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UNIVERSITY OF LUSAKA FACULTY OF LAW OF CONTRACT UNIT 8: CLASSIFICATION OF TERMS OF THE CONTRACT George Mpundu Kanja gmkanja@zamnet. zm
STRUCTURE OF THE PRESENTATION • Introduction • Pre-Contractual Statements and Representations • Types of Representations and their Consequences • Terms • Express Terms • Process of Incorporating Express Terms
STRUCTURE OF THE PRESENTATION • • • Factors Relevant to Incorporating Terms Implied Terms Implied by Custom Terms Implied by the Statute Terms Implied by the Court
INTRODUCTION • A contract is made up of many clauses or provisions. • However, the most important clauses in a contract are the terms of the contract, which are the obligations owed by the parties to each other under the contract. • The terms of a contract, therefore sets out the parties’ respective rights and duties under the contract. • If a party fails to act as required by the contract that party is in breach of contract and may be sued as a result. • Though the parties to a contract usually state the terms of a contract expressly, that is, in writing or orally or both, terms may also be implied in the contract by the courts, statute or custom.
INTRODUCTION • The terms of the contract, whether express or implied have varying degrees of importance and as such the breach of an important or major term of the contract namely, a condition will attract wider and serious remedies as compared to the breach an unimportant or minor term, namely, a warranty. • Finally, terms in a contract may not only confer rights on one or both of the parties, but may also restrict or exclude a party’s rights.
INTRODUCTION • Before examining the terms of a contract in detail we must first distinguish between terms and representation. • A term is part of the contract, a representation, which is a statement of fact made by one party, which induces the other party to enter into the contract, is not part of the contract.
Pre-Contract Statements and Representations • The statements made by the parties in the precontractual stage are known as ‘representations’. • Any statement made at the time of contracting or before the contract is formed is referred to as a ‘representation’. • The representation may be as to current facts or as to the intention of the parties. At this stage it is merely a statement that may or may not be relied upon once the contract is complete.
Pre-Contract Statements and Representations • The law then makes a distinction between terms and representations. • Any statement made by either party to the contract which may or may not have been intended to induce the other party to enter the contract but was not intended to form part of the contract is a representation. • It may have certain legal consequences if certain circumstances are satisfied but it never forms part of the contract. • Even if the statement is false, it cannot amount to a breach of the contract itself.
Pre-Contract Statements and Representations • An express term of a contract is any statement by which the parties to the contract do intend to be bound and so does also form part of the contract and can be relied upon by the parties. • If these terms are not complied with there will be a breach of the contract, but the remedy available will depend on the precise classification of the term , e. g. a condition, or warranty.
Types of Representation and their consequences • There a number of statements made at the time the contract was formed or in the negotiations leading up to the formation that will not attach liability and have no legal significance. • This is because the courts cannot find reliance placed upon such statements by the parties, and no sensible person would believe that they would induce a party to enter a contract.
Types of Representation and their consequences • These types of representation can be divided into three distinct groups namely: (i) Trade Puffs (ii) Mere Opinions (iii) Mere Representations
(i) Trade Puffs: merely commercial statements not binding • Puffs are mere boasts or unsubstantiated claims, commonly made by, amongst others, advertisers of products or services. • Puffs are often nothing more than a catchy gimmick designed or used to highlight the product that is being sold, e. g. mosi ‘as mighty as the mosi-oa-tunya’. • Puffs are an exaggerated claim made to boost the saleability of the product, and hence not intended to be taken seriously. • The law allows the puffs and thus the legal maxim simplex commendatio non obligat – meaning no obligations are created because no reliance can be placed upon them.
(i) Trade Puffs: exception, if intent is found • In Carlill v. Carbolic Smoke Ball Co Ltd  1 QB 256: Mrs Carlill claimed on the promise that the company would pay 100 pounds if the medicine failed to prevent a variety of cold-related illness. • The Smoke Ball Company argued in its defence that the claim in the advertisement that the product would do as it suggested was a mere advertising gimmick, designed to sell more of the product. • Its argument failed because of the promise it made to give 100 pounds to anybody contracting one of the prescribed illness after using the smoke ball correctly. The fact that it had stated in its advertisement that a sum of money was deposited in a bank to cover such claims was even greater proof of its intention to be bound by its promise.
