakings, sometimes express but more often because of their very simplicity ("It goes without saying") to be implied, of which it can be predicated that every breach of such an undertaking must give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract. And such a stipulation, unless the parties have agreed that breach of it shall not entitle the non-defaulting party to treat the contract as repudiated, is a "condition". So too there may be other simple contractual undertakings of which it can be predicated that no breach can give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and such a stipulation, unless the parties have agreed that breach of it shall entitle the non-defaulting party to treat the contract as repudiated, is a "warranty"."

Significance of the case:

In this case court looked at the consequences of the incident more than the actual classification of terms - introducing innominate terms. It simply adapted 'wait and see' approach which allowed them to see the actual effect of the breach. It held that the claimant was not deprived of the “whole benefit”, therefore, they cannot terminate the contract.

However, this approach was critised by some judges as lacking certainty. It has been particulary shown in the context of commercial contracts.

In The Mihalis Angelos [1970]

In the agreement there between parties was a clause stating that the ship was expected to be ready for 1st July. The ship was not ready until the 23rd. The claimant wanted to terminate the contract.

The House of Lords held that the owner had no ground to believe that the ship will not be ready. The "expected readiness" clause was a condition. Notwithstanding the fact that it had not caused loss it classifies as a condition in defence of commercial certainty in shipping contracts.

made by:

Sandra Wodkowska (seminar: Wednesday 12.00 with Dr Jaswinder Kaur)

Created By
Sandra Wodkowska (seminar: Wednesday 12.00 with Dr Jaswinder Kaur)
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