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14 Cards in this Set
- Front
- Back
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EXPRESS TERMS: CONDITIONS, WARRANTIES AND INTERMEDIATE TERMS
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This subject is of key importance since the nature of the termbroken determines the remedy of breach of contract. The word “condition” maybe used in two different meanings;
(1) an essential as opposed toa subsidiary promise in a contract (2) a fact or event on the occurrence of which the duty to perform acontractual promise depends. These are either (a) conditions precedent or (b)subsequent, depending when they are effectiveDeriving from this, a “condition” may be described as either (1)promissory or (2) contingent. |
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Headv Tattersall (1871)
condition - warranty |
If a contract of sale provides that if the thing sold does not answer to a warranty given with respect to it, the purchaser may return it within a specified time, he may do so, and is not liable for injury occurring to it while in his possession but without his default. |
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Schulerv Wickman Machine Tool Sales Ltd [1973]
condition - warranty |
L. Schuler were a manufacturing company and they granted Wickman the sole right to sell their products in the UK. In the terms of the agreement, Wickman were to visit six of Schuler's major British clients each week for the duration of the contract (4 years), which they failed to do. It said in the contract that this was a "condition" of the agreement. Schuler repudiated the contract. The initial arbitrator found for Wickman, which was reversed at trial but then restored in the Court of Appeal.
Does calling something a “condition” in the contract mean that its breach leads to a right of rescission? Appeal dismissed. Lord Reid, writing for the majority, states that simply calling something a "condition" does not make its breach necessarily result in a right of rescission. In this case, it is clear that it would be almost practically impossible for Wickman to successfully complete all of the visits – what if someone was sick, etc. There was also another clause in the contract that said Schuler would inform the distributor of material breaches and demand a remedy, which did not occur here. Simply calling something a "condition" in the contract itself does not mean that its breach will lead to a right of rescission - you must look at the event as per Hong Kong Fir Shipping Co. Ltd. v Kawasaki Kisen Kaisha Ltd..When there is a breach of one clause in a contract, the breach must be read in context with the entire contract to decide if rescission is in order. It is open to the parties to stipulate the consequence to attach toany particular breach. The use of theword “condition” is not decisive. Schuler confirmed as a general principlethat in construing a contract the conduct of the parties subsequent to theexecution of the contract cannot be taken into account. |
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Poussard v Spiersand Pond (1876)
breach of condition |
Madam Poussard was under contract with Spiers to sing in an opera at the Criterian Theatre. She fell sick and was unable to attend rehearsals. Her non-performance, being caused by sickness, was not a breach of contract on her part. Held: The absence did excuse the Theatre Company from continuing to employ her.
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. |
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Bettini v Gye (1876)
breach of warranty |
Mr Bettini agreed to sing for Mr Gye in concerts and operas in London between March and July 1875. The contract said he was to be in London “without fall” at least six days before the 30th March for rehearsals. Because of illness, he did not arrive until the 28th. Held: The term was not in this case a condition precedent: the clause was a warranty only and a breach would not amount to a repudiation of the contract but would only give rise to an action for compensation in damages. Nevertheless, parties to a contract are free to say that a breach of a particular term will be fundamental. Blackburn J said: “Parties may think some matter, apparently of very little importance, essential; and if they sufficiently express an intention to make the literal fulfilment of such a thing a condition precedent, it will be one.”To discovere wether there had been a repudiation, the court had to ask whether the breach in question was of a term: “going to the root of the matter, so that a failure to perform it would render the performance of the rest of the contract by the plaintiff a thing different from what the defendant has stipulated for.”
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ReMoore and Landauer (1921)
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A contract for the sale of 3,100 tins of peaches described the tins as being packed in cases of 30. When they arrived the tins were packed in cases of 24 although the agreed overall number of tins was supplied. Held: The purchaser was entitled to reject the goods as they were not as described. The vendor was held not to be entitled to payment for the fruit. This was as a result of the fact that he breached a term of the contract to deliver 30 tins in each case.
