Law of Contract. Contractual Terms. Last updated 18-Jan-2015

Introduction

… until the year 1893 there was much confusion in the use of the words ‘condition’ and ‘warranty’. But that confusion was removed by the Act itself and by the judgment of Bowen LJ in Bentsen v Taylor Sons & Co. Thenceforward those words were used by lawyers as terms of art. The difference between them was this: if the promisor broke a condition in any respect, however slight, it gave the other party a right to be quit of his obligations and to sue for damages, unless he by his conduct waived the condition, in which case he was bound to perform his future obligations but could sue for the damage he had suffered. If the promisor broke a warranty in any respect, however serious, the other party was not quit of his future obligations. He had to perform them. His only remedy was to sue for damages.
Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1975] 3 All ER 739 per Lord Denning MR at pp.746.

During negotiating stage parties agree on terms of future contract. Those terms can be formulated by way of exchange of oral promises between promisor and promisee in case of simple contract or be presented by each party in form of multipage sets of standard clauses with additions and amendments made in the course of negotiations. In our daily life we deal with contract terms each time we buy food in the supermarket and clothes in shopping center, when we pay for bus ticket or withdraw cash from cash machine. Our signature on the receipt or pin-code confirmation of electronic transaction symbolise our agreement with terms of contract, though we not always realise it.

When person having put his or her signature to the contract without reading it and, at the same time, not having been induced to do so by any fraud or misrepresentation, he or she cannot say that he or she is not bound by the terms of the contract because he or she has not read them. Considering the contract as an exchange of binding promises it can be said that any breach of such promise by the party in fault gives to the innocent party the right to seek for appropriate remedies, unless liability for breach in question expressly excluded.

Often the contract specifically provides for remedies available to the aggrieved party. In all other instances this question is to be decided by the court. Extent of available remedial actions depends on:

– the nature of the term or terms has been breached,

– on consequences of breach,

– and effect of breach,

– whether there any limiting or excluding provisions.

Contractual terms are distinguished from mere representations which are not intended to be promises.

A "representation" is a statement, or assertion, made by one party to the other, before or at the time of a contract, of some matter or circumstance relating to it.
Per Williams J in Behn v Burness (1863) 3 B & S 751  at p.753.

In other words, no liability can arise if statement was made without any intention to form any kind of legally enforced contractual relationship. As Lord Moulton put it in Heilbut, Symons & Co v Buckleton [1913] AC 30 at p.51:

[A] person is not liable in damages for an innocent misrepresentation, no matter in what way or under what form the attack is made. In the present case the statement was made in answer to an inquiry for information. There is nothing which can by any possibility be taken as evidence of an intention on the part of either or both of the parties that there should be a contractual liability in respect of the accuracy of the statement. It is a representation as to specific thing and nothing more.

Condition and warranty

In short, while recognising the modern approach and not being overready to construe terms as conditions unless the contract clearly requires the court so to do, none the less the basic principles of construction for determining whether or not a particular term is a condition remain as before, always bearing in mind on the one hand the need for certainty and on the other the desirability of not, when legitimate, allowing rescission where the breach complained of is highly technical and where damages would clearly be an adequate remedy.
Per Lord Roskill in Bunge Corpn v Tradax SA [1981] 2 All ER 513 at p. 551.

Historically English law recognised a distinction between two classes of contractual terms: conditions and warranties. In his famous expression about peas versus beans in Chanter v Hopkins (1838) 4 M & W 399, Lord Abinger CB considered "unfortunate use made of the word warranty" at 404:

A good deal of confusion has arisen in many of the cases on this subject, from the unfortunate use made of the word "warranty". A warranty is an express or implied statement of something which the party undertakes shall be part of a contract; and though part of the contract, yet collateral to the express object of it. But in many of the cases, some of which have been referred to, the circumstance of a party selling a particular thing by its proper description, has been called a warranty; and the breach of such contract, a breach of warranty; but it would be better to distinguish such cases as a non-compliance with a contract which a party has engaged to fulfil; as, if a man offers to buy peas of another, and he sends him beans, he does not perform his contract; but that is not a warranty; there is no warranty that he should sell him peas; the contract is to sell peas, and if he sends him any thing else in their stead, it is a non-performance of it.

At the end of the nineteenth century, statutory intervention eventually gave the term ‘warranty’ settled meaning by its incorporation in the Sale of Goods Act 1893 (repealed) at s. 11(b):

Whether a stipulation in a contract of sale is a condition, the breach of which may give rise to a right to treat the contract as repudiated, or a warranty, the breach of which may give rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated, depends each case on the construction of the contract.

