TERMS can be divided into two types: WARRANTIES and CONDITIONS.

Conditions

A conditions are regarded as a major terms of the contract. (Goes to the root of the contract).

If a party to a contract breaks a condition the consequence is serious since it entitles the other party not only to sue for damages but also to terminate the contract. The injured party, however, does have the option of affirming the contract and simply claiming damages if they so wish.

Warranties

Warranties are regarded as a minor terms of a contract. (One which imposes a term that is merely ancillary to the main thrust of the contract).

A word of warning is necessary here since, rather confusingly, a warranty in a contract of insurance is regarded as a major term, with all the rights appropriate to such a term should a breach occur. Ordinarily, however, a breach of warranty merely gives the injured party the right to sue for damages only.

Poussard v Spiers and Pond (1876) 1 QBD 410 is the case where an actress was employed to play a leading role in operetta for the season, and she was not able to take part in the operetta for first week of the season. After a week she came and producers said that they do not need her anymore and terminated the contract. The actress sued for breach of contract and was unsuccessful. Court held that the opening night and first week was the most important and she missed that which amounts to breach of condition and it allows to terminate the contract.

The difference between conditions can be seen in Bettini v Gye (1876) 1 QBD 183. In this case a singer was engaged to sing for a year in different theatres. Part of the contract required a singer to appear six days before the start. In fact, he arrived 3 days before the start. Producers said that it is a breach of conditions and wanted to terminate a contract. The singer sued for a breach of contract and it was successful. Court held that this term amounted to a warranty, not condition. Producers could only sue for damages but they cannot terminate the contract.

Innominate terms

The distinction between conditions and warranties arises out of the relative importance attached to the terms when considered against the total background of the contract. Very often the parties to a contract may expressly agree to designate a term as a condition or warranty as an indication of the emphasis they wish to place on the importance of the term within the contract. Similarly, the law itself may give an indication of the importance of a term either by means of a statute, or by means of a judicial decision as to the status of a particular term. Recently, however, where no expression of the status of a particular term has arisen out of the agreement from whatever source, the courts have taken to classifying the term as an 'innominate term'.

The effects of a breach of an innominate term do not depend on the status of the term in the contract when it is entered into but on the effects of a breach of the term in the contract.

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

This case illustrates the concept of an innominate term.

The defendants had chartered a ship from the plaintiffs for 2 years. The charter party contained a term which required the plaintiffs to provide a ship which was 'in every way fitted or ordinary cargo service'. It transpired that the engine room crew were incompetent and that the ship was in a poor state of repair. In fact the plaintiffs openly admitted that the ship was unseaworthy. As a result of these factors some 20 weeks' use of the ship was lost and the defendants claimed to treat the contract as terminated for breach of condition. The plaintiffs claimed that the breach only entitled the defendants to sue for damages. The plaintiffs succeeded in their action against the defendants for wrongful termination.

"Lord Dipplock stated that the problem in this case is neither solved nor soluble by debating whether the shipowner's express or implied undertaking to tender a seaworthy ship is a 'condition' or a 'warranty'. He added that there are many contractual undertakings of a more complex character which cannot be categorised as being 'conditions' or 'warranties'."

For a breach of such an undertaking depend on the nature of the event to which the breach gives rise and do not follow automatically from a prior classification of the undertaking as a 'condition' or a 'warranty'.