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Maredelanto CompaniaNaviera v Bergbau-Handel (‘The Mihalis-Angelis’)[1970]
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The Mihalis Angelos was fixed to sail to Haiphong and there load a cargo for delivery in Europe. In thecharterparty dated 25 May 1965 the owners stated that the ship was "expected ready to load under this charter about July 1, 1965". The charterparty also provided, in the first sentence of the cancelling clause,"Should the vessel not be ready to load (whether in berth or not) on or before July 20, 1965, charterers have the option of cancelling this contract, such option to be declared, if demanded, at least 48 hours before vessel's expected arrival at port of loading".On 17 July 1965 the ship was at Hong Kong, still discharging cargo from her previous voyage. It was physically impossible for her to finish discharging and reach Haiphong by 20 July. The charterers gave notice cancelling the charter. The owners treated this as a repudiation and claimed damages, which were the subject of arbitration and of an appeal to Mocatta J. On further appeal, there were three issues. The first was whether the "expected readiness" clause was a condition of which the owners were in breach, entitling the charterers to terminate the charter contract. The second issue was whether (if the answer to the first issue was wrong) the charterers had repudiated the contract by cancelling on 17 July, three days before the specified 20 July deadline. The third issue was as to the damage suffered by the owners, on the assumption that the charterers' premature cancellation had been a repudiation. Held: The charter would have been cancelled, and the owners would have been entitled only to nominal damages. The first issue was whether the ‘expected readiness’ clause was a condition of which the owners were in breach, entitling the charterers to terminate the charter contract. This was decided in favour of the charterers and against the owners. The second issue was whether (if the answer to the first issue was wrong) the charterers had repudiated the contract by cancelling three days before the specified deadline. All members of the court were viewing the case as from the date of acceptance of the repudiation (although only Megaw LJ said so in terms). They were not taking account of later events. They were recognising, as was obvious on the facts as found, that the value of the contractual right which the owners had lost, as of the date of acceptance of the repudiation, was nil because the charter was bound to be lawfully cancelled three days later.
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Lombard North Central v Butterworth[1987]
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The defendant leased a computer from the claimant. The claimant was to pay £584 by 20 instalments every 3 months. A term of the lease agreement provided that punctual payment was required and breach of this term would entitle the lessor to terminate the agreement. The defendant got into arrears with the instalments and the claimant took possession of the computer and sold it on for £175. The claimant sued the defendant claiming arrears and all future payments amounting to £6,869 in total. Held: The term relating to prompt payment was a condition. Time is of the essence. The parties by their agreement had demonstrated that prompt payment was an essential term and the consequence of breach was clearly set out. Nicholls LJ stated that even one late payment would entitle the lessor to terminate irrespective of the effect of the breach. Mustill LJ said: ‘A stipulation that time is of the essence in relation to a particular contractual term, denotes that timely performance is a condition of the contract. The consequence is that delay in performance is treated as going to the root of the contract, without regard to the magnitude of the breach. It follows that where a promisor fails to give timely performance of an obligation in respect of which time is expressly stated to be of the essence, the injured party may elect to terminate and recover damages in respect of the promisor’s outstanding obligations, without regard to the magnitude of the breach.’
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HongKong Fir Shipping v KawasakiKishen Kaisha [1962]
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Hong Kong Fir agreed to rent their ship to Kawasaki for 24 months and stated on the date of delivery that the ship was fitted for use in ordinary cargo service. However, due to the fact that the engine room staff was inefficient and the engines were very old, the ship was held up for 5 weeks, and then needed 15 more weeks worth of repairs after the deal had been made. Kawasaki repudiated the contract, and Hong Kong Fir sued for wrongful repudiation. Hong Kong Fir was successful at trial and Kawasaki appealed. What is the test for determining if a breach of a contract leads to a right of repudiation? Appeal dismissed. Diplock, writing for a unanimous court, states that the test does not always depend on whether the thing that was breached was a warranty or a condition, as sometimes the circumstances are more complex than this. He states that the correct test is to look at the events which have occurred as a result of the breach at the time when the contract was purported to be repudiated and to decide if these events deprived the party attempting to repudiate of the benefits that it expected to receive from the contract. He decides that in this case, as the charterers still get to have the boat for 20 more months, the expected benefits can still be received. Therefore this breach should not lead to repudiation, but only to damages. The correct test to determine if a breach should lead to repudiation is to look at the events which have occurred as a result of the breach and to decide if these events deprived the party attempting to repudiate of the benefits that it expected to receive from the contract (the breach must lead to the party not being able to obtain all or a substantial proportion of the benefits that they intended to receive by entering into the contract) - if they do, then repudiation is in order, else only damages can be awarded.
