CONDITIONS-WARRANTIES AND INOMINATE TERMS.

Contractual terms can either be conditions, warranties or innominate terms. Traditionally,

contractual terms were classified as either conditions or warranties. The category of innominate
terms was created in Hong Kong Fir Shipping. It is important for parties to correctly identify
which terms are to be conditions and which are to be warranties. Where there has been a breach
of contract, it is important to determine which type of term has been breached in order to
establish the remedy available.

Conditions:
A condition is a major term of the contract which goes to the root of the contract. If a condition
is breached the innocent party is entitled to repudiate (end) the contract and claim damages:

Poussard v Spiers (1876) 1 QBD 410

Madame Poussard entered a contract to perform as an opera singer for three months. She
became ill five days before the opening night and was not able to perform the first four nights.
Spiers then replaced her with another opera singer.
Held:
Madame Poussard was in breach of condition and Spiers were entitled to end the contract. She
missed the opening night which was the most important performance as all the critics and
publicity would be based on this night.

Warranties:
Warranties are minor terms of a contract which are not central to the existence of the contract.
If a warranty is breached the innocent party may claim damages but cannot end the contract:

Bettini v Gye (1876) QBD 183

Bettini agreed by contract to perform as an opera singer for a three-month period. He became ill
and missed 6 days of rehearsals. The employer sacked him and replaced him with another opera
singer.
Held:
Bettini was in breach of warranty and therefore the employer was not entitled to end the
contract. Missing the rehearsals did not go to the root of the contract.

Innominate terms:
The innominate term approach was established in the case of Hong Kong Fir Shipping. Rather
than classifying the terms themselves as conditions or warranties, the innominate term approach
looks to the effect of the breach and questions whether the innocent party to the breach was
deprived of substantially the whole benefit of the contract. Only where the innocent party was
substantially deprived of the whole benefit, will they be able to treat the contract as at an end:

Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962] 2 QB 26 Court of Appeal
A ship was chartered to the defendants for a 2-year period. The agreement included a term that
the ship would be seaworthy throughout the period of hire. The problems developed with the
engine of the ship and the engine crew were incompetent. Consequently, the ship was out of
service for a 5-week period and then a further 15-week period. The defendants treated this as a
breach of condition and ended the contract. The claimants brought an action for wrongful
repudiation arguing the term relating to seaworthiness was not a condition of the contract.
Held:
The defendants were liable for wrongful repudiation. The court introduced the innominate term
approach. Rather than seeking to classify the term itself as a condition or warranty, the court
should look to the effect of the breach and ask if the breach has substantially deprived the
innocent party of the whole benefit of the contract. Only where this is answered affirmatively is
it to be a breach of condition. 20 weeks out of a 2-year contract period did not substantially
deprive the defendants of whole benefit and therefore they were not entitled to repudiate the
contract.

This approach has been criticized for sacrificing certainty. Also the innocent party may well be
liable for wrongful repudiation if they treat the contract as at an end where it is found that the
breach did not deprive them of substantially the whole benefit of the contract.

Even where the parties have themselves classified the term as a condition the courts can hold
that it was in fact only a minor term and therefore a breach of that term would not give rise to
the right to repudiate the contract.
Compare the cases:

Schuler v Wickman Tools [1974] AC 235 House of Lords

Schuler were manufacturers of certain tools and Wickman were a sales company granted the
sole right to sell certain tools manufactured by Schuler. A term of the contract between the
parties was described in the contract as being a condition and provided that Wickman would
send a sales person to each named company once a week to solicit sales. This imposed an
obligation to make 1,400 visits in total. Wickman failed to make some of the visits and Schuler
terminated the contract for breach of condition.
Held:
Despite the fact the contract had expressly stated the term was a condition, the House of Lords
held that it was only a warranty.

Lombard North Central v Butterworth [1987] QB 527

The defendant leased a computer from the claimant. The claimant was to pay £584 by 20
instalments every 3 months. A term of the lease agreement provided that punctual payment was
required and breach of this term would entitle the lessor to terminate the agreement. The
defendant got into arrears with the instalments and the claimant took possession of the
computer and sold it on for £175. The claimant sued the defendant claiming arrears and all
future payments amounting to £6,869 in total.
Held:
The term relating to prompt payment was a condition. The parties by their agreement had
demonstrated that prompt payment was an essential term and the consequence of breach was
clearly set out. Nicholls LJ stated that even one late payment would entitle the lessor to
terminate irrespective of the effect of the breach.
The need for certainty in commercial contracts:

The Mihalis Angelos [1970] 3 WLR 601

The owners of the ship, The Mihalis Angelos, chartered the ship to the defendant to use for the
carriage of some cargo. A clause in the agreement stated the ship was expected ready to load on
1st July. In fact, the owners had no grounds for believing the ship would be ready to load on
that date as it was in Hong Kong at the time and would not be ready until at least the 14th of
July and in fact it was not ready at that date. The defendant cancelled the contract on 17th of
July. The cargo that they expected to be carrying had not arrived due to the bombing of a
railway in Vietnam. The ship owners brought an action against the defendants for anticipatory
breach. The defendants argued that the claimant was in breach of condition of the contract by
not be ready to load on the specified date.
Held:
The expected ready to load clause was a condition despite the fact it had caused no loss to the
defendant. The classification as a condition was said to be because of the need for commercial
certainty in shipping contracts.

Bunge Corporation v Tradax [1981] 1 WLR 711 House of Lords

A contract for the sale 5,000 tons of soya beans required the buyers to give the sellers 15 days’
notice of readiness of loading. This term was stated as a condition. The buyers gave a shorter
notice period and the sellers treated this as terminating the contract and claimed damages. The
price of soya beans had dropped by over $60 per ton. The initial hearing was deciding by
arbitration where it was held that the sellers were entitled to end the contract and awarded
$317.500 representing the decrease in value of the soya beans. The buyers appealed to the High
court who reversed this decision applying the innominate term approach from Hong Kong Fir.
The Court of Appeal reversed the decision and the buyers appealed to the House of Lords.
Held:
The term was stated as a condition and should be treated as such. The need for certainty in
commercial contracts and the fact that the innominate term approach had caused much litigation
meant that it should only be used where it was impossible to classify the term as a condition or
warranty by reference to the term itself.