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CAPE LAW UNIT 2: PRIVATE LAW

MODULE 2: CONTRACT LAW

Topic 4: Contractual Terms pt 2 Conditions, Warranties & Intermediate/innominate terms

TYPES OF TERMS IN THE CONTRACT

Not all terms within a contract are of equal importance. The terms of a contract will have different weighting
and are of differing significance to the contract. Some are of absolutely critical importance and without them
the contract simply could not be completed. While some terms will be descriptive or ancillary to the main
purposes of the contract and are therefore of lesser importance. Example:

“In a contract for the provision of a service, terms specifying the dates on which the
service is to be provided and the date for payment will be likely to be more important
than a term requiring the supplier of the service to submit an annual report of the work
done.

The consequences of breach of one of the first two terms is probably going to be more serious than the latter.
The parties may decide to give effect to such differences by according different status to different express terms
in their contract. The distinction between the status of terms is of most importance when the consequences of
a breach are being considered. This also means there will be different remedies available to the parties,
depending on the term that is breached.

The courts have traditionally classified terms into different categories in two different ways:

 Firstly, the term can be categorised according to its importance to the completion of the contract

 Secondly, the term be categorised according to the remedies available to a party who is a victim of a
breach of the term i.e a failure to honour the obligation.

As a result of these classifications the courts have determined there are three types of express terms in a
contract. They are listed in the order of importance:

 Conditions- term based

 Warranties- term based
 Innominate terms- breach based

These terms will be discussed in turn:

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CONDITIONS- TERM BASED

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A condition is a term of a contract which is so important to the contract that a failure to perform the condition
would render the contract meaningless and destroy the whole purpose of the contract. As a result, anything
that is accepted as being a condition is said to go to the root of a contract.

As a result of the significance of the term to the contract, the court allows the claimant who has suffered a
breach of the term the fullest range of remedies available. When a condition is unfulfilled the claimant will not
only be able to sue for damages but will also be entitled lawfully to repudiate his own obligations under the
contract or a claimant could do both. Repudiation is the right of the victim of the breach to consider the contract
ended as a result of the other party’s breach of contract.

The starting point for identifying conditions is the intention of the parties. Generally, description of a term as a
condition, or as entitling a party to terminate the contract/reject goods upon breach, will result in the courts
following the parties’ own classification. This point was considered very carefully by Mustill LJ in the following
case:
Lombard North Central plc v Butterworth [1987] 1 QB 527: A stipulation that time is of
the essence, in relation to a particular contractual term, denotes that timely
performance is a condition of the contract. The consequence is that delay in
performance is treated as going to the root of the contract, without regard to the
magnitude of the breach.

However, the court may be unwilling to accept the parties’ classification if the court considers that a breach of
this term could not have been intended by the parties to give rise to the option to terminate the contract. Case
on point:
L. Schuler AG v Wickman Machine Tools Sales Ltd [1974] AC 235: The House of Lords
refused to treat as a condition a term which was expressly stated to be a ‘condition of
this agreement’. The clause went on to provide for weekly visits over a period of four
and a half years to six names firms (some 1400 visits in total). The house of Lords did not
believe that the parties can have intended that a single failure to make one of the visits
should entitle the other party to bring the contract to an end. Lord Reid said:

“We must remember that we are seeking to discover intention as disclosed by the
contract as a whole. Use of the word ‘condition’ is an indication of such an intention but
it is by no means conclusive. The fact that a particular interpretation leads to a very
unreasonable result may be a relevant consideration. The more unreasonable the result.
The more unlikely it is that the parties can have intended it.

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The classic case condition is:

Poussard v Spiers and Pond [1876] 1 QBD 410: The claimant singer was contracted to
appear in the lead role in the operetta for a season. The first performance was
announced for the 28 November. The claimant attended several rehearsals, but then
was taken ill. She missed the remaining rehearsals and the first four performances of the
operetta. By this time, a substitute had been employed. The actress sued for breach of
contract but lost. The court held that she had in fact breached the contract for failing to
appear to perform. As the lead singer, her presence was crucial to the production and
was therefore a condition of the contract. Her presence went to the root of the contract
and was a breach of a condition. This justified/entitled the producers to repudiate and
terminate her contract for non-attendance.

Summary of Conditions:

 A major/fundamental term which is vital to the main purpose of the contraction

 Failure to adhere to the condition will deprive the other party of the main benefit of the contract
 A breach of condition will entitle the injured party to repudiate the contract or claim damages or both
 The injured party may also choose to go on with the contract, despite the breach, and recover damages
instead.

For examples of conditions in Jamaican legislation see sections 13 (a), 14, 15, 16, 28 of the Sale of Goods Act of
Jamaica

WARRANTY- TERM BASED

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Warranties are regarded as minor terms of the contract or those where in general the contract might still
continue despite their breach. it is any other term in a contract and specifically one that does not go to the root
of the contract. They contain less important obligation. Warranties are residual category of terms dealing with
obligations that are either ancillary or secondary to the major purpose of the contract.