(ii) Mere Opinions: generally not binding, lack any weight • Some statements such as a mere opinion made by a party to a contract attach little legal significance because they lack any weight and the other party ought not to rely on them. • An opinion does not carry any liability for the party making it because it is not based on fact. • In Bisset v. Wilkinson  AC 177: A vendor was selling two blocks of land in New Zealand. The purchaser was intending to use the land for sheep farming, though it had not previously been used for that purpose. • The vendor, in response to a request by the purchaser, made a rough estimation that in his judgment the land could support 2, 000 sheep. In fact, it could support nowhere near that number and did indeed prove impractical as a sheep farm. • The purchaser sued and argued that the statement was an actionable misrepresentation.
(ii) Mere Opinions: • The Court held that because of the inexperience on which it was based , it was nothing more than an honest opinion, and was not actionable because no reliance could be placed on it. • The outcome would be completely different if the statement of opinion were known to be untrue by the party expressing it. In this case the statement might well be actionable as a misrepresentation.
(ii) Mere Opinions: exception specialist expertise in field • In contrast to a mere opinion, a party will be able to sue on the basis of false opinion which has been stated by a party with specialist expertise in that field, and therefore who is in a superior bargaining position to the party to whom it is addressed. • In Esso Petroleum Co Ltd v. Marden  QB 801: Esso acquired a site on which it proposed to build a petrol station. • On the basis of professional estimates it represented to Marden, a person intending to take on the franchise, that the filling station would have a throughput of 200, 000 gallons per year. • Marden queried the throughput figure but Esso assured him it would be possible. Despite Marden’s best efforts, sales only ever reached 78, 000 gallons, he lost money and was unable to pay back a loan from Esso.
(ii) Mere Opinions • Esso eventually sued for repossession of the site and Marden counter-claimed. One of Esso’s arguments in defence was that the statement as to the likely throughput of petrol was a mere opinion. • This argument failed to convince the court because of its extensive expertise in the area. Marden was able to rely on the estimate as though it were a factual statement.
(iii) Mere Representations • Where a party to a contract has made a representation as to fact, which is intended to induce the other party to enter the contract, but which is not intended to form part of the contract, and it is in fact true, there can be no further contractual significance. This is known as a ‘mere representation’. • On the other hand, where a representation has been made so as to induce a party to enter a contract and they have done so, if the representation has been falsely made then there may well be further legal consequences. • In this case the representation may amount to a misrepresentation which can be actionable and lead to a variety of remedies. • This will be the case even though the representation has never actually become incorporated as a term of the contract.
TERMS • A term is an expression of willingness by both parties to be bound by the obligation contained in the contract and if a term is breached, or not complied with, it will give the other party the right to sue. • The distinction between a term and a representation is important because the remedies available where there is a breach are different. • If a statement is held to be a term of a contract, a failure to comply with it will be a breach of contract entitling the innocent party to a remedy for breach of contract.
TERMS • If however, the statement is held to be a mere representation, the innocent party cannot claim that there has been a breach of contract because the statement was not a term of the contract. • The innocent party’s remedy if any is to seek to have the contract set aside or claim damages for misrepresentation.
TERMS • The basic test for determining whether a statement made by a party to a contract is a term or mere representation depends on the intention. • In considering the intention the courts have adopted the objective test. In Oscar Chess Ltd v Williams  1 WLR 370, Lord Denning stated at p. 375: • “It is sometimes supposed that the tribunal must look into the minds of the parties to see what they themselves intended, that is a mistake… the question of whether a warranty was intended depends on the conduct of the parties, on their words and behaviour rather than on their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended that would suffice. ”
EXPRESS TERMS • Express terms are terms that are agreed upon by the parties at the time the contract is formed. • Since contracts can be formed in writing or orally or even by the conduct of the parties, then the terms may arise in many ways, such as individual expression of the agreement between the parties, through standard method of contracting as in ‘standard forms’, or simple oral promise. • What they all have in common is that parties themselves have agreed on them and they are subject to some form of legal action if they are breached.
