Interpretation of Terms (Conditions, Warranties, and Innominate Terms)

Question 1

what are the 3 classifications of contract terms?

Answer 1

(1) conditions

(2) warranties

(3) innominate terms

Question 2

what is the difference between a condition and a warranty?

Answer 2

a condition is an important term going to the root of a contract

a warranty is a a less important term not going to the root of the contract

breach of condition and breach of warranty provide the innocent party with different remedies

Question 3

what is an innominate term?

Answer 3

a term which, at the outset, is neither a condition or a warranty

Question 4

what is the approach for classifying contract terms?

how does the court determine if a term is a contract or warranty? (3 steps)

Answer 4

(1) consider if the term is classed as a condition or warranty by statute, case law, or the parties themselves under the contract.

if no answer, then ask:

(2) Did the parties intend, at the time of contracting, that any breach of the term in question could result in the innocent party terminating the contract? (‘root of the contract test’) - if yes, then condition; if no, then warranty

if no such intention is found, then the term is an innominate term - so the court will ask:

(3) Does the breach of the term deprive the innocent party of substantially the whole of the benefit that was intended he obtain from the contract? - if yes, then condition; if no, then warranty

Question 5

what are the remedies available to the innocent party if there was a breach of condition?

Answer 5

breach of condition is a repudiatory breach - entitling the innocent party to elect to either:

(1) treat the contract as terminated (releasing both parties from future obligation)
or
(2) affirm the contract (contract remains binding)

AND

sue for damages in either case

Question 6

what type of damages can the innocent party sue for if there has been a repudiatory breach and it elected to terminate vs affirm the contract?

Answer 6

elect to terminate:
(1) damages for the loss resulting from the breach, and
(2) damages for the loss resulting from termination of the contract

elect to affirm:
(1) damages for the loss resulting from the breach, and

Question 7

what are the remedies available to the innocent party if there was a breach of warranty?

Answer 7

only sue for damages (for loss resulting from the breach)