Since then this definition is an unchallenged authority for any type of contract. Thus, when stipulation is collateral to the main purpose of a contract, the breach of which gives rise to a claim for damages, but not to a right to treat this contract as repudiated, such stipulation is a warranty. If the promisor breaks a warranty in any respect, however serious, it does not elevate these provisions to the status of conditions precedent. When, however, the breach went to the root of the matter, the stipulation is to be considered a condition precedent, i.e. when there are two mutual conditions and the one precedent to the other; the innocent party is deemed to be discharged from its part of future performance because of that what is the root of the whole and the substantial consideration for the innocent party performance was defeated by misconduct of the party in fault.

In L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235, Lord Reid outlined the usage of ‘condition’ word at pp.250-251:

In the ordinary use of the English language ‘condition’ has many meanings, some of which have nothing to do with agreements. In connection with an agreement it may mean a pre-condition: something which must happen or be done before the agreement can take effect. Or it may mean some state of affairs which must continue to exist if the agreement is to remain in force. The legal meaning … is, I think, one which would not occur to a layman; a condition in that sense is not something which has an automatic effect. It is a term the breach of which by one party gives to the other an option either to terminate the contract or to let the contract proceed and, if he so desires, sue for damages for the breach.

Sometimes a breach of a term gives that option to the aggrieved party because it is of a fundamental character going to the root of the contract, sometimes it gives that option because the parties have chosen to stipulate that it shall have that effect.

The following stipulations in time and voyage charters are considered to be conditions:

 • position of the ship at the date of the charterparty;

 • time of sailing;

 • nationality of ship;

 • ships class on the register

 • ship’s capacity for a particular cargo;

 • the date when a ship is expected ready to load;

 • payment of hire under a time charter.

If the parties failed to stipulate clearly whether particular term is a condition, the courts, when construing the contract, are not over ready to regard such terms as conditions unless the contract clearly requires them so to do. This principle has a long standing history, as far back as in Tarrabochia v Hickie (1856) 1 H & N 183; 156 ER 1168, when Baron Bramwell said:

No doubt it is competent for the parties, if they think fit, to declare in express terms that any matter shall be a condition precedent, but when they have not so expressed themselves, it is necessary for those who construe the instrument to see whether they intend to do it. Since, however, they could have done it, those who construe the instrument should be chary in doing for them that which they might, but have not done for themselves.

The modern approach illustrated by the following words of Roskill LJ in Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1975] 3 All ER 739 at p. 756:

In my view, a court should not be over ready, unless required by statute or authority to do so, to construe a term in a contract as a ‘condition’ any breach of which gives rise to a right to reject rather than as a term any breach of which sounds in damages.


Innominate term

[There] are many stipulations of which the effect depends on this: if the breach goes to the root of the contract, the other party is entitled to treat himself as discharged; but if it does not go to the root, he is not. In my opinion, the principle embodied in these cases applies to contracts for the sale of goods just as to all other contracts.
Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1975] 3 All ER 739 per Lord Denning MR.

However, with the lapse of time it was realised that the vast majority of stipulations cannot be categorised as being either ‘conditions’ or ‘warranties’ due to their complex character.As Lord Denning MR said once:

It would be a mistake, however, to look on that division [into two categories conditions and warranties] as exhaustive. There are many terms of many contracts which cannot be fitted into either category.
Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1975] 3 All ER 739 at 746

Such undertakings being intermediate stipulations, the effect of which depended on the nature of breach, were defined as ‘innominate’ terms. It follows that breach of an innominate term in some cases will and in others will not give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended he should obtain from the contract.

A leading authority on the subject is Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha, Ltd [1962] 1 All ER 474 case in which Diplock LJ said at p.487:

…the question whether that undertaking is a "condition" or a "warranty"; for the true answer, as I have already indicated, is that it is neither, but one of that large class of contractual undertakings, one breach of which may have the same effect as that ascribed to a breach of "condition" under the Sale of Goods Act, 1893, and a different breach of which may have only the same effect as that ascribed to a breach of "warranty" under that Act.

An example of innominate term is a stipulation as to speed in the charterparty. The right of the charterers to rescind the contract usually depends on the gravity of the breach of speed clause. Summarising, a certain stipulation is an innominate term when the parties to the contract failed to clearly provide in the contract, either by express provision or by necessary implication arising from its nature, purpose, and circumstances, that this stipulation is either a condition or a warranty. The remedy for a breach of such term depends upon the nature, consequences, and effect of the breach.


Case-law

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha, Ltd [1962] 1 All ER 474

Bunge Corporation v Tradax Export SA [1981] 2 All ER 513

Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1975] 3 All ER 739

Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (The Mihalis Angelos), [1970] 3 All ER 125


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