THE PROCESS OF INCORPORATING EXPRESS TERMS • Where a contract is in writing the process of distinguishing between terms and representations is much easier. • The terms are stated in the written contract. • Where, however, negotiations leading up to the contract are oral, the courts have developed guidelines to determine whether or not a particular statement is incorporated as a term. • In general, the courts adopt an objective test or analysis, basing their decision on what a reasonable man would consider in the mind of the parties at the time they formed the contract.
FACTORS RELEVANT TO INCORPORATING TERMS • Whether or not a statement is incorporated as a term can depend on a number of factors. • These factors have been developed by the judges in the case law in an attempt to produce a consistent approach. • These factors are: (i) Importance of the Statement (ii) Verification (iii) Special Knowledge or Skill of the maker of the Statement (iv) Time between making the statement and formation of the Contract (v) Reducing the Agreement, including the statement, to writing
(i) Importance of the Statement • A statement is likely to be a term of the contract where it is of such importance to the person to whom it is made that, if it had not been made he would not have entered into the contract. • In short the more importance is attached to the statement by either party then the more likely it is that it is a term of a contract. • Failure to treat the statement as such would be to ignore the intention of that party.
(i) Importance of the Statement • In Birch v. Paramount Estates (Liverpool) Ltd (1956) 16 EG 396: A newly-wed couple bought a house from developers. They agreed to buy on the basis of a promise made to them that the house would be ‘as good as the show house’. In fact, the house was not as the show house. • The court held that the statement was so central to the agreement that it had been incorporated into the contract as a term. The couple would have been unlikely to contract but for the statement upon which they relied.
(i) Importance of the Statement • Similarly, in Couchman v. Hill  KB 554: the plaintiff bought the defendant’s heifer (a young female cow, usually one that has not yet had a calf) at an auction, but no warranty was given as to its condition. Before the sale, or prior to the making of the contract the plaintiff asked the both the auctioneer and defendant to confirm that the heifer was unserved (meaning not yet having been used for breeding), and they both assured him that it was. Relying on these assurances, he bought the heifer. However, approximately seven weeks after the purchase, he discovered that the heifer was having a calf, and suffered a miscarriage and died. The plaintiff brought an action for breach of contract. • It was held that the statement that the heifer was not in calf was held to be a term of the contract because of the importance attached to the statement.
(i) Importance of the Statement • Where one party has requested specific details about the agreement then this can also be taken to indicate that importance is attached to the answer. Because of this, the courts will be willing to hold that they are incorporated into the contract terms. • In Bannerman v. White  10 CBNS 844: Brewers were refusing to use hops contaminated with sulfur. Bannerman offered hops to White, and White asked if any sulfur had been used in the growth or treatment of hops. Bannerman said “No” and White said that he would not even ask the price if sulfur had been used. A contract was made for the sale of hops. But later it was found that sulfur had in fact been used in growing a small portion of hops.
(i) Importance of the Statement • It was held that it was a term of the contract that sulfur had not been used in growing of hops. • It had been clear to both parties that the question of the use of sulfur was very important to White and that he would not have contracted without the assurance that no sulfur had been used on Bannerman’s hops. • White was therefore, entitled to terminate the contract for breach.
(ii) Verification • A statement is not likely to be a term of the contract if the maker of the statement asks the other party not to rely on it without verifying its truth. • In Ecay v Godfrey  80 Lloyds LR 286, a seller of a boat stated that the boat was sound but advised the buyer to have it surveyed. • The seller’s statement was held not to be a term of the contract but a mere representation.
(ii) Verification • However, in Schawel v Reade  2 IR 64: The plaintiff wished to purchase a horse for stud purposes and went to the defendant’s stables where he began examining a horse. While the plaintiff was inspecting a horse “Mallowman”, the defendant said “You need not look for anything; the horse is perfectly sound. If there was anything the matter with the horse, I would tell you. ” The plaintiff ceased his inspection and three weeks later he bought “Mallowman”. The horse was found to be totally unfit for stud purposes because hereditary eye disease. The question in the case was whether the defendant’s statement amounts to a term or a representation. • The House of Lords held that the defendant’s statement was a term of the contract, and as such the defendant was in breach of the contract.