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CehaveNV v Bremer Handelsgesellschaft ‘(the HansaNord’) [1975]
intermediate terms |
This case involved contracts to sell citrus pulp pellets on GAFTA terms. Cl 7 of the contract said that the shipment was to be "in good condition". The buyers were to use the product in animal feedstuffs. On arrival in Rotterdam , there was major damage to 1260 metric tons and minor damage to a further 2053 tons. The buyers rejected the shipment and claimed the return of the price which had already been paid.The sellers refused to repay the money, and the goods were sold to X for £33,000. The goods were then resold to the original buyers for the same reduced price. The goods were then used for cattle food. The contract price was for £100,000 and the market price at the time was about £86,000. HELD Denning MR To what extent can a party in breach call upon the other side to perform their part? At one time it was thought to depend on the nature of the stipulation rather than extent of breach or the consequences. Whilst the Sale of Goods Act 1893 used the language of condition and warranty, it cannot have been intended to rule out the intermediate terms, the cases upon which were legion.The Act expressly preserved the rules of the common law which were inconsistent with the Act. The Hong Kong shipping case drew our attention to this vast body of law, and showed that if there is a breach which goes to the root of the contract, the other party may consider they are discharged, but otherwise not. In my opinion, those cases apply to Sale of Goods. So, 1) is the provision a condition? 2) If the answer to that is "no", then we must look to the extent of the breach. We should also add anticipatory breach - if one party in advance indicates that they will not perform in a vital matter, the other party may consider themselves discharged. This clause is like one as to quality. If a small portion of the goods were not up to scratch then commercial people would deal with it by an allowance off the price. Buyers cannot reject goods unless the defect is serious and substantial.On the facts, I do not think the buyer was entitled to reject the shipment. The goods cannot have been so bad if they were actually used for their intended purpose.
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TorvaldKlaveness v Arni Shipping Corporation (‘The Gregos’)[1994]
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In a continuing charter when it was clear that the time of the charter will be exceeded, the contract allows an action for an anticipatory breach. Any new redelivery order was to be obtained after after it first became impossible to meet the charter terms. Time was of the essence. The correct date for assessment of the legitimacy of the order was the date on which the vessel completed discharged and was ready to proceed on her last voyage, by which time, on the facts it had become apparent that she could not complete that voyage and be redelivered in accordance with the charterparty. The order previously given then became invalid and the charterers’ persistence in requiring it to be obeyed was repudiatory.Lord Mustill said: ‘Questions of this kind are better decided by looking at what the contract says than by speculating on the practical outcome of preferring one solution to another. Naturally, no judge will favour an interpretation which produces an obviously absurd result unless the words used drive him to it, since it is unlikely that this is what the parties intended. Where there is no obvious absurdity and simply assertions by either side that its own interpretation yields a more sensible result, there is room for error.’ . . And ‘Finally, some of the legal consequences of late redelivery have been worked out. There remain a number of unanswered questions, with some of which your Lordships are now concerned.’ and ‘At first sight, this apparently anomalous result is a good reason for questioning whether the claim for repudiation was soundly based. On closer examination, however, the anomaly consists, not so much in the size of the damages, but in the fact that damages were awarded at all. Imagine that the without prejudice agreement had not been made, and that the owners, having treated the charter as wrongfully repudiated, had accepted a substitute fixture with Navios. If one then asked what loss had the repudiation caused the owners to suffer, the answer would be – None. On the contrary, the charterers’ wrongful act would have enabled the owners to make a profit. Even if they had not accepted the substitute employment they might very well have suffered no loss, since they would have been in the favourable position of having their ship free in the right place at the right time to take a spot fixture on a rising market. In neither event would the owners ordinarily recover any damages for the wrongful repudiation.’ in determining the date for judging thevalidity of the charterers' order for the final voyage it was necessary toascertain the intention of the parties from the terms of the charterpartyitself AND althoughtimely redelivery was not a term of the contract, breach of which would amountto repudiation, the fact that the charterers had no intention of giving validorders to enable the vessel to be redelivered within the stipulated timeconstituted an anticipatory breach which enabled the owners to treat thecontract as ended
