Classification of terms

• Conditions


  The most important terms in the contract, referring to aspects that are fundamental to its purpose and operation
• Warranties


  Terms of the contract that are not conditions, minor terms not central to the contract. Breach of warranty creates the right to damages, but not termination of the contract.
• Innominate Terms


  A sub-category of terms, where it is necessary to determine the type of term that has been breached
• In the event of a breach, it will be necessary to determine the type of term that has been breached
• Remedies


  The remedies available to the non-breaching party depend upon the type of term broken
• Breaches of certain types of terms constitute repudiatory breaches, giving the non-breaching party the option to accept the breach as termination of the contract or to affirm
• Conditions


  Refer to aspects of the contract that are fundamental to its purpose and operation. Failure to perform a condition would render the contract meaningless and destroy the whole purpose.
• Warranties in insurance contracts give rise to remedies normally associated with terms classified as conditions, allowing the insurer to repudiate the entire insurance contract if a warranty has been breached
• The Insurance Act 2015 in the UK abolished the rule that breach of a warranty (express or implied) in a contract of insurance results in the discharge of the insurer's liability under the contract
• Distinguishing conditions and warranties

  The courts will look at the substance of the term, and not necessarily the words used, to see if a term is a condition or a warranty. The more unreasonable the result, the less likely the courts are to uphold it as a condition.
• If a term goes to the very core of the contract, it may be a condition. If it appears to be ancillary to the core of the contract, it may be a warranty.
• Breach of a condition entitles the non-breaching party to terminate the contract
• Lord Reid: '"it is that they shall make that intention abundantly clear"'
• The more unreasonable, the less likely the courts are to uphold it as a condition
• Schuler v Wickham Machine Tools


  • Parties could never have intended a breach of this nature to result in the destruction of the contract
  • Lord Reid felt that there would inevitably be some instances during the 4 year contract where maintaining weekly visits would be impossible
• Conditions


  • Breach of a major term in the contract
  • Entitlement of non-breaching party to terminate the contract and sue for damages (or affirm the contract and sue for damages)
• Warranties


  • Breach of a minor term in the contract
  • Entitlement of non-breaching party to sue for damages, but that party cannot terminate the entire contract on foot of the breach
• Warranties in Insurance Contracts

  Now governed by the Insurance Act 2015
• Innominate terms


  • Innominate (nameless), because they cannot be accurately described as a condition or a warranty
  • The consequences for breaching innominate terms (repudiation of contract or just damages) will be determined not when the contract is entered into (as is the case with conditions and warranties) but based on the effects of the breach of the term
  • Terms are classified on interpretation by the courts
  • Only recognised in 1962, so quite recent
• Hong Kong Fir Shipping Co Ltd v Kawasaki


  • Innominate terms first recognised in this case
  • Ship was chartered to defendants for 2-year period
  • Term of the contract that the ship would be 'seaworthy' throughout the period of hire
  • Problems with the engine, and the ship was out of service for a total of 20 weeks
  • Defendants stated this was a breach of condition and terminated the contract
  • Claimants brought an action for wrongful repudiation, and held that the term relating to 'seaworthiness' was not a condition
• Lord Diplock: '"The problem in this case is, in my view, neither solved nor soluble by debating whether the shipowner's express or implied undertaking to tender a seaworthy ship is a 'condition' or a 'warranty'...There are many contractual undertakings of a more complex character which cannot be categorised as being 'conditions' or 'warranties'... Of such undertakings all that can be predicated is that that some breaches will, and others will not, give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract... the legal consequences of the breach of such an undertaking, unless provided for expressly in the contract, depend on the nature of the event to which the breach gives rise and do not follow automatically from a prior classification of the undertaking as a 'condition' or a 'warranty'."'
• Innominate terms - Test

  • Is the term difficult to determine as a condition or warranty without looking at the extent of the breach?
  • Does the breach deprive the innocent party of substantially the whole benefit?
  • If yes to either, then it is an innominate term
  • If no to both, then it is treated as a breach of a warranty would be treated
  • If yes to both, then it is treated as a breach of a condition would be treated
• Concept of innominate terms has been criticised as it leaves contractual relationships in a state of uncertainty
• Megaw LJ in The Mihalis Angelos (1971) 1 QB 174: '"One of the important elements of the law is predictability. At any rate in commercial law, there are obvious and substantial advantages in having, where possible, a firm and definite rule for a particular class of legal relationship… It is surely much better… to be able to say categorically: "If a breach is proved, then the charterer can put an end to the contract", rather than that they should be left to ponder whether or not the Courts would be likely…to decide that in the particular circumstances the breach was or was not such as "to go to the root of the contract"."'
• Innominate terms - Doctrine in HKFS has been applied in subsequent cases


