Law of Law of ContractContract

TermsTermsConditions & Conditions & WarrantiesWarranties

Conditions & Conditions & WarrantiesWarranties

The Terms of Contract have The Terms of Contract have been traditionally been divided been traditionally been divided into two types :into two types :

1) Conditions 1) Conditions

2) Warranties2) Warranties

Conditions & Conditions & WarrantiesWarranties

Not all terms are of equal Not all terms are of equal importance :importance :

A A conditioncondition is an essential term is an essential term of the contract which of the contract which goes to goes to the root or the heart of the the root or the heart of the contractcontract

Conditions & Conditions & WarrantiesWarrantiesIts important to distinguish between Its important to distinguish between

aa

Condition and a warranty, because a Condition and a warranty, because a breach of them would lead to breach of them would lead to different results :different results :

a)a) a condition is an a condition is an important important termterm which goes to the root of which goes to the root of the contract.the contract.

A breach of a condition entitles A breach of a condition entitles the injured party to repudiate, the injured party to repudiate, terminate the contract and or terminate the contract and or claim damagesclaim damages

b) a warranty is a less important b) a warranty is a less important term, which entitles the injured term, which entitles the injured party to claim damages only. party to claim damages only.

Conditions & Conditions & WarrantiesWarrantiesA term may be held to be a A term may be held to be a condition condition

by three methods :by three methods :

1) Statutory Classification1) Statutory Classification

S12-15 Sale of Goods Act 1979S12-15 Sale of Goods Act 1979

2) Judicial Classification ( Judges 2) Judicial Classification ( Judges classification )classification )

3) Classification by the parties3) Classification by the parties

Statutory Statutory classificationclassificationSale of Goods Act 1979 (originally Sale of Goods Act 1979 (originally

SGA 1893)SGA 1893)S 12 : S 12 : an implied condition is included in an implied condition is included in the contract that the seller has a right to the contract that the seller has a right to sell the goods…ie. he has a good title to sell.sell the goods…ie. he has a good title to sell.

S 13S 13 : Where there is a sale of goods by : Where there is a sale of goods by description there is an implied condition description there is an implied condition that the goods correspond with the that the goods correspond with the description.description.

S 14 (3) : S 14 (3) : In a sale of goods in the course of In a sale of goods in the course of business there is an implied term that the business there is an implied term that the goods are reasonably fit for the purpose goods are reasonably fit for the purpose expressly or impliedly made known by the expressly or impliedly made known by the buyer.buyer.

S14 (2)S14 (2) : ..there is an implied condition that : ..there is an implied condition that they be of “satisfactory quality” they be of “satisfactory quality” SGA 1994SGA 1994

S15 : S15 : ..there is an implied condition that ..there is an implied condition that the bulk of the goods correspond with the the bulk of the goods correspond with the sample of qualitysample of quality

Statutory Statutory classificationclassification

Re Moore & Co and Landauer Co Re Moore & Co and Landauer Co (1921)(1921)Facts : A sale was agreed of a quantity of Facts : A sale was agreed of a quantity of tinned fruits described as packed in tinned fruits described as packed in cases of 30 tins. The correct overall cases of 30 tins. The correct overall quality was delivered, but in cases of 24 quality was delivered, but in cases of 24 tins. The whole consignment was rejected tins. The whole consignment was rejected by the buyer, but without any reason by the buyer, but without any reason being given other then the quantities being given other then the quantities packed.packed.

Held : The goods did not correspond with Held : The goods did not correspond with their description contrary to term their description contrary to term implied in S 13 SGA 1979.implied in S 13 SGA 1979.

The buyer was entitled to repudiate the The buyer was entitled to repudiate the contract. contract.

Judicial Judicial classificationclassification

The courts distinguish between the The courts distinguish between the two terms, i.e whether, they are two terms, i.e whether, they are conditions or warranties using the conditions or warranties using the following tests:following tests:

1)1) What were the intentions of the What were the intentions of the partiesparties

2) What were the consequences of 2) What were the consequences of the breachthe breach

Conditions /root of Conditions /root of contractcontractWhere courts find that it goes to the Where courts find that it goes to the

Root of the contract :Root of the contract :

Poussard v Spiers and Pond Poussard v Spiers and Pond (1876)(1876)Facts : An actress contracted to Facts : An actress contracted to appear in a play commencing on a appear in a play commencing on a particular date. She fell ill and particular date. She fell ill and became available to appear only became available to appear only some days after the play’s run had some days after the play’s run had started. In her absence, a substitute started. In her absence, a substitute had been engaged and the producers had been engaged and the producers therefore refused her services when therefore refused her services when she returned.she returned.

