Conditions, warranties and innominate 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.
Conditions
A condition is a major term of the contract which goes to the root of the contract. If a condition is breached the innocent party is entitled to repudiate (end) the contract and claim damages:
Poussard v Spiers (1876) 1 QBD 410 (Case summary)
Warranties
Warranties are minor terms of a contract which are not central to the existence of the contract. If a warranty is breached the innocent party may claim damages but can not end the contract:
Bettini v Gye 1876 QBD 183 (Case summary)
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 (Case summary)
This approach has been criticised for sacrificing certainty. Also the innocent party may well be liable for wrongful repudiation if they treat the contract as at an end where it is found that the breach did not deprive them of substantially the whole benefit of the contract.
Even where the parties have themselves classified the term as a condition the courts can hold that it was in fact only a minor term and therefore a breach of that term would not give rise to the right to repudiate the contract.
Compare the cases:
Schuler v Wickman Tools [1974] AC 235 (Case summary)
Lombard North Central v Butterworth [1987] QB 527 (Case summary)
The need for certainty in commercial contracts:
The Mihalis Angelos [1970] 3 WLR 601 (Case summary)
Bunge Corporation v Tradax [1981] 1 WLR 711 (Case summary)