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Elements in a Contract XIII - Conditions, Warranties and Innominate Terms
The impact of a term depends on the importance that is attached to it and from the perspective of the courts terms can be either express or implied, oral or written and can be divided into the three following categories: -
iii) Innominate Terms
Conditions are terms of paramount importance. In Poussard v Spiers (1876), the plaintiff an opera singer of some note was contracted by the defended to perform at an opera but a week prior to the opening, she fell ill and the defendants subsequently had her replaced. Once the plaintiff had recovered she contacted the defendants wanting her spot back but the defendants refused stating that the contract had been terminated. The plaintiff sued.
The court held that, the plaintiff’s performance on the stipulated date was a condition in the contract and therefore the defendants were entitled to terminate the contract.
In Bunge Corp v Tradax Export SA (1981) the contract concerned the sale and purchase of US soya bean meal (normally used as a protein supplement in animal feeds).
According to the terms of the contract the freight of the soya bean meal was to be handled by the buyers but the seller required at least 15 days’ notice for loading as per the contract. The buyer gave only 13 days’ notice. The contract further stated that the soya bean meal must be shipped by the end of the month.
The court held that the requirement that the seller ship the soya bean meal by the end of the month was a condition and therefore the other party was entitled to terminate the contract if the shipment was not made according to the stipulated terms.
In The Mihalis Angelos (1970), a ship was hired out to the defendants to ferry goods with the stipulation that the ship would be ready for loading by a specific date. The ship was not ready by the stipulated date and there was an unusually long delay before the ship could be loaded. The defendants cancelled the contract because of the delay and the plaintiff sued.
It was held that the term that the ship must be ready by a specific date was a condition in the contract and as a result the defendants were entitled to terminate the contract.
A warranty is a lesser term in a contract and a breach of a warranty does not lead to major consequences. In Bettini v Gye (1876), the plaintiff was an opera singer who was contracted to perform in an opera but became ill during the rehearsals and as a result was not able to attend 6 days of the rehearsals. The defendant terminated the contract and the plaintiff sued. It was held that not attending rehearsals was not a serious breach or a breach of a condition and therefore the defendant was not entitled to terminate the contract – compare the case with Poussard v Spiers (1876).
As a result of its secondary status, a warranty is sometimes described as a collateral term which is subordinate to a much more important term i.e. a condition.
Innominate terms are intermediate terms and the consequence of a breach of an innominate term depends on the importance that is attached to it. In Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha (1962) the defendants had chartered a ship from the plaintiffs for 2 years on the understanding that the ship was seaworthy and was able to complete the 2-year period without docking for repairs. However, as it turned out that the ship needed repairs and spent 20 weeks in the docks. The defendants were entitled to claim for damages but instead they chose to terminate the contract.
The court had to decide on the importance of the term and if the breach was so severe that it would lead to the termination of the contract. The court held that it was not a matter of deciding whether the plaintiffs undertaking to provide a seaworthy ship was a warranty or a condition.
The correct approach according to the court was to look at the consequences of the breach and then decide if the charterers had been deprived of the entire benefit that they desired to obtain under the contract.
The term seaworthy has many interpretations and some breaches may be less severe or serious than others and therefore it is best to look at what has happened as a result of the breach and then decide if the term that has been breached is a condition or a warranty.
© 2017 Kathiresan Ramachanderam and Dyarne Jessica Ward