Contract Law - Classification of Terms Flashcards
What are the three main categories of terms?
Condition
Warranty
Innominate Term
What is a condition?
Condition is a term which goes to the ‘root of the contract’ is of great importance to the contract as a whole.
What is the general rule if there is a breach of a condition?
General rule : if a party breaches a condition the innocent party can:
1) Treat the contract as repudiated (terminate the contract).
2) Sue for damages
3) Affirm the contract and all the parties remain bound to perform their obligations under the contract.
What happens if the claimant decides to affirm the contract?
They can still sue for damages BUT will waive their right to repudiate the contract.
What kind of breach does it have to be?
Any breach of a condition needs to be more than de minimis.
If it is more than de minimis, will entitle the innocent party to treat the contract as terminated, even if they have suffered little or no loss.
What is a warranty?
Warranties are terms that contain a minor obligation, ‘they do not go to the root of the contract’
What remedies are available for a breach of a warranty?
They are only able to sue for damages.
Can you give an example of a breach of a warranty?
Case of Bettini v Gye
Facts: Bettini was contracted to perform as an opera singer for a three-month period. He became ill and missed 3 of the 6 days of rehearsals. His employer replaced him.
Held: Bettini was only late for rehearsals, which was not central to the main purpose of the contract. This was therefore a breach of a warranty and Gye was not entitled to terminate the contract, only sue for damages.
Can you give an example of a breach of a condition?
Poussard v Spires
Facts: A singer had a contract to perform during the entire run of an opera. She did not arrive until a week into the run and crucially missed the opening night.
What is the distinction between a condition or warranty?
The distinction between a condition and a warranty is that a condition is an important term going to the root of the contract.
The crucial question is whether the parties intended, at the time of contract, that any breach of the relevant term could result in an innocent party terminating?
Only if the answer is yes, should the term be categorized as a condition from the outset.
What is an innominate term?
These are terms which are neither conditions nor warranties but are of an innominate nature.
It is not clear at the time the contract is made whether the term will be treated as a condition or warranty.
Judges decide ex post facto (based upon the effect of the breach) how the term should be treated.
How does the court look at the consequences of the breach in deciding what remedy to award?
1) The court will ask, did the breach deprive the innocent party of ‘substantially the whole benefit of the contract’?
Yes = treated as a breach of condition. The claimant has the right to choose termination or affirmation of the contract, in addition to claiming damages.
No = treated as breach of warranty. Claimant is only entitled to claim for damages.
NOTE: this is different to Poussard test - based on intention.
Which statutory implied terms are conditions?
ss12-15 SGA 1979 - breach gives rise to rejection of contract and claiming refund.
In the majority of cases, the courts will simply be trying to interpret the contract to give effect to the intention of the parties.
Where the parties have not expressly stated at the time of contracting whether a term will be a condition or warranty, the courts will use the Hong Kong v Kawasaki test.
What are statutory implied terms are innominate terms?
S13 SGSA 1982.
S14 SGSA 1982.
S15 SGSA 1982.
Can you give 2 examples of cases which held that the terms were innominate?
Cehave v Bremer: This case involves the sale of citrus pellets for £100k to be used in animal feed. The contract required the pellets to be delivered in good condition.
Part of the shipment was damaged on arrival, the buyer rejected the shipment, claiming a refund of the contract price on the basis that the breached term was a condition. The seller sold the shipment to a third party who then sold it on to the original buyers for £30k who used them for animal feed as planned.
HELD: that the term was innominate. Buyers cannot reject goods unless the defect is serious and substantial: the goods could not have been so badly damaged as they were used for their original purpose.
Bunge Corpe: A contract for the sale of soya beans required the buyers to give the sellers 15 days’ notice that the ships that would carry the goods were ready for loading. The buyers were late in giving their notice. During this time, the price of soya beans dropped significantly. The sellers terminated the contract and claimed damages.
Held: Court held that the clause was a condition. Time clauses in commercial contracts are especially likely to be conditions, particularly in the context of shipping perishable goods. It was held that innominate terms are ‘commercially undesirable’ commercial parties value certainty and do not want to have to litigate to discover the classification of a term.
