Classification EVALUATION Flashcards
Explain
A condition is a major term of the contract where breach would defeat the purpose of the
contract. Breaching a condition means the contract can be repudiated (set aside) or the victim can choose to get damages. This can be seen in Poussard v Spiers and Pond,
where the lead actress not actually performing defeated the purpose of the contract. In
contrast, a warranty is a minor term where breach would not defeat the purpose of the
contract. Breaching a warranty leads to damages, but the contract continues. This can be seen in Bettini v Gye, where missing 3 of 6 rehearsals did not defeat the purpose (to
actually perform) and so the contract continued but damages were paid. To determine if a term is a condition or warranty, the court can look at 3 things. Firstly the traditional test aboutthe root/purpose of the contract, as mentioned above. Secondly, if a statute specifies terms as conditions or warranties. Finally, if the parties specific something is a condition or warranty, it is likely this is their true intent. However, if it appears unreasonable for such a term to be a condition, the courts may not uphold this even if specified by the parties like in Schuler v Wickman Machine Tools, where despite the parties saying it was a condition for
Wickman to make all the trips, the court felt it would be unreasonable for the contract to end
even if he missed one for a valid reason and so called it a warranty. However, some terms
are very broad and could be breached in serious or not so serious ways. Such terms are
known as innominate terms (ITs), and can lead to repudiation if they have a serious breach,
or merely damages if not. In Hong Kong Fir Shipping, it was said this depends if the
breach deprived the victim of substantially the whole benefit of the contract. However the
courts have shown reluctance to use ITs, even where terms could be broad such as the
readiness to load clauses in Bunge Co. The courts may only use ITs if one party is trying to
exploit a term being a condition, such as in Cehave v Bremer where damage to the grain
clearly did not defeat the purpose due to the buyers still using it
Traditional classifications are more certain
The traditional classifications of warranties and conditions is more certain without the
complexity of ITs. Having all terms fall into one category or another means that the parties in a contract know what their remedies are even before a breach occurs, allowing them to
prepare and respond to problems effectively (eg Spiers and Pond would know they had the
right to fire Poussard). However, some terms do not so neatly fit into one category (e.g. ‘ready to load’ in Bunge), and so the law either has to take a rigid approach of always allowing repudiation or never allowing it for such terms. Therefore a lack of innominate terms may lead to injustice
Courts can overlook a condition
However, there was already flexibility in how the court can overlook if parties specifically
labelled something as a condition. On the one hand, this goes against freedom of contract
because it does not respect what the parties themselves decided. This is especially
troublesome when there was equality of bargaining power (e.g. Schuler) because it is not for the courts to interfere in such agreements and makes it uncertain when parties can dictate their own terms. However, in cases where there is unequal bargaining power, the courts protecting those being treated unreasonably is positive and ensures they are not forced to end a contract unfairly. Therefore there was already some justice at the expense of certainty before ITS
Innominate terms
ITs somewhat resolve the above problems with the traditional classification by not cementing a term as capable of repudiation in all circumstances, but allowing this if the breach is serious enough. This flexible approach will allow for justice where the term being breached should lead to repudiation in one case, but the same term being breached in another case should not. However, the courts have recognised that such an approach leads to huge uncertainty, as parties will not know what the consequences of breach will be until it actually happens and the severity can be assessed. This is why the courts in Bunge Co. refused to call broad terms innominate, as they seem to value certainty over flexibility
Reluctance to use innominate terms
It could be argued that the courts being reluctant to use ITs makes the law even more
uncertain. This is because it is unclear when anything will treated be a condition, warranty,
or innominate terms (even if the parties specified their intent in the contract). However, the courts still being willing to use ITs where one party tries to exploit others can be seen as a positive, not only because it creates justice in cases like Cehave, but because it can help
defend against inequality of bargaining power in other cases. Therefore trying to maintain
certainty in general, but still using ITs where necessary could be argued as an effective
balance