Held : The producers were entitled Held : The producers were entitled to to repudiaterepudiate the contract, because the contract, because her late arrival was a her late arrival was a breach of a breach of a condition,..going to the root of the condition,..going to the root of the contract.contract.

Conditions /root of Conditions /root of contractcontract

Couchman v Hill (1947)Couchman v Hill (1947)Facts : A heifer was put up for sale, Facts : A heifer was put up for sale, but no warranty was given as to its but no warranty was given as to its state. The claimant asked whether it state. The claimant asked whether it was in calf and stated that he was was in calf and stated that he was not interested in buying if it wasnot interested in buying if it was

Held : The claimant is entitled to Held : The claimant is entitled to repudiate the contract as the state of repudiate the contract as the state of the calf was a condition, going to the the calf was a condition, going to the root of the contractroot of the contract

WarrantyWarrantyBettini v Gye (1876)Bettini v Gye (1876)Facts : A singer was contracted to Facts : A singer was contracted to perform from 30 Mar to 13 Jul, and perform from 30 Mar to 13 Jul, and to attend to six days before for to attend to six days before for rehearsals. Because of her illness rehearsals. Because of her illness the singer did not arrive until 28 the singer did not arrive until 28 Mar and was told that his services Mar and was told that his services were not required.were not required.

Held : It was held on the facts that Held : It was held on the facts that missing a few days of rehearsals did missing a few days of rehearsals did not amount to a breach of condition. not amount to a breach of condition. Thus repudiation of contract was not Thus repudiation of contract was not possible and only damages could be possible and only damages could be recovered.recovered.

Intention of partiesIntention of parties

Bannerman v White (1861)Bannerman v White (1861)Facts : A buyer of hops asked Facts : A buyer of hops asked whether sulphur had been used in whether sulphur had been used in the cultivation of the hops, and he the cultivation of the hops, and he said that if they were, he would not said that if they were, he would not even bother to ask the price.even bother to ask the price.

Held : There was clear intention that Held : There was clear intention that it would be a condition of the it would be a condition of the contract.contract.

Intention of partiesIntention of partiesThe mere use of the word The mere use of the word “condition” in a contract does “condition” in a contract does not make it a condition.not make it a condition.

Schuler AG v Wickman Machine Schuler AG v Wickman Machine Tools (1974)Tools (1974)Facts : A term of an agreement said Facts : A term of an agreement said that it was a “condition” that a that it was a “condition” that a distributor should visit six named distributor should visit six named customers per week for each week of customers per week for each week of the duration of the contract, which the duration of the contract, which was for four years.was for four years.

Held : a failure to make Held : a failure to make one visitone visit would not be a breach of a condition.would not be a breach of a condition.

Intention of partiesIntention of partiesCourts may look at the commercial Courts may look at the commercial importance of a term, in importance of a term, in relation to relation to the industry, trade or profession,the industry, trade or profession, to to find the intention of parties, and find the intention of parties, and thus to determine whether, a thus to determine whether, a condition or warranty, has been condition or warranty, has been breached.breached.

Behn v Burness (1863)Behn v Burness (1863)Facts : Where in the contract for a Facts : Where in the contract for a charter of a ship, it was stated as a charter of a ship, it was stated as a condition that the ship has to be in condition that the ship has to be in the port of Amsterdam by a certain the port of Amsterdam by a certain date, and the ship arrived 4 days date, and the ship arrived 4 days later.later.

Held : It was a breach of condition as Held : It was a breach of condition as time is crucial in chartering ships.time is crucial in chartering ships.

Consequences of Consequences of breachbreachAt times it might be difficult to At times it might be difficult to

conclude whether a term is a conclude whether a term is a condition or warranty based on condition or warranty based on the nature of the term and the the nature of the term and the intentions of parties.intentions of parties.

So Courts will look at the So Courts will look at the consequences of the breach :consequences of the breach :

The The more seriousmore serious the the consequences the more likely it consequences the more likely it is that the breach will entitle is that the breach will entitle the innocent affected party to the innocent affected party to repudiate the contractrepudiate the contract. .

Consequences of Consequences of breachbreach

HongKong Fir Shipping v Kawasaki HongKong Fir Shipping v Kawasaki Kisen Kasiha Ltd (1962)Kisen Kasiha Ltd (1962)Facts :Facts : The claimants owned a ship which The claimants owned a ship which they chartered to the defendants for a they chartered to the defendants for a period of 24 months.period of 24 months.

