Contract Law – Prepare 5 16.11.21
Unit 5 – Discharge of a Contract By Performance and Breach
Reading 1 – Unit 2 of the Contract Law Manual
3. Classification of Terms
All terms which impose contractual obligations on a party (whether express or implied) will
be conditions, warranties, or innominate terms
The distinction between conditions, warranties and innominate terms is important due to
the link with remedies
o Breach of any term gives the other party the right to terminate future performance
of the contract – i.e. he doesn’t have to perform his own future obligations or
accept any further performance from the party in breach
o The party terminated can claim damages if there is additional loss
3.1 Conditions and Warranties: The Traditional Approach
Traditionally, the court would classify a term as either a condition or warranty
3.1.1 Difference between a condition and a warranty
A condition is a major term or a term going to the root of the contract
A warranty is a minor, less important, term
To determine if a term is a condition or warranty, it applies an objective test
o Would a reasonable person think the parties intended the term to be a condition or
a warranty?
In applying this test, the court will look at the circumstances surrounding the making of the
contract (contract as a whole) and will consider whether the parties have described the
term as a condition or a warranty in the contract
Therefore, the emphasis is on deciding the importance of the term which has been broken
at the time the contract was made, rather than looking at the effects of the breach and the
loss or damage which has resulted from the breach
3.1.2 Effect if term is a condition or a warranty
If court decides that the term is a condition, and the contract hasn’t been fully performed,
the innocent party will usually have the option of terminating the future performance of
the contract, as well as obtaining damages for any additional loss suffered
o This is so, even if he has only suffered minor loss or damage
If court decides that the term is a warranty, the innocent party cannot terminate the
contract but can sue for damages for loss suffered
o This applies even if the innocent party has suffered serious loss or damage
o This may be surprising, and this approach has been criticised
The use of the word ‘condition’ raises a presumption that it is used in the legal sense, but
this may be rebutted from evidence of the contract as a whole
Schuler v Wickman Machine Tool Sales Ltd [1974] – parties have described a particular term
as a ‘condition’, but HL decided the parties hadn’t intended to use it in its strict legal sense
1
, Contract Law – Prepare 5 16.11.21
o The term the court was considering stated that, over a long period, one of two
named representatives from Wickman would visit six other firms every week
o There was no provision to substitute other representatives to cover illness, and
neither was there provision for the six firms saying a visit wasn’t convenient
o If the term was a condition, failure to make a single visit would entitle Schuler to
terminate the contract
o The court thought this was such an unreasonable result that it was unlikely to be
what the parties had intended, in spite of the fact that the term was called a
condition in the contract
3.1.3 Advantages and disadvantages of classifying terms as conditions and warranties
Advantages – promotes certainty:
o If a term is clearly a condition, both parties know from the outset that if the term is
broken and the contract hasn’t been performed, the innocent party can terminate
o If a term is a warranty, both parties know from the outset that if the term is broken,
the innocent party cannot terminate
Disadvantages – can lead to unfairness:
o Party may use a breach condition as an excuse to end the contract even where the
breach is fairly minor
o If a term is a warranty, the innocent party cannot terminate even if the breach is
major – he will be limited to claiming damages
o Classifying terms without looking at the consequences of the breach can lead to
unfairness and lacks flexibility
3.2 Innominate Terms: A More Recent Approach
Because of the unfairness and lack of flexibility, there is this more recent approach
Instead of classifying all terms of the contract as conditions or warranties, a second
approach to classification is to say that a term is innominate
o Innominate = neither a condition nor a warranty (intermediate terms)
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] – Ds agreed to hire a ship
from C for 24 months, with a term of the contract providing that the ship was ‘fitted in every
way for ordinary cargo service’ – i.e. that the ship was seaworthy
o In reality, the engines were old, and the engine room staff inefficient with the result
that the ship was in port for repairs for 20 weeks
o Ds terminated the contract (refused to carry on with it), Cs sued, claiming Ds were in
breach of contract
o Judge at first instance found the ship was unseaworthy, but that the Ds were not
entitled to terminate the contract
o Ds appealed to CA – Diplock ruled that Ds who hired the ship were not entitled to
terminate the contract, as the time lost repairing the ship was insufficient to
deprive the Ds of substantially the whole benefit of the contract of hire
In the Hong Kong Fir Shipping case, Diplock suggested that not all terms should be classified
as conditions or warranties – some should be classified as innominate or intermediate terms
2
Unit 5 – Discharge of a Contract By Performance and Breach
Reading 1 – Unit 2 of the Contract Law Manual
3. Classification of Terms
All terms which impose contractual obligations on a party (whether express or implied) will
be conditions, warranties, or innominate terms
The distinction between conditions, warranties and innominate terms is important due to
the link with remedies
o Breach of any term gives the other party the right to terminate future performance
of the contract – i.e. he doesn’t have to perform his own future obligations or
accept any further performance from the party in breach
o The party terminated can claim damages if there is additional loss
3.1 Conditions and Warranties: The Traditional Approach
Traditionally, the court would classify a term as either a condition or warranty
3.1.1 Difference between a condition and a warranty
A condition is a major term or a term going to the root of the contract
A warranty is a minor, less important, term
To determine if a term is a condition or warranty, it applies an objective test
o Would a reasonable person think the parties intended the term to be a condition or
a warranty?
