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Types of terms 75

Types of shares

If any term is breached the injured party will always have a remedy for breach of contract.
The nature of that remedy will depend upon what type of term was breached.

Conditions and warranties

Traditionally, all terms could be classified as being either conditions or warranties.
A condition is a term which seemed very important when the contract was made (a term
which went ‘to the root of the contract’). If a condition is breached, then the injured party
can terminate the contract and claim damages.
A warranty is a term which did not seem vitally important when the contract was made
(a term which did not go ‘to the root of the contract’). If a warranty is breached, the injured
party can claim damages but cannot treat the contract as terminated.

Example

Packaging Ltd bought 1,000 cardboard boxes from Box Ltd. A term of the contract provided

that the boxes would weigh a certain amount. This term is breached because the boxes

do not weigh the correct amount. If the term was a condition, Packaging can terminate the

contract. If they did terminate, they could reject all of the boxes, refuse to pay for the boxes,

and claim damages. If the term was a warranty, Packaging cannot terminate the contract.

So they could not reject the boxes, or refuse to pay the price, but they could claim damages.

Even if the term was a condition, Packaging could treat it as a warranty if they chose to do

this. So Packaging Ltd would not be compelled to reject the boxes if the term was a condi-

tion. The important point to note is that they could do this if they wanted to.

Figure 3.2Types of terms