A term in the contract required the ship A term in the contract required the ship to be ‘in every way fitted for ordinary to be ‘in every way fitted for ordinary cargo service’. On a voyage to Osaka, the cargo service’. On a voyage to Osaka, the ship was delayed for almost 20 weeks. It ship was delayed for almost 20 weeks. It was seaworthy only in Sept.was seaworthy only in Sept.

Meanwhile, the defendants had Meanwhile, the defendants had repudiated the contract in June.repudiated the contract in June.

Consequences of Consequences of breachbreach

HongKong Fir Shipping v Kawasaki HongKong Fir Shipping v Kawasaki Kisen Kasiha Ltd (1962)Kisen Kasiha Ltd (1962)Held : The court held that the Held : The court held that the consequence of the breach was not consequence of the breach was not “serious enough” for a repudiation of the “serious enough” for a repudiation of the contract by the defendants.contract by the defendants.

The defendants should have sued for The defendants should have sued for breach of but not repudiate.breach of but not repudiate.

Notes : the court surprisingly did not use Notes : the court surprisingly did not use the terms condition or warranty to come the terms condition or warranty to come to this conclusionto this conclusion

Consequences of Consequences of breachbreachCehave NV v Bremer Cehave NV v Bremer

HendelsgesellschaftHendelsgesellschaft

(The Hansa Nord) 1975(The Hansa Nord) 1975Facts : Citrus pulp pellets to the value of Facts : Citrus pulp pellets to the value of £100,000 were sold. An express term in the £100,000 were sold. An express term in the contract stipulated that the ‘shipment to be contract stipulated that the ‘shipment to be made in good condition’. Some of the made in good condition’. Some of the pellets overheated during shipment and pellets overheated during shipment and were thus not in good condition. The buyer were thus not in good condition. The buyer rejected the whole quantity.rejected the whole quantity.

The goods were sold to a 3rd party, and The goods were sold to a 3rd party, and were later bought by the original buyer for were later bought by the original buyer for £ 30,000 and used for the original intended £ 30,000 and used for the original intended purpose.purpose.

Held : The seller obtained compensation for Held : The seller obtained compensation for breach as the buyer was not entitled to breach as the buyer was not entitled to repudiate the contract.repudiate the contract.

Consequences of Consequences of breachbreachReardon Smith Line v Hansen Reardon Smith Line v Hansen

Tangen(1976)Tangen(1976)Facts : A charter contract was made of a Facts : A charter contract was made of a tanker which was still to be built. It was tanker which was still to be built. It was described in the contract as ‘No. 354 at described in the contract as ‘No. 354 at Osaka”, Osaka being the shipbuilding yard. Osaka”, Osaka being the shipbuilding yard. In fact the ship was not built at Osaka but In fact the ship was not built at Osaka but at Oshima as No. 004.at Oshima as No. 004.

The plans and specifications to which it was The plans and specifications to which it was built were however identical.built were however identical.

The charterer refused to take delivery of the The charterer refused to take delivery of the ship, claiming a breach of condition. (the ship, claiming a breach of condition. (the real refusal was the collapse of the oil real refusal was the collapse of the oil tanker market)tanker market)

Held : The was no breach of condition. The Held : The was no breach of condition. The consequence of breach was not serious.consequence of breach was not serious.

Consequences of Consequences of breachbreach

Re Moore & Co and Landauer Co Re Moore & Co and Landauer Co (1921)(1921)

Held : The goods did not correspond with Held : The goods did not correspond with their description contrary to term their description contrary to term implied in S 13 SGA 1893.implied in S 13 SGA 1893.

The buyer was entitled to repudiate the The buyer was entitled to repudiate the contract.contract.

The fruit was merchantable and The fruit was merchantable and satisfactory and the satisfactory and the consequences were consequences were minimalminimal but yet, the court chose to apply but yet, the court chose to apply S13. SGA 1893S13. SGA 1893

Consequences of Consequences of breachbreach

Arcos Ltd v Ronaasen (1933)Arcos Ltd v Ronaasen (1933)Facts : Timber to be used for making Facts : Timber to be used for making barrels to store cement was described as barrels to store cement was described as being half inch thick. The timber actually being half inch thick. The timber actually delivered was slightly thinner and was delivered was slightly thinner and was therefore rejected by the buyer.therefore rejected by the buyer.

In fact the difference in thickness made In fact the difference in thickness made no differenceno difference

to the use of the wood for making the to the use of the wood for making the barrels.barrels.

Held : The buyer was entitled to reject Held : The buyer was entitled to reject the barrels as they did not correspond the barrels as they did not correspond with their description,. Contrary to the with their description,. Contrary to the implied terms provision in S13 SGA 1893implied terms provision in S13 SGA 1893