The remedy for the breach of a warranty is merely an action for damages. There is no right to repudiate for a
breach of warranty. If the party who is the victim of the breach of a warranty tries to repudiate his obligations,
then this itself is an unlawful and actionable repudiation.

A classic warranty case is:

Bettini v Gye [1876] 1 QBD 183: A singer was contracted to appear at a variety of
theatres for a season of concerts. This contract included a term that he should attend
rehearsals for six days prior to the beginning of the actual performance. However, he
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was absent for the first three days of rehearsals and on his return his role had been
replaced. When the singer sued, the producers’ claim the obligation to attend rehearsals
was a condition, failed. The court held that the requirement was only ancillary to the
main purpose of the contract which was appearing in the actual performance. The court
did not believe that the clause relating to rehearsals was central to the main purpose of
the contract as to constitute a condition. In consequence, the court held that the breach
only entitled the producers to sue for damages and not to end the contract and replace
the singer as they had done.

Summary of Warranty:

 A minor/less important term of the contract

 A contract will continue where a breach occurs
 A breach of warranty will only give the injured party the right to claim damages
 He cannot repudiate the contract

For examples of Warranties in Jamaican legislation, see: sections 11, 12, 13 (a) (b) of the Sale of Goods Act,
sections 21 of the Consumer Protection Act.

INNOMINATE/INTERMEDIATE TERMS- BREACH BASED

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The problem of determining which category a term fit usually happens when the parties have been silent on the
subject or where the contract is oral. The effect of the classification is to identify what the term was at the time
of the formation of the contract, and therefore all later consequences depend on that classification.

The more traditional and simplistic process of classifying all terms as either conditions or warranties could lead
to a number of problems of interpretation. The categorisation of terms as either conditions or warranties implies
that the actual consequence of a particular breach is not a relevant factor. Once a term is a condition any breach
of it will be repudiatory, no matter that it can easily be remedied or has on the occasion cause no substantial
loss to the other party. Similarly, whatever the consequences of a breach of warranty, and however great the
losses it causes, it will never give rise to the right to terminate the contract. The approach is therefore rigid and
may cause injustice in some cases. However, it has the merit of certainty, as the parties will always know the
consequences of a particular breach of any term.

During the latter half of the 20th century, the courts developed an approach by which they would describe terms
as ‘innominate’. This means that they do not give the term any specific classification but, in determining the
outcome of a breach of the term, they will consider the consequences of the breach rather than how it is
classified in deciding on what remedy should be awarded in the circumstances.

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The central purpose of distinguishing between different classes of term is ultimately to determine what
remedies are available to the victim of the breach of the term. The modern concept of innominate term has
developed out of a desire by judges that the right to repudiate a contract should only be available in the event
of a breach when to grant such a remedy is fair to both sides.

Use of the innominate term as an alternative method of deciding the appropriate remedy in the extent of a
breach of a term was first considered in the following case:

Hong Kong Fir Shipping Co Ltd v Kawaski Kisen Kaisha Ltd (The Hong Kong Fir case)
[1962] 2 QB 26: the defendants chartered a ship from the claimants under a two-year
charterparty. A term in the contract required that the ship should be ‘in every way be
fitted for ordinary cargo service’. In fact, the ship broke down as a result of the
incompetencies of the engine room staff, and in any case was in a generally poor state
of repair and not seaworthy, a fact admitted by the claimants. As a result, 18 weeks use
of the ship was lost by the defendants and they claimed to treat the contract as
repudiated and at an end. The claimants sued, claiming that the term was only a
warranty, only entitling the defendants to sue for damages. The question for the Court
of Appeal was whether the breach of that term entitled the charterers to treat the
contract as repudiated, or only entitled them to damages. The court ruled that the
breach did not go to the root of the contract. The charterers had not been deprived of
substantially the whole benefit of the contract, and did not have the right to terminate
the contract.

Lord Diplock “felt that not all contracts could be simply divided into terms that are
conditions and terms that are warranties, and that many contracts are of a more complex
character. He considered that ‘all that can be predicted is that some breaches will, and
others will not, give rise to an event which will deprive the party not in default of
substantially the whole benefit which it was intended that he should obtain from
contract; and the legal consequences of the breach unless provided for expressly in the
contract, depend on the nature of the event to which the breach gives rise and do not
follow automatically from a prior classification as a condition or warranty”.

He said for example, the obligation as to seaworthiness, could be broken in any number of ways. For example,
the failure to have the correct number of lifejackets on board could render a ship ‘unseaworthy’ just as much
as a major defect in the hull. In such a case it was not possible to determine beforehand the consequences of a
breach in terms of whether it would be repudiatory or not. He said what a judge had to do was to:

“look at the events which had occurred as a result of the breach at the time when the
charterers purported to end the contract charterparty and to decide whether the

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occurrence of those events deprived the charterers of substantially the whole benefit
which it was the intention of the parties as expressed in the charterparty that the
charterers should obtain from the further performance of their own contractual
undertakings.”

