Essay about Classification of Contractual Terms

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The Classification of contractual terms

• Not all contractual terms are of equal significance – distinction between condition and warranty
• Condition: an essential term of the contract which goes to the root or the heart of the contract – i.e. the car’s roadworthiness and the obligation to pay the price
• Warranty: subsidiary term of the contract i.e. the term relating to the colour of the car
• Distinction is crucial as it leads to different remedies when a breach occur:
- condition: enables the innocent party to 1) terminate performance of the contract and obtain damages for any loss suffered as a result of the breach. 2) affirm the contract and recover damages for the breach
- warranty: only enables the innocent party to claim damages and he must continue to perform his obligations under the contract

Condition
• Definitions: Some even upon which the existence of the contract hinges – contingent conditions - contingent precedent provides that a contract shall not become binding until the occurrence of a specified event. Pym v Campbell [1856] - contingent subsequent provides that that a previously binding contract shall come to an end on the occurrence of a stipulated event.
• Focus on promissory conditions – a term of a contract under which one party promises to do a particular thing and a failure on his part to perform the promised act constitutes a breach of contract

Condition vs. Warranty
• A term may be held a condition in one of 3 ways:
1) Statutory classification - Classified as a condition in a statute. For example s 12-15 of the Sale of Goods Act 1979 imply certain terms into contracts for the sale of goods. - These sections also classify these implied terms to ensure fairness. Where the quality of the good is to be guaranteed, it is classified as a condition. - Whereas the implied term that the foods are free from charges and incumbrances in favour of 3rd parties it is stated to be a warranty.

2) Judicial classification - There are two grounds, apart from the stipulation of the parties, on which courts may decide that a term is a condition.

i – Performance of the term goes to the root of the contract so that, by necessary implication the parties must have intended that the term should be discharged. – Couchman v Hill [1947] – It need not be the case that every breach of the term should deprive the innocent party of substantially the whole benefit which it was intended that he would obtain from the contract. Bunge Corp v Tradax Export SA [1981] – when determining the significance of the term which has been broken, the courts will have regard to the iew and practices of the commercial community. – Kerr LJ stated the court is in the absence of any other ‘more specific guide’, making ‘what is in effect a value judgement about the commercial significance of the term in question’ (State Trading Corporation of India Ltd v Goldetz Ltd [1989]) → in particular where a decision has been made by an experience trade arbitrator or tribunal as to the status of a particular term and that decision is based upon the commercial significance of the term, the courts will be extremely reluctant to interfere with the finding . ii – binding authority requires the court to hold that the term is a condition. In some industries, parties trade on standard terms and a decision that a particular standard term is a condition will affect not only the contract, but also all subsequent contracts of that type. - The Mihalis Angelos [1971]
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