A promissory term is one pursuant to which a party makes a promise to another party regarding events that will or will not occur in accordance with the agreement. If the party fails to carry out the promise, that party will have breached the term. The effect of the breach depends upon whether the term is classified as a condition, a warranty, or an intermediate term. Determination of the appropriate term is an objective test of the parties intention, taking into account their words and conduct.
Bowes v Chaleyer
Associated Newspapers Ltd v Bancks a) Conditions
A condition is a term that is essential to the performance of the contract. The promise is of such importance to the promisee that he would not have entered into the contract without assurance of the performance of the promise, and this ought to have been apparent to the promisor.
Associated Newspapers Ltd v Bancks
Any breach of this type of term will allow the innocent party to terminate further performance of the contract and to claim damages for the breach.
L Schuler AG v Wickman Machine Tool Sales Ltd
The fact that a term is described in an agreement as a condition, is persuasive not conclusive.
L Schuler AG v Wickman Machine Tool Sales Ltd
If damages alone seem to be an inadequate remedy, the courts may be persuaded to construe a term as a condition.
Ankar Pty Ltd v National Westminster Finance (Australia) Ltd Associated Newspapers Ltd v Bancks (Regarding essentiality)
The courts may be influenced to construe a term as a condition if a particular construction leads to an unreasonable result.
L Schuler AG v Wickman Machine Tool Sales Ltd
Associated Newspapers Ltd v Bancks (Regarding essentiality)
The statutory position .
In legislation relating to the sale of goods, it is implicit in the drafting that a breach of condition in a contract for the sale of goods will have the same effect as a breach of condition under the common law.
Sale of Goods Act 1896 (Qld) s.14 (2) b) Warranties
A warranty is a term that is subsidiary to the main purpose of the contract, a breach of which only entitles the innocent party to damages.
Bettini v Gye Ellul v Oakes
The statutory position .
An agreement with reference to goods which are the subject of a contract of sale but collateral to the main purpose of such contract, the breach of which gives rise to a claim for damages but not the right to reject the goods and treat the contract as repudiated.
Sale of Goods Act 1896 (Qld) s.3
It has also been suggested that this test might also apply at common law.
Associated Newspapers Ltd v Bancks
c) Intermediate or innominate terms
An intermediate term is once that stands between a condition and a warranty and cannot be satisfactorily classified as either.
Ankar Pty Ltd v National Westminster Finance (Australia) Ltd Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd
The plaintiffs hired the Hongkong Fir to the defendants for a period of 24 calendar months. Clause 1 of the hire agreement described the vessel as
“being in every way fitted for ordinary cargo service” (the “seaworthiness”
term). There was a breach of this term when the plaintiffs delivered the vessel with an insufficient and incompetent engine room staff. in a 2 year (Feb-Feb) charter - May in dock; June rejection; repairs Sept. The defendants sought to terminate performance of the contract.
Diplock LJ characterised a “condition” as a term “..which it can be predicated that every breach of such an undertaking must 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.” at 69
”(Query voyage charterparty)do not follow automatically from a prior classification of the undertaking as a “condition” or a “warranty”.” (emphasis added)
• There are, however, 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 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; and the legal consequences of a breach of such an undertaking, unless provided for expressly in the contract, depend upon 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”.” (emphasis added) Lord Diplock at 69 It may be defined as a term capable of a variety of breaches, some serious some trivial.
Bunge Corporation New York v Tradax Export SA (Panama)
The remedy for the breach of an intermediate term varies according to the severity of the breach.
If the breach deprives the innocent party of substantially the whole of the benefit of the contract, then the innocent party will be entitled to terminate the contract.
If the effect of the breach is not significantly serious, the innocent party will only be able to claim damages
Associated Newspapers Ltd v Bancks
Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd
The court must first ascertain the intentions of the parties in order to categorise the term. If the court decides it is an intermediate term it then determines the gravity of the breach
Bunge Corporation New York v Tradax Export SA (Panama)
In order to determine the seriousness of the breach a number of matters may be taken into account:
- The degree of performance up to the breach compared to the performance required under the contract.
- Whether damages will adequately compensate the lost expectations of the innocent party.
- Whether the expectations of the party in breach would be unfairly prejudiced by terminating the contract.
- Attitude and conduct of the party in breach including the likelihood of the breach persisting
Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd
The decision in Hong Kong Fir Shipping case also applies to a contract for sale of goods.
Cehave NV v Bremer Handelgesellschaft mbH
Contingencies
Since a contingency clause may be able to be construed as either a condition precedent or a condition subsequent the essential question is what effect does the contingency have on the contract.
Perri v Coolangatta Investments Pty Ltd
Under appropriate circumstances a party may be estopped from relying upon a contingency.