(ii) Verification • This case should, however, be contrasted with the case of Hopkins v Tangueray  15 CB 130; the plaintiff purchased the defendant’s horse at auction. The previous day the defendant had found the plaintiff examining the horse’s legs and had said, “You need not examine his legs: you have nothing to look for. I assure you that he is perfectly sound in every respect. ” • The Court held that the defendant’s statement was not a term of the contract only a representation.
(iii) Special Knowledge or Skill of the maker of the Statement • If the maker of a statement has some special knowledge or skill compared top the other party, the statement may be held to be a contractual term. • If on the other hand, the parties’ degrees of knowledge are equal or if the person to whom it is made has the greater knowledge, the statement may be held to be a mere representation. • These propositions are illustrated by the two cases discussed below.
(iii) Special Knowledge or Skill of the maker of the Statement • In Oscar Chess Ltd v Williams  1 WLR 370: In June 1955 the defendant sold a second hand Morris car to the plaintiffs, car dealers, for £ 290. The registration book which was examined by the plaintiffs’ representative showed that the car was first registered in 1948, and the defendant honestly believed that it was a 1948 model. The purchase price was calculated on this basis. In January 1956, the plaintiffs discovered from the manufacturers that the car was a 1939 model, so the price was £ 175, and claimed for breach of warranty. • It was held that the defendant was not liable to the plaintiffs in damages for breach of the term of the contract because, as the plaintiffs knew, the defendant had no personal knowledge of the date of the manufacture of the car and the plaintiffs were in at least as good a position to know this. The defendant had made an innocent misrepresentation, that is, non fraudulent.
(iii) Special Knowledge or Skill of the maker of the Statement • However, in Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd  1 WLR 623: where the maker of the statement was in the better position to establish its truth, the statement was found to be a term of the contract. The facts of the case were: • The plaintiff, Dick Bentley, asked the defendants, Harold Smith Ltd, who were car dealers, to find him “a well vented” Bentley car. A car was found. The defendants informed the plaintiff that they were in a position to find out the history of cars and this car had been fitted with a replacement engine and gear box and had done only 20, 000 miles since then when in fact the car had done 100, 000 miles. The defendants relied on the odometer reading and had not checked the details.
(iii) Special Knowledge or Skill of the maker of the Statement • The plaintiff bought the car and discovered that this representation as to the mileage was untrue. The plaintiff sued the defendants seeking damages for breach of contract. • It was held that the defendants’ statement as to the car mileage was a term of the contract; and the defendants, being car dealers, were in a better position than the plaintiff to know their statement was true.
(iv) Time between Making the statement and formation of the Contract • Sometimes the court may assess the time lapse between the statement made in the negotiations and the creation of the contract itself, particularly if there is a major difference between the two. • Courts will generally hold that the longer the time between the two, the less possible it is to support any claim that the statement was in fact incorporated into the contract as a term. • This is then particularly so where the substance of the statement is not repeated in the contract.
(iv) Time between Making the statement and formation of the Contract • In Routledge v. Mckay  1 WLR 615: A motor cycle had actually first been registered in 1939. However, on a new registration book being issued this was wrongly stated as 1941. In 1949 the current owner, who was unaware of this inaccuracy, was selling the motor cycle and in response to a prospective buyer’s inquiry as to the age gave the age in the registration documents. The prospective buyer then bought the motor cycle a week later, in a written contract that made no mention of the age. When he discovered the true age and tried to sue for breach of a term, he failed. • The court held that the lapse of time was too wide to create a binding relationship based on the statement. The statement was not incorporated.
(v) Reducing the agreement, including the statement to writing • Written evidence is more powerful and more immediately convincing than the spoken word. • Consequently, where a contract is made in a written document and a statement made orally between the parties is not then included in the written document, the court will generally infer that it was not intended to form part of the contract but is a mere representation. • In Routledge v. Mckay  1 WLR 615: Since the written agreement made no mention of the age of the motor cycle, the court held that it had not been considered important enough to be a term.
IMPLIED TERMS • Generally, the parties to a contract will be deemed to have included as express terms of the contract all of the various obligations by which they intend to be bound. • There are, however, occasions when terms will implied into a contract, even though they do not appear in a written agreement or in the oral negotiations that have taken place leading up to the contract.
