All Contractual Terms Are Either Categorized as Conditions or Warranties - Essay Example

ALL CONTRACTUAL TERMS ARE EITHER CATEGORIZED AS CONDITIONS OR WARRANTIES by Word count 2601 ALL CONTRACTUAL TERMS ARE EITHER CATEGORIZED AS CONDITIONS OR WARRANTIES Introduction A contract is a mutual commitment between two or more persons. It legally binds the parties to the contract.1The Term Legally binding means that the court of law may intervene in the event one of the parties breaches the contract. However, for an agreement to be legally binding, some conditions must be fulfilled. First, there must be an offer by one party that has been accepted by another. The parties to the contract must also intend to make the contract legal. They should enter into an agreement with genuine motives. In addition, they must have a legal capacity to enter into an agreement. There ought to be a consideration that will pass hands once the promises of the contract have been fulfilled. Finally, the agreement should be not violate the laws of the land. For example, it would be illegal to enter into an agreement of drug trafficking. Once these conditions have been fulfilled, the agreement becomes a contract that can be enforced by the court of law.2 As such, all contractual terms are either categorized as conditions or warranties Terms of a Contract Terms of contracts are promises or statements made by one person to another in order to encourage him to enter into a contract.3They comprise of duties and responsibilities of the parties to a contract. The terms may be express or implied. The parties themselves put down express terms, either in writing or verbally. In a written contract, any statement is an explicit term of the contract. An example is in Duffy & Ors v. Newcastle United Football Co. Ltd. (2000). The law from the actions or intentions of the parties infers implied terms of a contract. Shirlaw v Southern Foundries [1939] is a good example of a situation where terms of the contract were implied. In the case, the claimant was hired as a managing director for a term of ten years. Later the defendant altered the articles of association giving the company the power to remove directors. The firm fired the claimant before the end of his ten years contract. The court held that when signing the employment contract there was an assumption that the company would not remove the managing director from his position during the term of the contract. Another assumption was that the enterprise would not alter the articles of association to give it the right to fire the managing director. Conditions A condition is a term of a contract that goes to the root of the contract. Failure to honour a conditional term renders an agreement very different from the original one. Hence, conditions are the essential terms of a contract.4 Due to their importance, a breach of a conditional term gives the innocent party the right to void the contract. The innocent party is also discharged from performing their part of responsibilities. Repudiation does not consider the reason as to why the contract was violated. In the case law of Poussard v Spiersand Pond (1876), an actress was hired to entertain guests in an opera. However, on the material day she fell sick and could not sing at the function. The court held that a breach of the condition had taken place. Consequently, the opera was at liberty to repudiate the contract and hire another actress of choice. In the case law of Bettini v Gye (1876), a singer was recruited to sing in concert. As outlined in the contract, she was supposed to attend six days of rehearsals. She missed some days for the rehearsals. The court held that the company could only sue for damages since the breach had not gone to the root of the contract.5 A Warranty Anson (1896), argues that some terms of contracts support the principal terms of the contract.6 Their breach does not materially affect the contract. Hence, the innocent party is at no liberty to repudiate the contract. He or she can only claim for damages. The case law of Willi v Amber (1954) is a good example of a breach of a contract. The complainant and the defendant entered into a sale of goods contract. The defendant sold a four-berth motorboat to the complainant. The seller had made an innocent statement that the hull was in good condition.7The buyer entered into the contract relying on that information. However, the hull was rotten. It was held that the plaintiff could only claim damages. The breach did not affect the core of the contract. Remedy for Breach of a Condition The first remedy for the violation of a condition is repudiation. It allows the innocent party to resile from the contract. In addition, the innocent party does not have to perform any other obligation under the contract. It is offered in case the one party to the contract has committed a significant breach, wrongly induced, or repudiated the contract. Hence, rescission terminates the contract. There must be strong justification for the remedy to be accorded. In the case law of Wade v Waldon, the parties entered into a contract. Wade was contracted to entertain the spectators at the Palace Theatre. He was to give a fourteen-day notice and supply publicity materials prior to the event. He did not do either. Waldon disallowed him to perform on the grounds of repudiating the contract. Lord President Dunedin held Waldon liable for damages for wrongful repudiation of the contract. The second remedy is damages plus repudiation. Unlike in pure denial, the innocent partly rescind the contract and sues for damages. Damages are meant to compensate the innocent party for the loss sustained as a result of the breach of the contract. If no direct loss was sustained, the court might still award nominal damages in instances of inconveniences caused or other types of disturbances. Damages are compensatory, nominal, quantum meruit, punitive or even liquidated damages. The innocent party received the compensation and the contract ends. Remedy for Breach of a Warranty First is the compensatory damage. Compensatory damages cover the loss that the non-bleaching party incurred because of the violation. The money paid restores the non-defaulting party to the situation that he would have been had the contract been performed. The standard measure of punitive damages is one that would allow the innocent party to acquire a substitute for the benefits that would have accrued. An example is when a firm pays a painter a hundred pounds to paint a section of a building. If he fails to paint and the only painter you get is charging two hundred pounds, the court may require the initial artist to pay the firm two hundred pounds (Collins 2008). Second is the restitution remedy. It is effected by a court order. According to Allan (1999), the person who breached the contract pays what he had gained from the performance of the other party.8The damage is awarded if the breaching party owes no performance other than payment of a specified amount of money. The breaching party ought to be restituted for benefits that he conferred by way of part performance or due to reliance in excess of the lost than the caused the injured party. An example is when a company contracts and pays a staff to do data entry. If the employee