Conditions and Warranties Flashcards
The terms of a contract (whether express or implied) can be classified as conditions, warranties or innominate terms.
As a general principle, if a party breaches a condition, the innocent party has a right to treat the contract as repudiated (ended)
The innocent party may also sue for damages
immediately.
they can terminate the contract, put an end to it with the effect that both parties are released from all future obligations under the contract.
If the innocent part chooses to affirm the contract, the contract remains in full force and effect, but the innocent party can still sue for damages with respect to the other party’s breach.
In such instance, the innocent party** waives the right to repudiate**.
In contrast, if a party is in breach of a warranty, the only remedy available to the innocent party is to sue for damages, i.e. there is no right to treat the contract as repudiated
Traditionally, the distinction between a condition and a warranty is that a condition is an important term ‘going to the root of the contract’
Poussard v Spiers (1876)
A warranty is a less important term not going to the root of the contract.
The innominate term approach was established in the case of Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962]
Only where the innocent party was substantially deprived of the whole benefit, will they be able to treat the contract as at an end.
Does the breach deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract?
Innominate term
If the answer to this question is ‘yes’ then the term will be treated as a condition and the
innocent party is entitled to treat the contract as repudiated and claim damages. If the answer is ‘no’ the innocent party is entitled to claim damages only.
this analysis may promote justice as between the parties, but such justice is achieved at the cost of certainty, in particular
certainty as to whether the innocent party has the right to terminate the contract as a result of the breach
When considering the classification of terms, the starting position should be to consider whether the term in question has been classified as a condition or a warranty by: i) statute; ii) the parties or iii) previous judicial decision(s)
If that does not provide an answer, then the court will need to look at the contract, the
subject matter and the surrounding facts to determine whether the parties intended for
any breach of the term to entitle the innocent party to terminate the contract (this is where
the “root of the contract” test may be relevant).
If the court cannot determine the parties’ intention, or determines that their intention was that not every breach would lead to the right to terminate, then the court is likely to decide that the term is innominate, and apply the test from Hong Kong Fir.
Time is of the essence
If time is of the essence, lateness will amount to a repudiatory breach entitling the other party to terminate the contract.
