Essay: Classifying contract terms as either conditional or warranty

Classifying the term of a contract as either conditional or warranty may seem easy to comprehend, however, it is complex and difficult to decide in practice. Although terms implied by the statute, ‘the sales of goods act 1979’ classifies the terms of a contract as conditions or warranty, it can be perceived to be easily applied in practice too. An intermediate term was introduced in 1962 because not all contractual obligations falls easily into the conventional division stated in the sales of goods acts 1979 (Maclntyre, 2007.p 76). An innominate term also known as the ‘intermediate term’ was legally initiated by the court of appeal from the Hong Kong Fir Case (1963) The innominate term gives a more rational flexibility to contractual terms, this was to help decide if the beach of a term gives the injured party the right to terminate the contract or not, how relevant the term appeared to be when the contract was first made will not be considered by the court but rather, the court asks if the breach of the contract deprived the injured party of significantly the entire benefits of the contract (Maclntyre, 2007.p 76)
The facts of the ‘Hong Kong Fir Shipping Co. Ltd. v Kawasaki Ltd. (1962) was, the claimant (Hong Kong Fir) agreed to rent a ship to the defendant (Kawasaki) for the period of 24months and stated on the day of delivery that the vessel was in reasonable good condition and seaworthy. However, because it was an old ship and the staffs were inadequate and incompetence, the vessel was held up 5weeks and then needed 15weeks worth of repairs resulting to a total of 20weeks of the hire being lost. Although the initial agreement included a clause that implied that the ship was in fitted for cargo services, Kawasaki had the option of suing for damages for breach of contract but instead he terminated the contract and Hong Kong sued for wrongful repudiation and claimed that he’s breach only entitled Kawasaki to sue for damages only and not terminate the contract. Hong Kong won the case against Kawasaki. The court held the consequence of the breach of contract was not far-reaching enough for a repudiation of the contract by the defendant, this implies that the court did not apply the condition or warranty term to make this decision (Elliot and Quinn, 2011, p150). This case proves that classifying all contractual terms into either conditions or warranties can be relatively difficult. However, without the intermediate term, it will be easier and convenient to classify contractual obligation but the Hong Kong Fir case shows the significance of the intermediate term. (Elliot and Quinn, 2011, p150). The courts now recognize that classifying contractual term into condition or warranties is not quite comprehensive. The innominate term is the third class of term and a breach of the contract will entitle the injured party to terminate the contract or be compensated only, it will either be treated as a condition or warranty term, depending on the nature and severity of the breach. This type of term implies that when it is breached, it may have only a minor consequence on the following performance of the contract, considering the fact that other breaches will make the contract afterward incapable of performance (Smith, 2002, p137)
In Cehave v Bremer Handelsgessellschaft m.b.H (The Hansa Nord) [1976] QB 44, Lord Denning was reluctant to authorize a rejection under the Sale of Goods Act 1979 because he considered it to be a justly minor breach regarding the damaged goods and it was held that goods sellable under the s.14 but not in fair condition is a breach of express term to that consequence, an intermediate precondition for which breach damages was the suitable remedy. (Smith, 2002) When the breach of a contract is of precursory type, this means that the injured party has the right to claim for damages and still perform his/her part of the contract and the injured party is entitled to claim for damages and terminate the contracts if it’s of a latter type. The intermediate term has been a contemporary discovery of the high court and it is usually referred to as the innominate term in books but most times that courts and article writers refer to this term as the ‘intermediate term’ and this is because it is a term in-between a condition, which gives the injured party right to claim for damages and end the contract and a warranty which only gives the injured party a right to claim for damages to not to end the contract. The Hong Kong fir case help developed the innominate term, it approaches the breach of a contract from a different perspective to that which was commonly adopted by the court. Traditionally, as it has been stated, the court has to ascertain the severity of the breach and the status of a particular term at the time in which the contract was made. The seriousness of a term at the time when the contract was made will determine the consequences of the breach. The Hong Kong fir approach reduces the corresponding of a term only after it has been breached, from the consequences of that breach (Elliot and Quinn, 2011, p150).