The promissory obligations of a contract are its terms, classified as either conditions or warranties conditions are the important and fundamental obligations, whereas warranties are less important, subsidiary promises. In the nineteenth century, the warranty was often used by the judges to encompass all contract terms, and the strict, two-fold demarcation is relatively recent, having been expedited by a definition of these phrases in the sale of goods act 1893 (the sale of goods act 1979, ss 11(3) and 61). Most importantly, a breach of the condition allows the innocent party to repudiate or affirm the contract and claim damages in either case, whereas a breach of warranty allows only a claim in damages.
The overriding notion of freedom of contract means that the court must assess the parties’ intentions in order to decide whether a particular statement or clause in a written contract is a condition or a warranty. Alternatively, the statute may dictate that certain implied terms are conditions as in the sale of goods act 1979, ss 12-15. The distinction is a crucial one as the right to repudiate is of such importance an unscrupulous party must not be allowed to use a breach of condition as a sham, enabling him to evade his contractual obligations with the concomitant opportunity of entering into a more profitable contract with a third party. It is vital to establish how the differentiation is made between the two types of terms and whether the courts will always pay paramount attention to the parties’ intentions.
There are cases where parties do not make any attempt to categories their terms. In Harling v Eddy, the seller of a heifer said to the buyer. There is nothing wrong with her; I could guarantee her in every respect. S contended it was a warranty, B contended it was the condition. A warranty would give no right to reject H., but a condition would have given that. It was held that the term was a condition. The courts draw inference from the standpoint of reasonable parties –how they would react if the term was shown to the original parties. The test is intention. In Behn v Burness, D hired P, s ship under a contract to load a cargo of coal at Newport for Hong Kong. However, P had stated that at the moment of hiring, the ship was in Amsterdam –which was inaccurate. It was held that the term was a condition.
In both Bettini v Gye (1876) and Poussard v Spiers (1876), P was a singer who, because of illness, was unable to be present on the day on which his presence was first required in each case, D purported to terminate the contract and P sued for damages Bettini was required to be present six days before the first performance for rehearsals, and he arrived three days late. His engagement was to sing in different shows from March 30 to July 13. 1875. His failure clearly to arrive on time clearly did not prevent the contract from being substantially carried out. If the engagement had been a very short one, it might have been different. It was held that the failure did not go to the root of the contract, and D was not entitled to dismiss him. In the other case, Poussard was taken ill five days before the first performance. The shows were to run for a short duration. Her illness appeared to be a serious one of uncertain duration. It was held that D was justified in terminating the contract and engaged another artist. It could be said that Bettini had committed a breach of warranty and Poussard a breach of condition.
The orthodox theory is that conditions and warranties are determinable as such at the date of the contract. This approach has two peculiarities. First, it is based upon the assumption that there is some essential substance, which defines these obligations in the abstract and, secondly, it takes no account of the seriousness of the breach and its consequences. It is arguable that the only reason, which justifies one party repudiation, is a breach by the other party, which goes to the root of the contract, meaning that further performance is futile. Nevertheless, many undertakings have become definitive conditions by virtue of commercial usage, the operation of the doctrine of precedent and statutory implied terms, which are expressly declared to be conditioned. In Arcos Ltd v EA Ronaasen & Son, the contract was to sell wooden staves of a half-an-inch thick for making cement barrels.
Only a small percentage confirmed with the specification, but the remainder were nearly all less than nine-sixteenths of an inch thick. Although this made no difference to the manufacture of cement barrels (the goods were merchantable and fit for their purpose), it was held that the buyer was entitled to reject the entire consignment for breach of the implied condition of description in s. 13 of the sale of goods act 1893. There was evidence that the motive for the buyers’ rejection was that the market price of timber had fallen. A similar conclusion was reached regarding a breach of condition occasioning no loss in Re Moore & Co and Landauer & Co, where Scrutton LJ pointed out that the breach might have had drastic consequences. With respect, such a hypothesis did nothing to justify the repudiation where there was no loss on the facts. This tunnel –vision has little to commend it, and developments in recent years are infinitely preferable.