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Bremer Handelsgesellschaft v Vanden-Avenne-Izegem[1978]
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Vcontracted to sell to P soya beans cif Rotterdam to be shipped from the USA at280 tons per month in each of the months May to December 1973. The contract wasin the GAFTA 100 form, which provided, by cl. 21, that any unfulfilled part ofthe contract might be cancelled, inter alia, in case of any executive act doneby the government of the territory where the ports of shipment were situatepreventing fulfilment; and by cl. 22, for an extension of the shipment periodin the case of force majeure, strikes, etc., and that notice should be givenstating the port or ports of loading from which the goods were intended to beshipped. In June 1973 the US Government placed an embargo on the export of soyabeans which was to be subject to quota restrictions. V claimed damages fornon-delivery of the June shipment. Held, on appeal, that (1) under the terms ofthe GAFTA contract, the time of giving a cl. 22 notice was the time of itsdispatch, and accordingly V's notice was in time; (2) the requirement that Vmust state the port or ports of loading from which the goods were intended tobe shipped must be interpreted as meaning intended to be shipped as aconsequence of the event constituting force majeure; but "the usual portson the Lakes/East Coast/Gulf" could not properly be regarded as anomination, and accordingly V's notice was bad; (3) the embargo made itimpossible for V to make the June shipment legally unless the period wereextended, which V were under no obligation to do; (4) the subsequent conduct ofP showed that they had waived their right to challenge the validity of V's cl.22 notice; (5) the validity of V's cl. 21 notice was not dependent on V'sshowing that they would have shipped but for the embargo; it was for P to showthat it was not the embargo that prevented shipment. Judgment for V.
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A/SAwilco Fulvia spa di Navigazione (‘The Chikuma’) [1981]
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Wherea clause in a charterparty requires payment of hire "in cash," the paymentmust be in something as good as cash and capable of earning immediate interest.By cl.5 of the charterparty the owners had the right to withdraw their vesselfailing punctual hire payment "in cash." Payment had been made beforeJanuary 1976 by credit transfer to the owners' bank. Payment was similarly madeon January 22, 1976, but interest would not run until January 26 under Italianbanking law. The owners refused payment of the hire and withdrew the vessel.After various findings and appeals the owners appealed to the House of Lords. Held,allowing the appeal, that payment "in cash" meant something as goodas cash. which was not the case where the credit transfer could not be used toearn immediate interest
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Bunge Corporate vTradax Export SA [1981]
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Bunge Corp sued Tradax SA for wrongful termination of its agreement to supply Bunge with 15,000 tons of soya bean meal on the basis that giving notice four days late for loading the ship was not so bad. The soya bean meal was going on three shipments from a port in the Gulf of Mexico nominated by Tradax and on a ship nominated by Bunge. One of the shipments was to be during June 1975. Clause 7 said Bunge was to ‘give at least 15 days consecutive notice’ of the readiness of the ship for loading (i.e. which at the time mean 13 June). Bunge gave notice on 17 June. Tradax argued this was a breach and purported to terminate and recover damages for the difference between the contract price and the market price (which had just fallen). The House of Lords held that proper construction of the contract meant clause 7 was a condition, so Tradax had been entitled to terminate. The contract had to be construed to give effect to the parties' intentions, and although because it allows the right to terminate one would not quickly hold that in mercantile contracts agreements contained conditions, this one did.
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