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Contract | Formation

Terms: Classification

Revision Note | Degree

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  • terms (express or implied) imposing contractual duties are conditions, warranties or innominate
  • generally breach of any term gives the innocent party a right to sue for damages but classification may affect other remedies

Traditional approach: conditions and warranties

  • terms either a condition (major term) or a warranty (minor term)
  • objective test: would a reasonable person think that the parties intended the term to be a condition or a warranty?
  • all circumstances at time contract made & whether term expressly classified
  • condition: innocent party usually able to terminate future performance & claim damages, even if minor loss
  • warranty: innocent party limited to suing for damages & cannot terminate, seriousness of damage or loss irrelevant
  • rebuttable presumption word condition in a contract is being used in a legal sense


    • clause labelled 'condition' stated: specified visits to be carried out over 4-year contract, no provision for alterations
    • if condition failure to make one visit would enable plaintiff's to terminate contract


    • was the term condition used in a strict legal sense?


    • House of Lords found parties not intended word to be used in strict legal sense because outcome would be unreasonable

Recent development: innominate terms

  • innominate (intermediate) terms: neither condition nor warranty


    • defendants (D) chartered ship from plaintiff (P) for 2 years, agreement included seaworthiness clause
    • problems with engine & incompetant engine crew, ship out of service for 15 weeks, D terminated contract on ground P breached condition
    • P brought action for wrongful repudiation, arguing seaworthiness not condition


    • was a condition breached and therefore D entitled to terminate?


    • D not entitled to terminate, terms were too complex to be either condition or warranty
    • test applied: whether the breach had deprived the innocent party of substantially the whole benefit of the contract
    • time lost repairing ship not sufficient to deprive D of substantially the whole benefit of the contract
    • effect of breach determines available remedy
    • Diplock LJ: approach should not be used in all cases, parties can expressly decide when terminate or that statute should impose the remedy
    • traditional classification not redundant: circumstances when breach of certain term would always deprive innocent party of substantially the whole benefit of the contract (condition) or breach would never have this effect (warranty)

Analysis of approaches

  • traditional conditions & warranties promotes certainty: if condition is breached contract may be terminated & if warranty breached no right to terminate
  • traditional approach inflexible & unfair results as not consider consequences of breach: minor breach of condition right to terminate the contract (unless s15A of Sale of Goods Act 1979 Act or S5A of Supply of Goods and Services Act 1982 apply) but major breach of warranty no termination
  • innominate approach less certain: whether breach is sufficiency serious to justify termination, if party purports to terminate when not entitled will be in breach of contract
  • innominate by considering effect of breach more flexible & fairer result produced
  • traditional approach was backed recently
    • Megaw LJ: traditional approach promotes certainty, uniformity & predictability
    • desirable to have definite rule especially in commercial context: .. Where justice does not require greater flexibility, there is everything to be said for, and nothing against, a degree of rigidity in legal principle...


  • both approaches exist but courts limited by three important factors


  • Sale of Goods Act 1979 implies defined as conditions, goods must: correspond to description (S13), be of satisfactory quality (S14(2)) & fit for purpose (S14(3))
  • Supply of Goods and Services Act 1982 similar conditions S3 & S4
  • Supply of Goods and Services Act 1982 Act innominate terms sections 13 - 15 about service, remedy dependent on effect of breach

Trade usage and commercial expectation

  • benefit of certainty in commercial transactions means previous dealings & trade usage considered
  • traditional approach preferred in commercial context (The Mihalis Angelos [1971])

Express provision by the parties

  • parties may expressly create conditions & warranties but courts must be satisfied terminology used in strict legal sense (Schuler v Wickman Machine Tool Sales Ltd [1974])
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