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Condition

Condition Precedent


Law and Sea.
Contractual Terms.

Considering the contract as an exchange of binding promises it can be said that any breach of such promise by the party in fault gives to the innocent party a right to seek for appropriate remedies, unless liability for breach in question expressly excluded. In many cases contract specifically provides for remedies available to the aggrieved party, in all other instances this question to be decided by the court. Extent of available remedial actions depends on the nature of the terms has been breached, on consequences, and effect of it, subject to limiting or excluding provisions, if any.
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Terms of Contract: Condition, Warranties, Innominate Terms

Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (The Mihalis Angelos),  [1970] 3 All ER 125 per Lord Denning MR.:

Sir Frederick Pollock divided the terms of a contract into two categories conditions and warranties. The difference between them was this: if the promisor broke a condition in any respect, however slight, it gave the other party a right to be quit of his future obligations and to sue for damages, unless he by his conduct waived the condition, in which case he was bound to perform his future obligations but could sue for the damage he suffered. If the promisor broke a warranty in any respect, however serious, the other party was not quit of his future obligations. He had to perform them. His only remedy was to sue for damages.

This division was adopted by Sir Mackenzie Chalmers when he drafted the Sale of Goods Act, and by Parliament when it passed it. It was stated by Fletcher Moulton LJ in his celebrated dissenting judgment in Wallis, Son & Wells v Pratt & Haynes [1910] 2 KB 1003 at 1012, which was adopted in its entirety by the House of Lords [1911] AC 394. It would be a mistake, however, to look on that division as exhaustive. There are many terms of many contracts which cannot be fitted into either category. In such cases the courts, for nigh on 200 years, have not asked themselves: was the term a condition or warranty? But rather: was the breach such as to go to the root of the contract? If it was, then the other party is entitled, at his election, to treat himself as discharged from any further performance. That is made clear by the judgment of Lord Mansfield in Boone v Eyre, and by the speech of Lord Blackburn in Mersey Steel and Iron Co v Naylor, Benzon & Co (1884) 9 App Cas 434 at 443, 444, [1881-85] All ER Rep 365 at 370, and the notes to Cutter v Powell (1795) 2 Smith LC 1 at 16-18. Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd is a useful reminder of this large category.

Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1975] 3 All ER 739 per Lord Denning MR at pp.746-747:

…until the year 1893 there was much confusion in the use of the words ‘condition’ and ‘warranty’. But that confusion was removed by the Act itself and by the judgment of Bowen LJ in Bentsen v Taylor Sons & Co. Thenceforward those words were used by lawyers as terms of art. The difference between them was this: if the promisor broke a condition in any respect, however slight, it gave the other party a right to be quit of his obligations and to sue for damages, unless he by his conduct waived the condition, in which case he was bound to perform his future obligations but could sue for the damage he had suffered. If the promisor broke a warranty in any respect, however serious, the other party was not quit of his future obligations. He had to perform them. His only remedy was to sue for damages.

Now that division was not exhaustive. It left out of account the vast majority of stipulations which were neither ‘conditions’ nor ‘warranties’, strictly so called, but were intermediate stipulations, the effect of which depended on the breach. The cases about these stipulations were legion. They stretched continuously from Boone v Eyre in 1777 to Mersey Steel v Naylor in 1884.

In 1962 in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd, the Court of Appeal drew attention to this vast body of case law. They showed that, besides conditions and warranties, strictly so called, there are many stipulations of which the effect depends on this: if the breach goes to the root of the contract, the other party is entitled to treat himself as discharged; but if it does not go to the root, he is not. In my opinion, the principle embodied in these cases applies to contracts for the sale of goods just as to all other contracts. The task of the court can be stated simply in the way in which Upjohn LJ stated it ([1962] 1 All ER at 484, [1962] 2 QB at 64). First, see whether the stipulation, on its true construction, is a condition strictly so called, that is a stipulation such that, for any breach of it, the other party is entitled to treat himself as discharged. Second, if it is not such a condition, then look to the extent of the actual breach which has taken place. If it is such as to go to the root of the contract, the other party is entitled to treat himself as discharged; but, otherwise, not. To this may be added an anticipatory breach. If the one party, before the day on which he is due to perform his part, shows by his words or conduct that he will not perform it in a vital respect when the day comes, the other party is entitled to treat himself as discharged.

As Lord Denning, M.R. said in Attica Sea Carriers Corpn v Ferrostaal Poseidon Bulk Reederei GmbH (The Puerto Buitrago) [1976] 1 Lloyd’s Rep 250 at p.253:

But the question is whether that stipulation is a condition precedent to his right to redeliver the vessel (so that he is not entitled to redeliver the vessel until he has performed it): or whether it is merely a stipulation which, if broken, gives a remedy in damages but does not prevent him from redelivering the vessel to the owner. This is the sort of question which has come before the Courts for the last 200 or 300 years.

Bunge Corporation New York v Tradax Export SA [1981 ] 1 WLR 711 per Lord Scarman:

A condition is a term the failure to perform which entitles the other party to treat the contract as at an end. A warranty is a term breach of which sounds in damages but does not terminate, or entitle the other party to terminate, the contract. An innominate or intermediate term is one the effect of non-performance of which the parties expressly or (as is more usual) impliedly agree will depend on the nature and the consequences of breach… Unless the contract makes it clear, either by express provision or by necessary implication arising from its nature, purpose, and circumstances ('the factual matrix' as spelt out, for example, by Lord Wilberforce in his speech in the Reardon Smith case [1976] 1 WLR 989 at pp. 995E-997D), that a particular stipulation is a condition or only a warranty, it is an innominate term, the remedy for a breach of which depends upon the nature, consequences, and effect of the breach.

And per Lord Roskill at p.727:

In short, while recognising the modern approach and not being over-ready to construe terms as conditions unless the contract clearly requires the court so to do, none the less the basic principles of construction for determining whether or not a particular term is a condition remain as before, always bearing in mind on the one hand the need for certainty and on the other the desirability of not, when legitimate, allowing rescission where the breach complained of is highly technical and where damages would clearly be an adequate remedy. It is therefore in my opinion wrong to use the language employed by Diplock L.J. in the Hongkong Fir case [1962] 2 Q.B. 26 as directed to the determination of the question which terms of a particular contract are conditions and which are only innominate terms.


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