Conditions, Warranties,

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 Terms are basically the clauses that
appeared in a written contract.

 Terms defines the rights and duties of the

parties under the contract.

 A breach of a term would entitle the

injured party to an action for damages for
breach of contract.

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 The terms that appear in the contract
can be categorized into
1. Conditions,

2. Warranties,

3. Innominate terms

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 Contents of a contract consist of terms that
are either expressed or implied:

It is useful for identification purposes to

distinguish between Express and Implied terms
of a contract.

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A. Express Terms
 What did the parties say or write?
 An express term can be made orally or in
writing.
 Usually express terms means it is done in
writing. Identification of express terms is
by looking at the documents.
(See Section 9 CA).

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B. Implied Terms
 In addition to the terms which the parties

have expressly adopted, there may be

other terms imported into the contract
from its context.
 Implied terms do not appear in the

contract but are presumed based on

certain grounds.

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 Implied terms read into the contracts may be
justified by reference to a number of
acceptable practices such as from
i. customs or trade usage,

ii. provision of statutes or inferred by judges out

of necessity to give business efficacy to the
contract i.e. to give the full effects to the
intention of the parties.
Reigate v Union Manufacturing Co. Ltd.
Scrutton LJ: ‘A term can only be implied if it is
necessary in the business sense to give
efficacy to the contract’.
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 Terms can also be implied into the contract by
law or statute, for example, under the Sale of
Goods Act 1957:-

 S14 (a) – provides for the implied condition that

a vendor who sells goods must possess the
right to sell.

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 S14(b) – provides ‘an implied warranty that the
buyer shall have and enjoy quiet possession of
the goods, and in subsection (c) implied that
goods sold ‘shall be free from any charge or
encumbrance in favor of my third party not
declared or known to the buyer before or at the
time when the contract is made’.

 S16 – implies that in certain circumstances,

goods sold must be fit for the purpose for which
they are sold and of merchantable quality.

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 Terms implied by customs or trade
usage

This means the contract may be

regarded as containing customary or
trade terms not specifically mentioned by
the parties.

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D entered into a written agreement with P for
the sale of timber which had communal and
customary rights.

In order to cut timber, license from the Govt. is

necessary but the agreement between the
parties did not stipulate about the license.

D tried its best but the govt. refused to give the

license.
D claimed for the deposit back from P.

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Yung Ung Kai v Enting [1965] – continue

 Court held: Obtaining a license is an implied

term in the contract and its failure amounted to
frustration of the contract.
 Here for business efficacy the High court
implied a term in the contract i.e. the sale of
timber was to be subjected to the obtaining of
the necessary license because ‘it must have
been in the minds of the parties’ that without
a license one cannot cut timber.

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 How to know whether a term is a condition ,
an innominate term or a warranty?

Whether term is a condition or a warranty

depends on the intention of the parties.

Labeling a particular term a condition or a

warranty is not conclusive.

Much depends on the construction of the

contract in each case.

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 Conditions
A condition can be a term in the contract which
is so vital or essential to the main purpose of the
contract that its breach by one party will entitle
the other party to *repudiate the contract.
It must be so fundamental to the contract
without which the contract would collapse.

 Warranty
A warranty is a minor term, the breach of which
will give rise to an action for damages, not
repudiation of the whole contract. Why?
Because it is only secondary to the main term of
the contract.
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S 12 SOGA 1957 – give both terms a definite meaning:

 S 12 (2) states – A condition is a stipulation essential to

the main purpose of the contract, the breach of which
gives rise to a right to treat the contract as repudiated.

Contrast this subsection with:

 S12(3) which states – A warranty is a stipulation

collateral to the main purpose of the contract, the
breach of which give rise to a claim for damages but
not the right to reject the goods and treat the contract
as repudiated.

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 Example:
A contract for the sale and purchase of a
Toyota Camry for RM150k and the car was
subsequently delivered without the engine.
The car simply cannot be used for the purpose
it was bought.
A very vital or essential term so fundamental to
the contract has been breached that in law it
would be termed as a breach of a condition.

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 The right to treat a breach of condition as a breach
of warranty is specifically stated in S13 (1) SOGA:

 ‘Where a contract of sale is subject to any

condition to be fulfilled by the seller the buyer may
waive the condition or elect to treat the breach of
condition as a breach of warranty and not as a
ground for treating the contract as repudiated’.

 The party entitled to terminate the contract may, if

he so desire, sue for damages for the breach, and
let the contract be subsisting – see next case:

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 The defendants had agreed to sell a metal melting
furnace to the P.
 There was a term in the agreement that stipulated that
the furnace would have a temperature of not lower than
2600 °F. The furnace when delivered did not satisfy the
above requirement.
 The court held by construing the facts of the case that
this amounted to a breach of condition but the choice
lies with the P whether they wanted to treat the breach
as a breach of a condition or a breach of warranty. The
P decided to treat it as a breach of warranty and the
court accordingly awarded damages to P.
 The above is reflected in Section 13 (1) Sale of Goods
Act 1957.

