Conditions

Nature of a Condition

Definition

• A condition is a major contractual term that goes to the root of the contract.
• Breach deprives the innocent party of substantially the whole benefit of the agreement.

Effect of Breach

The innocent party may:

• Terminate (repudiate) the contract.
• Claim damages.

Examination Application

• Most serious category of contractual term.
• Breach gives rise to the widest range of remedies.

Poussard v Spiers and Pond (1876) 1 QBD 410

Facts

• Poussard was engaged as the lead singer in an opera.
• She became ill and missed opening performances.
• Producers replaced her.

Judgment

• Producers entitled to terminate the contract.

Legal Principle

• Attendance at opening performances was fundamental to the contract.
• The breached term was a condition.

Effect of Breach

• Innocent party entitled to:
  • Terminate.
  • Claim damages.

Application

• Leading authority on conditions.

Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235

Facts

• Contract required sales representatives to make weekly visits.
• Clause described obligation as a “condition.”
• Visits were missed.

Judgment

• House of Lords refused to treat the term as a condition despite the label.

Legal Principle

• Courts examine substance rather than terminology.
• Merely calling a term a condition does not make it one.

Application

• Important authority on classification.

The Mihalis Angelos [1971] 1 QB 164

Facts

• Charterparty stated vessel was expected ready to load by a particular date.
• Statement proved inaccurate.

Judgment

• Term treated as a condition.

Legal Principle

• Certain commercial terms require certainty and are therefore classified as conditions.

Application

• Frequently cited in commercial contract questions.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total Personal A Grades, 7 Distinctions and 11 World Records For Educate A Change A Level Law Full Scale Course

Warranties

Nature of a Warranty

Definition

• A warranty is a minor contractual term.
• Does not go to the root of the contract.

Effect of Breach

The innocent party may:

• Claim damages only.

The innocent party may not:

• Terminate the contract.

Examination Application

• Less serious than conditions.
• Contract continues despite breach.

Bettini v Gye (1876) 1 QBD 183

Facts

• Opera singer contracted to attend rehearsals six days before performances.
• He missed some rehearsals due to illness.
• He was nevertheless available for performances.

Judgment

• Employer not entitled to terminate.

Legal Principle

• Rehearsal clause was merely a warranty.

Effect of Breach

• Damages only.

Application

• Leading warranty authority.

Wills v Amber [1954] 1 Lloyd’s Rep 253

Facts

• Contractual obligation breached.
• Breach did not affect the essential purpose of the agreement.

Judgment

• Damages awarded.

Legal Principle

• Minor contractual obligations are generally warranties.

Application

• Illustrates limited consequences of breach.

Distinguishing Conditions and Warranties

Poussard v Spiers (1876)

Principle

• Breach deprived innocent party of substantial contractual benefit.

Classification

• Condition.

Bettini v Gye (1876)

Principle

• Breach did not undermine the overall purpose of the contract.

Classification

• Warranty.

Examination Comparison

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total Personal A Grades, 7 Distinctions and 11 World Records For Educate A Change A Level Law Full Scale Course

Innominate Terms

Nature of an Innominate Term

Definition

• A term that cannot automatically be classified as either a condition or warranty at the time the contract is formed.
• Consequences depend upon the seriousness of the breach.

Legal Approach

Court examines:

• Actual consequences of the breach.
• Degree of loss suffered.
• Whether substantial benefit has been lost.

Examination Application

• Modern approach adopted where rigid classification is inappropriate.

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26

Facts

• Ship chartered for 24 months.
• Vessel suffered numerous mechanical problems.
• Crew incompetent.
• Significant delays occurred.

Judgment

• Charterers not entitled to terminate.

Legal Principle

• Introduced the innominate term doctrine.
• Court focuses on consequences rather than labels.

Test Established

Was the innocent party deprived of substantially the whole benefit of the contract?

Effect of Breach

If YES:

• Termination + Damages.

If NO:

• Damages only.

Application

• Leading authority on innominate terms.

Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989

Facts

• Dispute regarding contractual description of a vessel.

Judgment

• House of Lords adopted a practical commercial approach.

Legal Principle

• Commercial consequences often determine classification.

Application

• Supports flexible interpretation.

Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1976] QB 44

Facts

• Contract required shipment of citrus pulp pellets in good condition.
• Goods arrived slightly damaged.
• Buyers rejected shipment.

Judgment

• Buyers not entitled to reject.

Legal Principle

• Breach insufficiently serious to justify termination.

Application

• Classic application of Hong Kong Fir principles.

Bunge Corporation v Tradax Export SA [1981] 1 WLR 711

Facts

• Notice provision in a commercial sale contract breached.

Judgment

• Breach treated as condition.

Legal Principle

• Some commercial terms require certainty and remain conditions despite the existence of innominate terms.

Application

• Demonstrates limits of Hong Kong Fir.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total Personal A Grades, 7 Distinctions and 11 World Records For Educate A Change A Level Law Full Scale Course

Effects of Breach

Breach of a Condition

Poussard v Spiers (1876)

Remedies

• Termination.
• Damages.

Reason

• Root of contract destroyed.

The Mihalis Angelos (1971)

Remedies

• Termination.
• Damages.

Reason

• Commercial certainty required.

Breach of a Warranty

Bettini v Gye (1876)

Remedies

• Damages only.

Reason

• Main contractual purpose remains intact.

Breach of an Innominate Term

Hong Kong Fir Shipping (1962)

Serious Breach

Remedies:

• Termination.
• Damages.

Minor Breach

Remedies:

• Damages only.

Reason

• Depends on actual consequences.

Cehave NV v Bremer Handelsgesellschaft (1976)

Remedies

• Damages only.

Reason

• Breach not sufficiently serious.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total Personal A Grades, 7 Distinctions and 11 World Records For Educate A Change A Level Law Full Scale Course

Statutory Classification of Terms

Sale of Goods Act 1979

Section 11(3)

Provision

• Whether a term is a condition or warranty depends upon construction of the contract.

Application

• Classification determined by substance rather than labels.

Sale of Goods Act 1979

Section 15A

Provision

• In non-consumer contracts, slight breaches may not justify rejection where rejection would be unreasonable.

Application

• Limits strict condition consequences in certain commercial contracts.

Essential Examination Authorities

Essential Statutory Provisions

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total Personal A Grades, 7 Distinctions and 11 World Records For Educate A Change A Level Law Full Scale Course