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Contract Reading Session 3
1. Termination (i) Condition, warranties, and innominate terms
Sale of Goods Act 1979 ss 12-15A: S.12: In a sale there are implied terms that the seller has the right to sell, that the goods are "free" from any charges and encumbrances not disclosed to the buyer before contract formation, and that the buyer will enjoy them in quiet possession, except as it may be disturbed by the owner or another party entitled to benefit from the goods. This doesn't apply where there is an intention only to pass such title as the seller has the right to pass (i.e. less than ownership). In such a case, the buyer must stay in quiet possession, undisturbed by the owner, ay 3rd parties whose rights the seller has sold to the buyer, or anyone acting through the seller to claim charges or encumbrances not disclosed to the buyer prior to contract formation. Similarly The seller has to disclose all charges/encumbrances before contract is made. S.13 "Where there is a contract for the sale of goods by description, there is an implied term that the goods will correspond with the description." S.14 There is no implied quality or fitness of the goods sold, though where goods are sold "in the course of business" they have to be of a satisfactory quality, so that a reasonable person, taking account of circumstances, price etc would say they are of a reasonable quality. This doesn't apply where the faults were revealed to the buyer before the sale, where the buyer's examination of the goods before sale should have revealed the defects or where the buyer's sampling of the product should have revealed the defects. Where the buyer (B) tells the seller (S) that he is buying the goods for a particular purpose, there is an implied term that the goods will be reasonably fit for that purpose except where B doesn't or shouldn't rely on the skill/judgment of the seller. In a sale by sample, there is an implied term that the goods will correspond with the sample in quality, and that the goods will be free from any defect, making their quality unsatisfactory, which would not be apparent on reasonable examination of the sample. Hong Kong Fir Shipping v Kawasaki  2 QB 26: D chartered his ship to P and was contracted to ensure that the vessel seaworthy and "in every way fitted for ordinary cargo service". D failed to provide competent personnel to maintain the ship so that it was only at sea for 8 1/2 weeks of the first seven months charter of the charter. CA held that the contract would not be terminated since, given the time remaining on the charter and D's efforts to repair the ship, P had "not been substantially deprived of the whole benefit" of the contract. The term of "maintenance" was held to be neither a condition nor a warranty and was an "innominate" term that would only terminate the contract if its breach had such consequences serious enough to amount to the frustration of the commercial purpose of the venture.
Upjohn LJ: The parties can specify in a contract which terms are conditions and which stipulations. He says seaworthiness cannot be a condition because the slightest thing can lead to its breach (e.g. failing to hammer in a nail) and it cannot have been intended that the contract should be terminated if any of these common/trivial things should happen. The Mihalis Angelos  1 QB 164: P contracted D to transport materials to a port but inserted a clause that allowed them to cancel the order 48 hours before due arrival of goods if it became impossible for D to transport them i.e where the "expected readiness" couldn't be achieved. Due to war in the place where the goods were supposed to be collected, the order was cancelled early on the wrong grounds of force majeure. D took this to be a repudiation of the contract and sued for damages. CA held that the "expected readiness" term was a condition and that P was entitled to terminate the contract on these grounds and would inevitably have done so, even though it gave the incorrect reason of force majeure as the reason for cancelling the contract. Once the grounds for termination exist and termination occurs, it is irrelevant that the wrong grounds are stated. Also, although the cancellation occurred before performance (i.e. it was an anticipatory repudiation), damages can only be awarded for the true value of the contract lost. Since, here, the value of the contract was nil (P could have legitimately used the expected delivery clause when performance was due and terminated the contract) no damages would be awarded. Megaw LJ says that damages are only for compensating the actual lost value when a contract is wrongly terminated. Denning MR said that analogous cases had found "expected delivery" to constitute a condition. Megaw LJ: The expected delivery clause should be classified as a condition for 4 reasons: (1) it gives certainty to the parties; (2) It is just: the clause could be invoked where there was no reasonable grounds for the boat owner to believe that he would arrive on time and thus it would be very rare to produce injustice (it is not unfair that a person who knows he cannot arrive by the specified term should release the other from the contract); (3) this type of clause has been classified as a condition by precedent; (4) Schuler v Wickman  AC 235: P and D had an agreement for D to distribute and sell P's products. Clause 7 included conditions such as the fact that D had to visit a list of potential buyers once every week and these were stated explicitly as conditions. There was also a clause 11, which said that the agreement had to last until 31 st December 1967 and thereafter could be ended by 12 months notice in writing. It also said that either party could terminate the agreement if the other committed a material breach of its obligations and failed to remedy them within 60 days of being required to do so in writing. D failed to fulfil its clause 7 requirements and P terminated the agreement on the grounds that a "condition" was breached. By majority, HL found in favour of D. Lord Reid (majority): "remedy" means to put something right for the future, although not all breaches can be remedied e.g. leaking confidential info cannot be put right by a promise not to do so again. In this case, failure to visit a firm once out of the 200 times that the contract required was not an irredeemable loss and could be remedied within clause 11's meaning. He says that what the contract deemed a "condition" was not using the word in its strict legal sense since a condition in law is something that is so
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