  • The Hansa Nord [1976] QB 44
  • Cargo of pellets to be used as cattle feed
  • Term in the contract, 'shipment to be made in good condition'
  • A small part of the cargo had suffered overheating. Buyers rejected the cargo.
  • Cargo was sold to a 3rd party, who sold the cargo to the original buyers at a much lower price. They used as cattle feed as originally intended.
  • Buyer stated the goods were not merchantable under Sale of Goods Act 1893. These implied terms are usually conditions.
  • At first instance, the court agreed this was a condition, which would allow repudiation.
  • However Court of Appeal applied HKFS and stated as goods had been used for original purpose, breach wasn't serious enough to justify repudiation
• Tripartite Approach to Classifying Terms - Recent Jurisprudence

  • Ampurius Nu Homes Holdings Ltd. V Telford Homes (Creekside) Ltd [2013] EWCA Civ 577
  • Appeared to reject the tripartite approach (conditions, warranties, innominate terms)
  • But the rejection was rejected (!) in Urban I (Blonk Street) Ltd v Ayers [2013] EWCA Civ 816 and the tripartite approach is still current law
  • Warranties: breach, no matter how serious, can never give rise to repudiation of contract
  • Conditions: breach, no matter how trivial, can give rise to repudiation of contract
  • Innominate terms: may give rise to repudiation of contract depending on whether or not the breach deprived the involved party of substantially the whole benefit of the contract
  • Also see Grand China Logistics Holding (Group) Co Ltd v Spar Shipping AS [2016] EWCA Civ 982; Ark Shipping Co LLC v Silverburn Shipping (IoM) Ltd [2019] EWCA Civ 1161
• Incorporation of terms


  Even if, objectively assessed, a statement is intended to be binding it may not actually have been incorporated into the contract
• Wholly oral contracts


  • It's difficult to establish all the terms agreed by the parties
  • Written terms have to be incorporated
  • These are often exclusion clauses
• Enforceability of exclusion and limitation clauses

  Before an exclusion or limitation clause can be relied upon, 3 hurdles must be overcome
• Signed written documents


  • Terms can be incorporated by signature
  • In written contracts, you are bound by the terms if you have signed, even if you haven't read them
• L'Estrange v E. Graucob Ltd [1934] 2 KB 394


  • Plaintiff had bought a cigarette vending machine from defendant
  • Plaintiff had signed defendant's order form which contained a broad exemption from liability in very small print on poor quality paper
  • Held plaintiff liable by its terms even though she had not read the small print
• Signed written documents - exceptions

  • 1. Misrepresentation or fraud
  • 2. The document signed must be one in which you would expect to find contractual terms
  • 3. Particularly onerous or unusual clauses
• Curtis v Chemical Cleaning and Dying Co. [1951] 1 KB 805


  • The receipt of a wedding dress excluded all liability for damage, but the assistant had misrepresented its effect by asserting that liability was limited to damage to beads and sequins
• Grogan v Robin Meredith Plant Hire [1996] CLC 1127


  • Signing a time sheet containing clauses could not amount to a binding variation of the contract terms because a time sheet was not a document which might be expected to contain such clauses
• Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] 1 QB 433


  • Term in question involved a fee of £5 per day per transparency for their late return
  • Court of Appeal regarded such a clause as particularly onerous
  • Clause held not to have been incorporated which purported to impose a severe penalty for late performance and had not been reasonably brought to the other party's attention
  • Clause had to have been brought to the other party's attention in the most explicit way
• Incorporation of terms


  • One party may wish to show that a contract which was concluded orally, also contained written terms
  • Can incorporate written terms into oral contracts in 1 of 3 other ways: Notice, Consistent course of dealing, Showing common understanding between parties
• Notice


  • 3 criteria must be fulfilled before terms can be incorporated: 1) Notice must be given before or at the time of the contract, 2) The term(s) must have been included in a document which was intended to have contractual effect, 3) Reasonable steps must be taken to bring terms to the attention of the 3rd party
• Olley v Marlborough Court Ltd. [1949] 1 KB 532


  • A mink coat was stolen from a guest at the hotel
  • Hotel sought to exclude liability by reference to an exclusion clause on the back of the hotel bedroom door
  • Held not to have been incorporated because the notice had been given too late - notice has to be before or at the time the contract is concluded
• Thornton v Shoe Lane Parking Ltd. [1971] 2 QB 163


  • Plaintiff, "a free lance trumpeter of the highest quality", drove to the entrance of the multi storey car park on Shoe Lane, took a ticket from the machine and parked his car
  • Ticket said: "this ticket is issued subject to the conditions of issue as displayed on the premises"
  • Court of Appeal held that the notice about personal injury was too late as the contract was concluded as soon as the motorist had activated the machine
• Contracts concluded on the internet - exclusion clauses have to be notified to parties at the time the contract is concluded