Contract of Sale Terms: Conditions and Warranties

“Under the heading of Formation of the Contract, the Sale of Goods Act 1979 categories the terms of the contract of sale either into conditions or warranties, please criticize or analyze this classification.”

Introduction

In order to analyze the context of the sale of goods act 1979, which categorise the terms of contract of sale into either conditions or warranties, it will be important to define the meaning of the two terms. Further on, it will be helpful to use relevant cases from the English law to show how the different terms can be used in real life in different types of contracts. Different cases can be used to analyze both the meaning of the terms and how the terms are being used to resolve a twist were a breach of a contract have taken place. It will also be possible to analyze or maybe criticize outcomes of the cases being shown. This essay will try to do this as good and clearly as possible.

Body

A condition is a fundamental term of the contract which goes to the very root of the contract. A failure to perform a condition will render the contract significantly different from that contracted for. Breach of a condition entitles the innocent party to treat the contract as repudiated and itself as discharged from performance of all outstanding obligations under the contract. [1]

Poussard v Spiers and Pond [1876] 1 QBD 410 is an example of a case were a breach of a condition took place. In this case an actress was hired to sing in the opera, but she got ill and could not perform until a couple of weeks after the premiere. It was held at the court that this breach went to the root of the contract, and therefore the opera could repudiate the contract and hire a new actress.

On the other hand, the case of Bettini v Gye [1876] 1 QB 183 is an example were the breach of contract did not go to the root of the contract, and was therefore not considered as a breach of condition. In this case a singer was hired to sing and perform for about a month, which included six days of rehearsals. The singer missed out a few days of the rehearsals, but this was not held as a breach of condition, and damages were the only remedy available in this instance. [2]

The outcome of these two cases tells us that a breach of an obligation in a contract have to be significant in order to call it a breach of condition.

A warranty is considered as ancillary to the main terms of a contract. A breach of a warranty would only amount to damages, and the innocent party does not have the right to repudiate the contract. [3]

In the case of Wills v Amber [1954] 1 Lloyd’s Rep 253, a four-berth motor boat had been sold. An innocent statement by the seller that the hull was sound was held to be a warranty, which the buyer had entered into the contract in reliance upon it, when in fact the hull was rotten. But the contract was not substantially different to that which the parties originally intended. He was awarded damages.

In the case of Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235, The House of Lords stated that a breach of a condition allows for termination of the contract. But the case also shows that even if the parties themselves expressly designate a particular obligation as a condition, the word condition is not always conclusive. The circumstances surrounding their agreement may indicate that the parties had no intention of using the word in its technical sense. [4] Additionally, the law itself may give an indication of the status of a particular term. It may be implied either by statute (eg Sale of Goods Act 1979) or by a previous judicial decision.

It may seem easy to understand and decide whether a term in a contract is a condition or a warranty, but it can be more difficult to decide in practice. So when the Sale of Goods Act 1979 classifies the terms of a contract either into conditions or warranties, it seems to be quite easy to handle in practice also. But not all contractual obligations fall conveniently into the traditional division between conditions and warranties. [5] Such are called intermediate terms and are not mentioned in the Sale of Goods Act 1979.

An innominate term or intermediate term, is a term that is not clearly defined, but the severity of the consequently breach will determine whether it is a condition or warranty. [6] The term remains unclassified until the seriousness of a breach can be judged. [7] If the benefit goes to the root of the contract, the relevant term will be classified as a condition. If the breach substantially deprived the innocent party of the whole of the benefit which was contracted for, then such a breach would allow termination of the contract along with the right to damages. But if the breach is not so server, then the innocent party is only entitled to damages. [8]

The Hong Kong Fir [9] was chartered on the “Baltime 1939″ form for 24 months, one month more or less. Her engines at the time of delivery were in a reasonable condition but, because of their age, required careful attention. The engineers employed by the owners on delivery were insufficient in number and also incompetent. Consequently, there was, on the very first charter voyage, a succession of serious engine failures. A voyage from Liverpool to Osaka included five weeks off hire for repairs and was followed by 15 further weeks of repairs at Osaka. Before the ship was again ready for sea, the charterers purported to terminate the charter and the owners claimed damages on the ground that the purported termination was wrongful. It was held that:

(1) The owners were in breach of the undertaking of seaworthiness having regard to the incompetence of the engine room staff;

(2) The owners were not protected by the “Baltime 1939″exceptions clause (Clause 13) since the incompetence of the engine room staff was attributable to the owners’ want of due diligence in their selection;

(3) Seaworthiness was not a condition; therefore, it did not in itself give the charterers the right to repudiate;

(4) The charterers could justify their purported termination only if the breach of the undertaking of seaworthiness went to the root of the contract;

(5) The breach of the undertaking had resulted in considerable delays, but this could not be regarded as going to the root of the contract or as depriving the charterers of substantially the whole benefit of the contract unless the delays were such as to frustrate the charter.

This case can show that it might be difficult to classify all contractual obligations into either conditions or warranties. Although it could be easier and more convenient without the intermediate terms, this case shows the importance of these terms.

In Cehave v Bremer Handelsgessellschaft m.b.H (The Hansa Nord) [1976] QB 44, Lord Denning showed a reluctance to allow rejection under the Sale of Goods Act for what he considered to be a fairly minor breach in relation to damaged goods and held the goods merchantable under s.14 but not in good condition a breach of the express term to that effect – an intermediate stipulation for which breach damages was the appropriate remedy. [10]

Conclusion

All these cases and definitions of the terms in a contract states that the classification of the terms of a contract, made in the sale of Goods Act 1979, may be deficient. It also shows that even though it may be easy to classify different terms in a contract into either conditions or warranties in theory, it is much more complicated in practice. This because every case has its own character, and that is why intermediate terms can “provide a more flexible and equitable remedy” [11] which in my opinion is a good thing. But it may also introduce a greater degree of uncertainty into the law, which can create more practical difficulties, and make it harder for the court to decide the remedy. It can also cause problems for the involved parties, like the case of Hong Kong Fir mentioned earlier. Where the victim of the breach decided to treat it as a breach of condition, and therefore treated the contract as repudiated, which later turned out not be the case, ruled by the court. This is an example that shows the uncertainty of these terms.