On this analysis, the focus is not on the parties’ intention at the time of the contract but on the effect of the
actual breach which has occurred. The appropriate remedy is only determined after the consequences of the
breach have first been identified. Only a breach of a term that was sufficiently serious in that it struck
fundamentally at the purpose of the contract would enable the contract to be repudiated by the victim of the
breach. If the breach is of a term less serious it will only give rise to a remedy in damages.

The clear difficulty with identifying terms as innominate is that it can leave the contractual relationship in a state
of uncertainty. Nobody can be really sure what the outcome of a particular situation will be until the term has
been breached and the judge in the case has construed the term and declared what remedy is appropriate.

The doctrine in the Hong Kong Fir case has been applied in the following cases:

Cehave NV v Bremer (The Hans Nord) [1976] QB 44: This case concerned the sale of
citrus pulp pellets to be used as an animal feed at a price of £100,000 shipment was to
be made in good condition. On arrival it was discovered that some of the pellets were
damaged and the buyers rejected the entire cargo on the basis that this amounted to a
breach of a condition. It was also the case that the market price for these pellets had
fallen since the making of the contract. The sellers then resold the pellets to an importer
and the importer resold them on the same day to the original buyers, who used the
pellets for the original purpose as animal feed. The Court of Appeal held that the term
‘shipment in good condition’ was innominate and, since the cargo had been used for the
its intended purpose, the effects of the breach were not serious. Accordingly, the buyers
had wrongfully repudiated because they had made the wrong decision on the applicable
remedy.

The use of the innominate term is particularly appropriate where there is unequal bargaining strength between
the parties or where breaches of the contract is merely technical rather than material to the central purpose of
the contract, and where therefore the traditional methods of classification would lead to an injustice. Case on
point:

Reardon Smith Line Ltd v Hansen-Tangen [1976]: In a contract for the charter of a tanker
the ship was described as ‘Osaka 354’, a reference to the shipyard at which the tanker
would be built. In fact, because the shipyard had too many orders, the work was sub-
contracted to another yard and the tanker became known as ‘Oshima 004’. When the

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need for tankers lessened, the buyers tried to get out of the contract by claiming a
breach of a condition that the tanker should correspond with the full description applied
to in the documentation. The court held that since the breach was entirely technical and
had no bearing on the outcome of the contract it could not justify repudiation.

However, the court may still classify a term as a condition, regardless of what the possible consequences of a
breach might be, where it feels that the circumstances or the context in which the breach occurs demands it.
Case on point:

Bunge Corporation v Tradax Export SA [1981] 1 WLR 711: In a contract for the sale of
soya bean meal the buyers were required to give at least 15 days’ notice of readiness to
load the vessel. In the event, they only gave 13 days’ notice. This would not necessarily
prevent the sellers from completing their obligations. The first instance court held that
since the consequence of the breach were minor it would not justify repudiation. The
House of Lords, however, held that, since the seller’s obligation to ship was certainly a
condition, the obligation to give notice to load in proper time would also be a condition,
without regard to the consequences of the breach. Lord Wilberforce felt that stipulations
as to time in mercantile contracts should usually be viewed as conditions.

Lord Wilberforce said that certain contractual terms, especially those agreed by the
parties to give rise upon any breach to a right to treat the contract as repudiated were
not amenable to being classified as innominate terms. He said that the contrary
proposition would be commercially undesirable. It would fatally remove from the vital
provision in the contract that certainty which is the most indispensable quality of
mercantile contracts.

Summary of Innominate Terms

 The courts will look at the consequences of the breach in deciding what remedy is appropriate.

CONSTRUCTION OF TERMS

The remedies available to a party who has suffered a contractual breach depend on the classification given to
the term that has been breached. The parties to a contract do not always think to outline prior to the contract
the precise nature of the terms that they are incorporating into the contract or precise remedies that they are
contemplating will be available in the event of breach. Where the parties are silent on the classification of terms
or terms or the classifications are vague, it will be for the judges to construe what the terms are and their
contractual significance.

Judges uses a number of guiding principles:

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 Where terms are implied into a contract by law then judges will apply the classification given to the
terms in the statute, for example the implied terms in the Sale of Goods Act are stated as conditions.

 Where the terms are implied by fact, the judges will construe them according to the presumed intentions
of the parties.

 Where the terms have been expressed by the parties who have identified how the terms are to be
classified or what remedies attach to them, then the judges will generally try to give effect to the express
wishes of the parties. To do otherwise would be to go against the idea of freedom of contract.

 Where the terms are expressed by the parties by the parties have failed to identify what type of term
they are or what the appropriate remedy will be in the event of a breach, then the judges will construe
those terms according to what they believe is the true intention of the parties. This is in itself leads to
problems and a number of different approaches by the courts.

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