The differences between conditions and warranties PDF

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The differences between conditions and warranties...

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Contract Basics - The differences between conditions and warranties Classification of contract terms Contractual terms are classified as conditions, warranties or intermediate (or innominate) terms. Ideally, parties will identify how each contract term will be classified at the outset of the contract. This is so that if there is a breach of contract, the parties can quickly determine the available remedies.

Conditions A condition is a term of a contract that goes to the root of the contract. In a sale of goods contract this might include a clause that states that time is of the essence i.e. it is a condition of the contract that the goods must be delivered by a specific time. If a condition is breached, the aggrieved party has the right to treat the breach as "repudiatory" which means that the aggrieved party can either:  

terminate the contract; or treat the contract as continuing (i.e. affirm the contract).

In either case the aggrieved party can claim damages. It is important to note that a breach of a condition entitles the aggrieved party to terminate regardless of the nature or consequences of the breach, even if the aggrieved party has suffered little loss as a result of the breach.

Warranties A warranty is a term of the contract which is less significant than a condition and which is usually written as an assurance or a promise. For example, in a services contract there might be a requirement to have staff trained at a specific level. If breached, it would not deprive the aggrieved party of the whole of the benefit of the contract. A term that is a warranty in one contract might be a condition in another depending on how important that term is to the parties. Statements about factual matters are commonly expressed as "warranties" in a contract. For example, a party might warrant that it has obtained all required consents at the start of a contract. Such a statement is likely to be accepted as a warranty

Why is the difference between condition and warranty important? The importance of the distinction between a condition and a warranty is that the breach of a “condition” normally entitles the innocent party to terminate the Contract and claim damages; while the breach of a “warranty” normally entitles the innocent party to only claim damages. An example of a “condition” is a term that entitles the Buyer to vacant possession of the property. If the Seller is unable to deliver vacant possession and is in breach of the condition, then the Buyer may have the right to affirm the Contract and sue for damages for default and/or sue for specific performance and/or terminate the Contract....