IMPLIED TERMS • Implied terms are terms which, though not expressly stated, by the parties by words or conduct, are implied to give effect to the presumed intention of the parties. • The three ways through which terms may be implied into the contract are by: (i) Custom (ii) Statute or (iii) Courts.
(i) TERMS IMPLIED BY CUSTOM • By custom we mean an established practice or usage in a trade, profession, locality, type of transaction, or between parties. It is a well settled principle of law that a contract may be subject to the terms that are sanctioned by custom though they have not been expressly stated or mentioned by the parties. • In Hutton v Warren  1 M & W: In this case a long standing local custom was to the effect that on termination of an agricultural lease the tenant of a farm would be entitled to an allowance for seed and labour on the land. This was an important custom at a time when the majority of the population was engaged in subsistence agriculture. • It was held that the tenant was entitled to an allowance for the seeds and labour on leaving. There was no express term to that effect, but he was so entitled on the basis of a local custom.
(i) TERMS IMPLIED BY CUSTOM • Baron Parke, in explaining the rationale of implying terms in the contract on the basis of custom had the following to say (at p. 475): • “It has long been settled that, in commercial transactions, extrinsic evidence of custom and usage is admissible to annex incidents to written contracts in matters with respect to which they are silent. The same rule has also been applied to contracts in other transactions of life, in which known usages have been established and prevailed; and this has been done upon the principle of presumption that, in such transactions the parties did not mean to express in writing the whole of the contract by which they intended to be bound but to contract with reference to those known usages. ”
(i) TERMS IMPLIED BY CUSTOM • Similarly, in British Crane Hire Corporation v Ipswich Plant Hire Ltd  Q. B 303: Both the plaintiffs and defendants were in the business of hiring out heavy earth moving equipment. The defendants hired a crane by telephone from the plaintiffs. After delivery, the plaintiffs sent the defendants a printed form setting out the conditions of hire, which were similar to those used by all plant hiring firms and which stated that the defendants would be liable for all expenses arising out of the use of the crane. Before this form was signed by the defendants, the crane sank in marshy ground. The plaintiffs sought to recover expenses incurred in recovering the crane form marshy ground, and the defendants claimed that the conditions had not been incorporated. • It was held that the conditions of the hire were part of the contract and the defendants knew that the conditions were in common use in the business and they are always applied.
(i) TERMS IMPLIED BY CUSTOM v Express terms in a contract • Where an express term of the contract contradicts or conflicts with a custom, then an express term will prevail. • In London Export Corporation Ltd v Jubilee Coffee Roasting Company  1 WLR 661: • Lord Jenkins at p. 675 stated: • “An alleged custom can be imported or incorporated into a contract only if there is nothing in the express or necessarily implied terms of the contract to prevent such inclusion and further that a custom will only be imported into a contract where it can be so imported consistently with the tenor of the document as a whole. ”
(i) TERMS IMPLIED BY CUSTOM Case, express terms previals • Afffreteurs Reunis Societe Anonyme v Walford  AC 801: A charter party provided that commission was to be paid to the Chatterers Brokers on the signing of the Charter whereas by custom commission was payable only when the hire had actually been earned. • It was held that the commission was payable on the signing of the charter as custom was entirely inconsistent with the plain words of the agreement and thus, in the circumstances of the case of no effect. The Charterers would enforce this provision against the ship owners.
(i) TERMS IMPLIED BY CUSTOM • It is not easy to establish the existence of a particular custom or usage. • The custom or usage must, in the words of Ungoed Thomas J. at p. 1438 in Cunliffe-Owen v Teather & Greenwood  1 WLR 1421, be: • “Certain, in the sense that the practice is clearly established; it must be notorious, in the sense that it is so well known in the market in which it is alleged to exist, that those who conduct business in the market contract with the usage as an implied term; and it must be reasonable. ” • In summary, the custom must be generally known, clear and reasonable, and must not conflict with common or statute law.
(ii) TERMS IMPLIED BY THE STATUTE • Terms implied by statute are those terms that are implied into contracts based on the rule of law or public policy, and not on the intention of the parties. • The purpose of terms implied by statute is to provide some form of protection to the weaker party from the exploitation by the stronger party. • Often the weaker, such as the purchasers, particularly consumers, may not have the same bargaining powers as the sellers. • Examples of contracts to which terms are implied include the contracts for sale of goods, landlord and tenant, and master and servant.