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 What about breach of warranty only?
 A warranty on the other hand may be regarded
as a minor term, which is not essential to the
main purpose of the contract, and its breach
would only give rise to a claim for damages.
 In other words a breach of warranty is only
secondary to the main term of the contract,
therefore, the contract would be continuing, but
damages are claimable.

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 E.g.: If there was a contract for the sale and
purchase of a Honda City and the car was
subsequently delivered in a white shade
whereas your contract state a blue shade, the
contract is subsisting (continuing) but the claim
will only be for damages.
 This is because you can still use the car but
you are not satisfied with the color of the car.
 It is therefore a breach of a subsidiary term of
the contract, (it is not so important as the main
term).

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 This is a term that is neither a condition nor a
warranty.
 Much will depend on the circumstances and
effect of the breach.
 If the effect of breach is substantial then the
innocent party may repudiate the contract, but
if the effect of breach is minor then it would be
treated as a breach of warranty.

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 Innominate or intermediate terms -- are
terms which cannot be classified as conditions
or warranties.
 They fall in between them. The court would
have to look into the seriousness of the breach
and determine whether the plaintiff would be
entitled to terminate the contract or only be
entitled to damages only.
 If there is no substantial loss then the innocent
party would not be allowed to repudiate the
contract but only claim for damages, as in the
case below.

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 The defendants chartered a ship from the Plaintiff for
24 months. One of the terms of the contract was that
the ship was ‘fitted for ordinary cargo service’.
 Later it turns out in mid—voyage that the ship needed
about 4 months of repair to make it sea worthy.
 Although the charter still had about 20 months to run,
the defendants repudiated the contract on claims that
the ship was not seaworthy and was therefore a breach
of condition.
 The plaintiff claimed for damages for wrongful
repudiation.

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 The court held that the term was neither a
condition nor a warranty and in determining as
to whether the defendant could terminate the
contract it was necessary to look at the
consequences of the breach to see if they
deprived the innocent party of substantially the
whole benefit he should received under the
contract.
 On the facts of the case this was not so
because the charter-party still had a substantial
time of 20 months to run. Therefore defendants
could not repudiate the contract.
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 If the breach is that it has deprived the innocent
party substantially, the whole benefit that was
to be derived from the contract, this would in
the eyes of a traditionalist be a condition but it
is otherwise, then it is a warranty – This test
was created by Lord Diplock – a.k.a. the
Gravity of Breach Test.

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 Prior and sufficient information at
the time of contract.
The parties to a contract should
be sufficiently informed of the
terms in order for the contract to
be valid.

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 The term, in order to be part of the
contract, must be put forward to the other
party before the contract is made.
 This is to make the other party aware
before entering into the contract, for it to
be binding on the parties.
 The party putting forward the terms must
provide reasonable notice to the other
party of the conditions proposed in the
terms.
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 After the contract is completed, additional
terms cannot be added as in –

Olley v Marlborough Court where it was held

that the contract was formed at the reception
desk and that a later notice found on the back
of the room door could not be relied upon as
part of the term of the contract.

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 Exception:
Where the parties had consistent
previous dealings it would be sufficient
to show that the other party was made
aware of the terms i.e. the other party
had constructive notice of the terms.

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 Where the terms of the contract are
recorded and signed.

 The terms are binding whether they have

been read or not.

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 L, bought an automatic cigarette vending
machine and signed the purchased agreement
without reading the terms of the agreement.
 Later it was discovered that the machine did
not work properly and L claimed the right to
return it.
 L failed in her bid because the seller G was
able to rely on the terms in the agreement
which exclude G from liability.

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 Held:
Once the contract is signed, in the
absence of fraud or
misrepresentation, the party who
signed it was bound by the terms
even if she did not read it.

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 An exemption clause or exclusion clause
may be defined as a term of a contract
that exclude or limit the liability of one
party which would otherwise arise as a
result of a breach by that party of his
primary obligations to perform the
contract according to the terms.

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 P stayed in D’s hotel. P left her fir coat in the
room and upon her return found the fir coat had
been stolen. P asked for compensation.

 D refused on ground that there was an

exclusion clause placed at the back of the hotel
door that the hotel will not be responsible for
items lost or stolen from the room unless
handed to the hotel management for safe
custody.
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 The court held that the disclaimer was not part
of the terms of the contract at the time the
contract was entered at the reception desk.

 The disclaimer was place behind the room door

and therefore was not part of the term put
forward before the contract was made.

Note: Terms must be read with the notes in

Part 5 under Certainty. End
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 Defendan juga memplidkan bahawa suatu klausa
pengecualian liabiliti telah diletakkan dan ia
menyatakan:
 “The management is not responsible for any loss
or damage howsoever caused to the vehicle, its
accessories or contents. Vehicle is parked solely
at customer’s own risk.”
 Defendan juga mendakwa bahawa klausa
pengecualian telah secara nyata mengecualikan
liabiliti defendan terhadap mana-mana kerugian
dan kerosakan terhadap kereta tersebut.

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