Law About Conditions,warranties and Innominate Terms

There is no doubt that a contract has been formed between Nick and Lee. The contents of a contract are known as terms. Even the simplest forms of contract will have terms. Contractual terms can either be conditions, warranties or innominate terms. Traditionally, contractual terms were classified as either conditions or warranties. The category of innominate terms was created in Hong Kong Fir Shipping.

It is important for parties to correctly identify which terms are to be conditions and which are to be warranties. Where there has been a breach of contract, it is important to determine which type of term has been breached in order to establish the remedy available.

The obligations of the parties in an agreement may differ in magnitude. The law traditionally distinguishes different classes of term as condition or warranty. The exact words used by the parties to describe the relative importance of the terms of their contract are not conclusive, Schuler AG v Wickman Machine Tool Sales Ltd (1974).

Conditions

The term “condition” means a promise essential to a contract. It is a fundamental term which is said to go to the root of the contract. Breach of condition entitles the innocent party to claim damages caused by the breach and to treat the contract as at an end, William Artists International Ltd v Chevalier (Hong Kong) Ltd (1996). (Poussard v Spiers (1876) 1 QBD 410)

Warranties

A warranty is a less vital term of a contract which is merely collateral to the main purpose of the contract. Breach of warranty entitles an innocent party to damages but does not entitle the injured party to rescind the contract and does not relieve him of his obligations. (Bettini v Gye 1876 QBD 183)

Innominate terms

The innominate term approach was established in the case of Hong Kong Fir Shipping. Rather than classifying the terms themselves as conditions or warranties, the innominate term approach looks to the effect of the breach and questions whether the innocent party to the breach was deprived of substantially the whole benefit of the contract. Only where the innocent party was substantially deprived of the whole benefit, will they be able to treat the contract as at an end:

(Hong Kong Fir Shipping v Kawasaki Kisen Kaisha (1962) 2 QB 26)

Clause 1.3

Since it is expressly stated punctual payment of the agreed monthly rent is deemed to be of the essence of the contract. This is an essential promise, there is a breach of condition when Lee was two days late in paying the rent. The breach of this condition entitles Nick to terminate the contract as well as to sue for damages.

A breach of condition will be treated as a breach of warranty only unless the injured party gives a note of the breach