(ii) TERMS IMPLIED BY THE STATUTE • The Sale of Goods Act 1883 contains a number of implied terms which include the following: (i) The seller has the right to sell the goods, and the goods are free from charges or encumbrances in favour of third parties (s. 12); (ii) In a sale by description, the goods shall correspond with the description (s. 13); (iii) In a case of a seller who sales goods in the course of business, there is an implied condition that the goods supplied under the contract are of satisfactory quality (s. 14); (iv) Where the seller sells goods in the course of a business, and the buyer makes known to the seller any particular purpose for which the goods are bought, there is an implied condition that the goods supplied under the contract are reasonably fit for that purpose (s. 14 (3)).
(iii) TERMS IMPLIED BY THE COURTS • Although it is not the duty of the courts to insert a term into contracts, but rather interpret contracts, courts at times do imply a term to give a contract ‘business efficacy. ’ • The rationale for such court’s intervention is that since the parties intended to create a binding contract, they must have intended to include terms to make the contract work. • The courts will imply two types of terms into contracts namely: (a) terms implied in fact, and (b) terms implied in law.
(a) Terms Implied in Fact • The terms implied in fact, also known as tacit terms, are those terms which are so obvious that the parties must have intended them to be included into the contract. • In order to give ‘business efficacy’ to the contract, the implied term must be both obvious and necessary. • Therefore, courts will not imply a term into a contract merely because it is reasonable to do so.
(a) Terms Implied in Fact • The test which is often used by the courts in implying a term into a contract is the ‘officious bystander’ test, whose original lies from the statement of Lord Mack: nnon L. J in Shirlaw v Southern Foundries Ltd  2 KB 206 at p. 207: • “Prima facie that which in any contract is left to be implied and need not be express is something so obvious that it goes without saying; so that if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in the agreement, they would testily suppress him with a common, ‘Oh, of course’. ”
(a) Terms Implied in Fact • In BP Refinery (Western Port) PTY Ltd v Shire of Hastings  ALJR 20: Lord Simon laid down the requirements for terms implied in fact as follows (at p. 26): • “For a term to be implied, the following conditions (which may overlap) must be satisfied: (i) It must be reasonable and equitable; (ii) It must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (iii) It must be so obvious that ‘it goes without saying’; (iv) It must be capable of close expression; (v) It must not contradict any express term of the contract. ”
(a) Terms Implied in Fact • In the; Moorcock  14 PD 16: The defendant owned a wharf on the Thames and made a contract with the plaintiff ship owner for him to unload his vessel at their wharf. Both parties knew that the vessel was such that, while at the wharf, it must ground at low tide. The vessel grounded and was damaged. • It was held to be an implied term of the contract that the defendant had taken due care to ascertain that the bed of the river adjoining the wharf was not such as to damage the vessel when it grounded. • The defendants were in breach of the implied term that the wharf was safe.
(b) Terms Implied in Law • Terms implied in law cover many classes of contract, such as contracts of employment and contracts between landlord and tenant. • In a tenancy agreement, for example the landlord impliedly covenants that his tenant shall enjoy quiet possession, and the tenant impliedly agrees not to commit waste. • Similarly, in a contract of employment the employee impliedly undertakes, for example, to faithfully serve his employer and that he is reasonably skilled. • The employer on the other hand, impliedly undertakes that he will not require the employee to do unlawful act, and that he will provide safe premises.
(b) Terms Implied in Law • In Liverpool City Council v Irwin  AC 239: the defendant let a flat in an upper floor of a block of flats to the plaintiff tenant. • A term was implied by the court into a tenancy agreement between the plaintiff and the defendant that the defendant had an obligation to keep in repair the stairs and the lift in the block of flats which they owned, thereby insuring that the plaintiff could gain access to his property.
(b) Terms Implied in Law • Similarly in Baylis v Barnett  the plaintiff lent the defendant a sum of money. The defendant knew this involved the plaintiff in borrowing the money from the bank. • Although the parties did not discuss the question of interest the court held there was an implied term that the defendant would indemnify the plaintiff for any interest he owed to the bank.
