condition of contract

In any contract, whether oral, written, or partly oral and partly written, each of the terms of the contract are either conditions or warranties. Whether a term of the contract is a condition or warranty relies on the relative importance of the term in the particular contract. Rules of interpretation of contracts allow courts to resolve ambiguity and uncertainty in properly classifying whether a term is a condition or warranty.

There is a further class of terms referred to as 'intermediate terms' which may be either conditions or warranties in the agreement. How the particular term is classified may in part depend upon the seriousness of the consequences of a breach of the term at a later date. Its categorisation relies upon the nature and consequences of the breach of contract.

Contract Conditions

A condition is an essential stipulation in a contract which a party promises to perform or fulfill. Whether terms are properly considered mere warranties or conditions is assessed by reference to what a court considers to be the fundamental to the contract. So, where the term is of such importance to the contract, that a failure to perform by the relevant party would entitle the innocent party to terminate for breach of contract, rather than merely claim damages the term is likely to be ruled a condition. Thus conditions of contract are fundamental to what was agreed by the parties, and are so essential to the agreement that the failure to perform or perform improperly by the other party may be considered a substantial failure to perform the contract at all. For instance the following are likely to be conditions of contracts:

1. in a contract for the supply of services, the obligation to supply the services; similarly for contracts the supply of goods;
2. the obligation to pay for goods or services;
3. where delivery times are time sensitive, to deliver goods by the time;
4. where the contract is for delivery of a specified computer system, the obligation to deliver a computer system which matches the specification in all material respects;
5. in a software distribution agreement, the distributor has the right to distribute the software;
6. in an assignment of intellectual property rights, the assignor owns the intellectual property rights;
7. in sale of shares, the person has title to the shares in order to convey title of the shares to the purchaser; and
8. where access to premises is required to perform services for the benefit of the other party;
9. express clauses requiring compliance with data protection legislation, especially where one of the parties has heavy reliance on onward use of data;
10. in a maintenance and support agreement, maintaining the subject matter of the agreement such that it functions properly and consistently.

Obviously, in examples such as these, a failure to perform leaves the other party in a position where it has not received what it bargained for. In business contracts, whether or not a particular term of a contract is a condition is often not clear cut. The following factors are indicative of conditions:

• words and conduct of the parties in respect to the term;
• the importance of the term to the parties bearing in mind the nature and purpose of the contract;
• whether or not the term is stated to be a condition, but not conclusive of how a court would classify the term in litigation; and
• whether time is of the essence for performance (or was made of the essence after the contract was entered into).

Difference between Warranties and Conditions

The importance of a conditions is that breaches of those obligations permit the innocent party to (1) terminate the contract (such that the parties have no further obligations to perform the contract) and (2) claim damages for losses suffered as a result of the breach. Breaches of warranties only permit the innocent party to claim damages, but not terminate the contract.

Whether or not a term is a condition or a warranty is a question of law for the court to decide. The title of a document 'Conditions of Contract' is likely to be interpreted by a court as a reference to all the terms of the contract rather than a declaration that all of the terms of the documents are conditions of contract.

Also, see warranties.