First, where the contract labels its terms as conditions or warranties, the court must attempt to implement the parties’ intentions, but it is clear that the form of the contract should not be allowed to dictate its substance, or injustice would surely follow. Schuler (L) AG v Wickman Machine Tool Sales Ltd concerned a condition in a four-and-a-half-year distributorship agreement that the distributor, Wickman, should visit six named customers once a week to solicit orders. This entailed an approximate total of 1,400 visits during the subsistence of the contract. Clause 11 of the contract provided that either party might determine it if the other committed a material breach of its obligations. The House of Lords refused to accept the contention that a single failure to make a visit should allow Schuler to repudiate the entire contract. Lord Reid said that the house was trying to discover intention as disclosed by the contract as a whole, and whilst the use of condition was a strong indication of intention, it was not conclusive. He considered that the fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result, the more unlikely it is that the parties can have intended it.
Secondly, the development of the innominate or intermediate-term introduces more logical flexibility to this area of law. In Hong Kong Fir Shipping Co. Ltd v Kawasaki Kisen Kaisha Ltd, the Court of Appeal emphasized that the orthodox division of conditions and warranties could be rigid and inflexible in operation, meaning that a negligible breach of the condition might allow repudiation whilst only damages would be available for a catastrophic breach of warranty. The condition that a ship should be seaworthy could thus be breached across a spectrum of possibilities from inconsequential inconveniences at one extreme to calamities involving substantial loss at the other Diplock LJ held that such undertakings could not be categorized as conditions or warranties but that the legal consequences of the breach should depend upon the nature of the event to which the breach gives rise and…not…from a prior classification.
The Hongkong reasoning has been endorsed in subsequent decisions. In Cehave NV v Bremer Handelsgesellschaft mbh. The Hansa Nord[7], the contract was for the sale of citrus pulp pellets for use in animal food. The contract price was £100,000, an express term being that the goods should be shipped in good condition. The buyer sought to reject the goods for a relatively minor breach. In fact, the market for such goods had fallen dramatically at the delivery date, and the buyer eventually bought the same goods from a third party for ₤30,000 and used the pellets for cattle food. The buyer argued that rejection was permissible under both the statutory implied condition of merchantability and the express condition relating to quality. The court held that the sale of goods act did not exhaustively define all obligations as either conditions or warranties and that the express provision was an innominate term breach of which, on the facts, did not permit rejection of the goods. The court assumed that merchantability was an immutable statutory condition but that, on the facts, the sellers were not in breach of that condition. The notion of the innominate term was similarly approved by the House of Lords in Reardon Smith Line Ltd v Yngvar Hansen Tangen, with Lord Wilberforce casting doubt upon the decisions in Acros and Re Moore, considering them excessively technical and probably applicable only to their facts.
Although the innominate term is an attractively logical proposition, there may nevertheless be instances where the necessity for commercial certainty and predictability demand that the parties should be able to allocate the risks of the contract at the time of its formation. This is particularly so if there is no disparity of bargaining strength between them. Provisions relating to time are often crucial, as are the precise descriptions of unascertained, future goods such as the sale of commodities. In the Mihalis Angelos, for example, a stipulation as to when a ship should be expected ready to load under a charter party was held to be a condition and, likewise, a notice of readiness to load in Plunge Corporation v Tradax Export SA.
Thirdly, the sale of Goods Act 1979, s 15A now provides that where the buyer does not deal as a consumer and the breach of any of the implied conditions in ss. 13-15 is so slight that it would be unreasonable for him to reject (the goods). The breach is not to be treated as a breach of condition but may be treated as a breach of warranty the principal target of s. 15A is thus the decision in Arcos Ltd v EA Ronaasen & son, referred to earlier (the SGA, s. 30(2) allows the parties to exclude the operation of s expressly. 15A.
In conclusion, there is still room to implement the definitive intentions of the parties expressed as conditions and warranties. Lord Wilberforce dissented vigorously in sculler and would not assume contrary to the evidence, that both parties to this contract adopted a standard of easygoing tolerance rather than one of aggressive, insistent punctuality and efficiency such tensions will always be present where freedom of contract meets policy –interventionism but combining innominate terms with the orthodox classification of conditions and warranties allows the courts to tread a middle –path between rigid, and sometimes unjust rules on one side, and indeterminate flexibility on the other.
The definition was given in Wallis, Sons & Wells v Pratt & Hynes. Conditions are terms which go on to the substance of the contract or, in other words, are so essential to its very nature that their non-performance may fairly be considered as a substantial failure to perform the contract at all warranties are terms which though they must be performed are not so vital that a failure to perform them goes to the substance of the contract section 11 (3) sale of Goods Act 1979 states that whether a stipulation in a contract sale of goods is a condition or warranty will depend in each case on the construction of the contract. A stipulation may be a condition, though called a warranty in the contract. Test to determine will be the intention of the parties, which has to be inferred from all the circumstances of a particular case.