CLASSIFICATION OF TERMS • There is a very important distinction between those terms of a contract which entitle an innocent party to terminate (rescind, or treat as discharged) a contract in the event of a breach, and those which merely enable a person to claim damages. • Terms of a contract may be classified into three categories namely: (a) Conditions (b) Warranties, and (c) Innominate or Intermediate Terms
(a) CONDITIONS • These are statements of fact or promises which form the essential terms of the contract. • A condition as a term of the contract is so important that failure to perform or fulfill the condition would render the contract meaningless and destroy the whole purpose of the contract • Consequently, anything that is accepted as being a condition is said to ‘go to the root of’ a contract. • Where a condition is unfulfilled or not satisfied, the injured party enjoys various remedies namely sue for damages or claim damages and terminate, repudiate or treat as discharged the contract.
(a) CONDITIONS • Repudiation or termination as a remedy is the right of the injured party or victim of the breach to consider the contract ended as a result of the other party’s breach of the contract. • This may be particularly important as it may mean that the claimant can contract with an alternative party and treat himself as relieved of his obligations under the contract, without fear of the defendant successfully alleging a breach by the claimant instead.
(a) CONDITIONS • In Poussard v. Spiers and Pond (1876) 1 QBD 410: An actress was contracted to perform the lead role in an operetta for a full season. The actress, who was taken ill, was unable to attend for the early performance, by which time the producers had given her role to the understudy. The actress sued for breach of contract but lost. • It was held that she had in fact breached the contract by turning up after the first night. As a lead singer, her presence was crucial to the production and so was a condition entitling the producers to repudiate and terminate her contract for non-attendance at the early performances.
(b) WARRANTIES • Warranties are considered as minor terms of the contract or those terms where the contract might still continue despite their breach. • A warrant is therefore any term of the contract which does not go to the root of the contract. • Warranties are a residual category of terms dealing with obligations that are either ancillary or secondary to the major purpose of the contract.
(b) WARRANTIES • Consequently, the remedy for a breach of warranty is merely an action for damages. • There is no right for the injured party to repudiate for a breach of a 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.
(b) WARRANTIES • In Bettini v. Gye  1 QBD 183: A singer was contracted to appear at a variety of theatres for a season of concerts. His contract included a term that he should attend rehearsals for six days prior to the beginning of the actual performances. In the event, he 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 that the obligation to attend rehearsals was a condition failed. • It was held that the requirement was only ancillary to the main purpose of the contract which was appearing in the actual production. 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.
(c) INNOMINATE/INTERMEDIATE TERMS • An innominate or intermediate term is one which is midway between a condition and a warranty. That is on the face of it, it is neither a condition nor a warranty. • The only way to determine whether or not such a term is a condition or a warranty, is to examine the effect of its breach on the innocent party. • In Hong Kong Fir Shipping Company Ltd v Kawsaki Kaisha Keisen 2 QB 26 (CA): The Plaintiffs owned a ship which they chartered to the defendants for a period of 24 months. The shi’s engine-room staff were few and too incompetent to cope. On the voyage to Osaka, the ship was delayed by five (5) weeks owing to engine trouble and at Osaka fifteen more weeks were lost, through the incompetence of
INNOMINATE/INTERMEDIATE TERMS • On the voyage to Osaka, the ship was delayed by five (5) weeks owing to engine trouble and at Osaka fifteen more weeks were lost, through the incompetence of the staff. The Plaintiffs sued for breach of contract and claimed damages for wrongful repudiation. • It was held by the Court of Appeal that the breach of Contract of which the plaintiff had admitted, did not entitle the defendants to treat the contract as repudiated, but that the defendants were entitled to claim damages.
INNOMINATE/INTERMEDIATE TERMS • Conversely in The Mihalis Angelos  1 QB 164 (CA): The contract contained a clause stating that the vehicle was “expected ready to load” on July 1, 1965 at Haiphong. • The Court of Appeal held that the expected readiness to load clause was not an innominate/intermediate term, but a condition. Any breach of such a clause therefore entitled the charterers to treat the contract as repudiated irrespective of the consequences of the breach.