Contract Law

Terms II
Terms - Structure
1. Type of Contract – B2B/B2C
2. Term – Express/Implied
3. Breach
4. Categorisation
5. Defence – Exclusion Clause

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Classification of Terms

Conditions

Warranties

Innominate Terms

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Effect of Breach - Remedies
Breach of Condition:
Innocent party has right of election

Either:
• to affirm (continue) the contract AND claim damages;
OR
• to terminate the contract and claim damages.

Breach of Warranty:
Innocent party only has right to claim damages, not to terminate. Contract
continues.

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Distinguishing Conditions & Warranties
Test – Does the term go “to the root of the contract”?

Conditions - Poussard v Spiers (1876)

Warranties - Bettini v Gye (1876)

“Whether the particular stipulation goes to the root of the matter, so that a
failure to perform it would render the performance of the rest of the contract by
the plaintiff a thing different in substance from what the defendant has
stipulated for; or whether it merely partially affects it and may be compensated
for in damages.” Blackburn J in Bettini

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Innominate/Intermediate Terms
Test – Do the consequences of the breach deprive the innocent party of
substantially the whole benefit of the contract?
• If Yes – Treat the breach as a breach of Condition.

• If No – Treat the breach as a breach of Warranty

Hong Kong Fir v Kawasaki Kisen Kaishi [1962]

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Classification by Statute
Sale of Goods Act 1979: All implied terms are conditions UNLESS s15A applies

s12 - Title (s12(5A))

s13 - Description (s13(1A))

s14 - Satisfactory Quality/Fitness for purpose (s14(6))

s15 - Sample (s15(3))

Supply of Goods & Services Act 1982: Doesn’t classify its implied terms
Generally accepted position is that s13 (Reasonable care & skill) is an
innominate term

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Classification by Statute – s15A SOGA 1979
Arcos v Ronaasen (1933)
Party terminated a contract for a minor breach of the implied term that goods
must match their description – s13 SOGA.
“A ton does not mean about a ton, or a yard about a yard. Still less when you
descend to minute measurements. Does ½ inch mean about ½ inch? If the seller
wants a margin he must and in my experience does stipulate for it.” Atkin LJ

Remedied by – s15A SOGA

If such SLIGHT breach of ss13, 14 or 15 of the SOGA that:

• REJECTION of goods would be UNREASONABLE

• Breach MAY be treated as breach of WARRANTY

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Classification by the parties
• Courts usually give effect to parties’ intention
Lombard North Central v Butterworths [1987]

• But not always…

Schuler v Wickman [1974]

“Use of the word ‘condition’ is an indication – even a strong indication – [of

the parties’ intention] but it is by no means conclusive.

The fact that a particular construction leads to a very unreasonable result

must be a relevant consideration. The more unreasonable the result the
more unlikely it is that the parties can have intended it…” per Lord Reid

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Summary – Exam Approach
1. Is the term breached categorised as a condition or warranty by statute?
If Yes, apply relevant statutory categorisation.
If No, continue below.

2. Have the parties labelled the term as a condition or warranty?

If Yes, this classification will usually be decisive (but note Schuler v Wickman).
If No, continue below.

3. Is the term a condition on the basis that the parties intended, at the time of contracting, that any breach
of the term could result in the innocent party terminating (i.e. does it go to the root of the contract)?
(Poussard v Spiers).
If Yes, term is a condition.
If any doubt as to the answer, continue below.

4. Term likely to be innominate – Apply Hong Kong Fir v Kawasaki test:

Do the consequences of the breach deprive the innocent party of substantially the whole benefit of
the contract?
If Yes – treat term as a condition.
If No – treat term as a warranty
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Terms - Structure
1. Type of Contract – B2B/B2C
2. Term – Express/Implied
3. Breach
4. Categorisation
5. Defence – Exemption Clause

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Terms II