In applying this test, the court will look at the circumstances surrounding the making of the
contract (contract as a whole) and will consider whether the parties have described the
term as a condition or a warranty in the contract
Therefore, the emphasis is on deciding the importance of the term which has been broken
at the time the contract was made, rather than looking at the effects of the breach and the
loss or damage which has resulted from the breach
3.1.2 Effect if term is a condition or a warranty
If court decides that the term is a condition, and the contract hasn’t been fully performed,
the innocent party will usually have the option of terminating the future performance of
the contract, as well as obtaining damages for any additional loss suffered
o This is so, even if he has only suffered minor loss or damage
If court decides that the term is a warranty, the innocent party cannot terminate the
contract but can sue for damages for loss suffered
o This applies even if the innocent party has suffered serious loss or damage
o This may be surprising, and this approach has been criticised
The use of the word ‘condition’ raises a presumption that it is used in the legal sense, but
this may be rebutted from evidence of the contract as a whole
Schuler v Wickman Machine Tool Sales Ltd [1974] – parties have described a particular term
as a ‘condition’, but HL decided the parties hadn’t intended to use it in its strict legal sense
1
, Contract Law – Prepare 5 16.11.21
o The term the court was considering stated that, over a long period, one of two
named representatives from Wickman would visit six other firms every week
o There was no provision to substitute other representatives to cover illness, and
neither was there provision for the six firms saying a visit wasn’t convenient
o If the term was a condition, failure to make a single visit would entitle Schuler to
terminate the contract
o The court thought this was such an unreasonable result that it was unlikely to be
what the parties had intended, in spite of the fact that the term was called a
condition in the contract
3.1.3 Advantages and disadvantages of classifying terms as conditions and warranties
Advantages – promotes certainty:
o If a term is clearly a condition, both parties know from the outset that if the term is
broken and the contract hasn’t been performed, the innocent party can terminate
o If a term is a warranty, both parties know from the outset that if the term is broken,
the innocent party cannot terminate
Disadvantages – can lead to unfairness:
o Party may use a breach condition as an excuse to end the contract even where the
breach is fairly minor
o If a term is a warranty, the innocent party cannot terminate even if the breach is
major – he will be limited to claiming damages
o Classifying terms without looking at the consequences of the breach can lead to
unfairness and lacks flexibility
3.2 Innominate Terms: A More Recent Approach
Because of the unfairness and lack of flexibility, there is this more recent approach
Instead of classifying all terms of the contract as conditions or warranties, a second
approach to classification is to say that a term is innominate
o Innominate = neither a condition nor a warranty (intermediate terms)
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] – Ds agreed to hire a ship
from C for 24 months, with a term of the contract providing that the ship was ‘fitted in every
way for ordinary cargo service’ – i.e. that the ship was seaworthy
o In reality, the engines were old, and the engine room staff inefficient with the result
that the ship was in port for repairs for 20 weeks
o Ds terminated the contract (refused to carry on with it), Cs sued, claiming Ds were in
breach of contract
o Judge at first instance found the ship was unseaworthy, but that the Ds were not
entitled to terminate the contract
o Ds appealed to CA – Diplock ruled that Ds who hired the ship were not entitled to
terminate the contract, as the time lost repairing the ship was insufficient to
deprive the Ds of substantially the whole benefit of the contract of hire
In the Hong Kong Fir Shipping case, Diplock suggested that not all terms should be classified
as conditions or warranties – some should be classified as innominate or intermediate terms
2
