Contract interpretation—conditions, warranties and intermediate terms
Contract interpretation—conditions, warranties and intermediate terms

The following Dispute Resolution guidance note provides comprehensive and up to date legal information covering:

  • Contract interpretation—conditions, warranties and intermediate terms
  • What is classification of terms and why is it important?
  • How do you arrive at the correct classification?
  • Conditions in a contract
  • Warranties in a contract
  • Intermediate or innominate terms in a contract

Claims for breach of contract often involve analysis of whether or not the term alleged to have been breached is one which allows the innocent party to:

  1. terminate the agreement for breach and claim damages (or to affirm the contract, despite the breach, and claim damages); or

  2. claim damages

This will depend on whether the term in question takes effect as a condition or a warranty or whether the nature and consequences of the breach are sufficiently serious as to constitute a repudiation of the contract. This is the function of the ‘classification of terms’ in contract cases.

For guidance on the distinction between terms and representations and when and how express and implied terms may be incorporated into a contract, see Practice Notes:

  1. Contract interpretation—when is a statement a representation or a contractual term?

  2. Contract interpretation—express terms in contracts

  3. Contract interpretation—terms implied by fact

  4. Contract interpretation—terms implied by law

  5. Contract interpretation—terms implied by custom and usage

What is classification of terms and why is it important?

Contractual terms are often classified into one of three types:

  1. conditions—breach of which entitles the innocent party to (Schuler v Wickman Tool):

    1. terminate the contract, regardless of the nature of the breach, and claim damages or

    2. affirm the contract despite the breach and claim damages

  2. warranties—breach of a warranty does not entitle the injured party