#4608 - Terms Part 2 - GDL Contract Law

Conditions and Warranties: Traditional View

• Condition: an important term ‘going to the root of the contract’

  • If a party breaches the innocent party has the right to treat the contract as repudiated with the effect that both parties are released from all future obligations under the contract

    • Innocent party may also sue for damages immediately

    • If the innocent party chooses to affirm the contract, the contract remains in full force but the innocent party may sue in respect to the other party’s breach

  • Poussard v Spiers:

    • Actress’s obligation to perform was a condition: ‘it went to the root of the contract’

• Warranty: less important term not going to the root

  • Only remedy available is to sue for damages i.e. no right to treat contract as repudiated

  • Bettini v Gye: undertaking to take part in rehearsals was a warranty – ‘merely partially affects it’

• Parties to a contract may classify the relative importance of terms as they see fit – although this is not always decisive. It is ultimately open to the court to decide:

  • Schuler v Wickman:

    • HL ignored the clear wording of the contract on the grounds that to interpret the particular term as a condition was so unreasonable that it could not have been intended by the parties

    • If a term is stipulated as a condition but the court deems otherwise, the innocent party will find themselves in breach for wrongful repudiation

  • Contrast: Lombard v Butterworths: Butterworths were late twice and Lombard terminated and sued to recover expectation damages (allowed: time ‘of the essence’ was a condition)

• Sale of Goods Act 1893: adopts the traditional division of terms into conditions and warranties

  • S11: condition - a term ‘the breach of which may give rise to a right to treat the contract as repudiated’ and warranty – a term ‘the breach of which may give rise to a claim for damages, but not a right to reject the goods and treat the contract as repudiated’

  • S62: warranty as ‘collateral to the main purpose of the contract’

  • Same definitions adopted by SGA 1979 and unaffected by Sale and Supply of Goods Act 1994

• Terms implied in SGA ss 12-15 are classified as conditions( s12(5A); s13(1A); s14(6)) : absolute right of the consumer to reject goods for any breach of term implied by ss13-15

• However: Classification of terms implied by ss13-15 (but not s12) has been altered by s15A, which was incorporated into SGA 1979 by virtue of s4 Sale and Supply of Goods Act 1994

  • S15A: breach of s13, 14 or 15 will be treated as a breach of warranty rather than condition:

    • Where B2B contract (when the buyer does not deal as consumer)

    • s15A(1)(b): where the breach is ‘slight that it would be unreasonable for him to reject’

• Additional rights for consumers incorporated into SGA 1979:

  • S48(A), (B), (C), (D) SGA 1979: consumers can insist on repair/replacement rather than termination

The modern approach: Innominate Terms

• Looks to the “consequences of the breach” vs. strict categorisations (no absolutes)

• Hong Kong Fir Shipping Co v Kawasaki : CA – there are many terms which at the outset are neither conditions nor warranties, but are innominate or intermediate in nature

  • More flexible approach focussed on the consequences of the breach rather than the intention of the parties at the time the contract was made

    • Breach of such a term will only allow damages if it has a minor effect

    • If it has more serious consequences, the innocent party will be able to treat contract as repudiated

  • Diplock LJ: whether or not the breach ‘will deprive the party not in default of substantially the whole...