to do the task, the court may order him to return to the business the money that he had received. Thirdly, a punitive damage is awarded in instances of moral misconduct. It is a rare form of damages. The aim of the damage is to punish the person that breached the contract for failure to conducts himself morally. The breach may be out of malice, wilfully or fraudulent act. An example situation is where a producer produces and sells goods to a consumer knowing that the products are substandard thereby harming the consumer. Other than just punishing the offender, the damage is also meant to act as a deterrent to other offenders.9 An example is in the case law of Pacific Mutual Life Insurance v. Haslip, the insurance company misappropriated the premiums on the health insurance coverage. Cleopatra and other clients were left with no cover. The jury found held the insurance company liable and imposed the punitive damages. Quantum meruit damage is another remedy for breach of a contract. They are awarded to recognise the work already done before the breach of the contract (Collins 2008). An example is a painter who did not finish painting the building because the employer requested him to stop further painting. If the painter were halfway in his work, he should be paid half of the total amount payable. Lastly are equity damages that that involve cancellation or specific performance (Collin 2008). In cancellation, the court treats the contract as void, and all the parties are discharged from their duties. However, specific performance requires the party that breached the deal to honour their part of the contract. For example, the court may order a painter who has refused to paint after receiving payment from a company to finish painting the building. The fifth remedy is for specific performance. The innocent party applies to the court for an order whereby the court directs the other party to execute their parts of the contract. The party at fault is required to comply with the order failure to which he the court fines or imprisons him on the grounds of contempt of the court. Before the remedy is awarded, the court considers other options. There are situations when this type of remedy may be denied. In the case law Skerret v Oliver, the pursuer had been suspended from the church due to having a private association with a female, who was also a member of the congregation. The courts held that governing bodies of the religious movements are responsible for non-fulfilment of their obligations towards their members. As a result, the court could not induce specific performance as the case involved voluntary associations for which no civil or patrimonial rights were violated. The sixth remedy is the lien. It involves retaining of the party to the contract until he settles the outstanding debt. It is a common remedy in the sale of goods contract. It allows the person in the possession of an item to hold it until the debt the owner of the item settles the debt due. The item held may or may not be connected to the debt. In some trades, holding a lien is a common practice. An example of such trades include the mercantile agents, the bankers, the solicitor, and the hoteliers. For example, assume that A is an agent of B. A has in possession designer clothes for sale belonging to B. In case B owes A, A has the right to hold the designer clothes until A settles all his debt. However, A does not have the right to use or sell the designer clothes for his benefit. Line between a Condition and a Warranty The line between a condition and a warranty is very thin.10 This line is the innominate terms. They are also called intermediate contractual terms. Justice Diplock introduced the innominate terms during the case of Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd. He noted that the terms lay in between the Condition and Warranty. However, there is a varying opinion among many jurists as to the right definition of the innominate terms. One school of thought argues that innominate contracts are the ones that have not been expressly specified by the parties to the contract as either Warranty or Condition. The second school of thought considers innominate terms as an independent category of the contracts. Hence, they are neither contracts nor conditions. The common factor in all the definitions is in the remedy for the breach of the innominate terms. The terms may be breached in ways that make them be treated as either conditions or warranty. If one of the parties breach such contractual terms, the court is at discretion to choose whether to treat the terms as either Conditions or Warranty. As a result, their interpretation depends on whether the court thinks that they affected the root of the contract or not. If one of the parties was deprived off something fundamental, the terms are interpreted as conditions. If nothing significant was lost, the contractual terms are treated as warranty. In the case law of Hong Kong Fir Shipping v Kawasaki Kisen Kaisha (1962), a ship was chartered to the defendant for two years. According to the agreement, the ship was supposed to be in the sea throughout the hire period. However, the ship developed mechanical problems and was out of service for twenty weeks. The repudiation of the contract by the defendant was upheld. The innominate terms affected the root of the contract.11 Conclusion I conquer with the topic that all contractual terms fall into two categories; Warranty or Condition. The innominate contractual terms do not qualify to be a category of the contractual terms. This is because the judge rules them out as either Warranty or Condition depending on the magnitude of their effect on the contract. Therefore, there are only two major categories of contractual terms: The Warranty and the Conditions. References Allan, FE 1999, Contracts, Aspen Law & Business, New York. Anson, WR 1891, Principles of the English law of contract and of agency in its relation to contract, Clarendon Press Oxford. Ayres, I. (2012). Studies in Contract Law. Foundation Press. Büchler, A, Müller-Chen, M &Schwenzer, IH 2011, Private law: National, global, comparative: Festschrift fur IngeborgSchwenzerzum 60, Stampfli, Geburtstag. Bern. Carter, J. W., & Hodgekiss, C. (1977). Conditions and Warranties: Forebears and Descendants. Sydney L. Rev., 8, 31. Chapter 4-Contract (Online). Available from: http://uk.practicallaw.com/books/9781845921620/chapter04#SLASG-ch04-UID281 [Accessed: 4th April 2015] Collins, H 2008, Standard contract terms in Europe: A basis for and a challenge to European contract law, Kluwer Law International, Alphen Aan Den Rijn. Duhaime.Org. Innominate Terms Legal Definition. (Online). Available from: http://www.duhaime.org/LegalDictionary/I/InnominateTerms.aspx [Accessed: 4th April 2015] George, R. P. (1992). Natural law theory: Contemporary essays, Clarendon Press, Oxford England. Greig, D. W. (1973). CONDITION-OR WARRANTY. LAW QUARTERLY REVIEW, 89(353), 93-106. Keeton, P. (1973). Product Liability and the Meaning of Defect. . Marys LJ, 5, 30. Lessnoff, MH 1986, Social contract. Humanities Press International, Atlantic Highlands, NJ. Treitel, GH 1987, The law of contract, Stevens. London. Tuori K 2002, Critical legal positivism. Ashgate, Aldershot, Hants, England. Read More