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Classification of Terms

The relevant classification depends upon the intention of the parties, ascertained
objectively, at the time when the contract was made (Associated Newspapers Ltd v
(a) Conditions
A condition of a contract is a term which is essential or is so important to the contract that
if breached the innocent party has the right to terminate the contact and sue for damages
(Tramways Advertising v Luna Park).
Test of essentiality one party would not have entered into the contract unless assured of
the strict or substantial performance of the term and the other party knows or ought know
of this (Associated Newspapers Ltd v Bancks).
The fact that a term is described in the contract as a condition, is persuasive not
conclusive (L Schuler AG v Wickman Machine Tool Sales Ltd).
Breach of a condition gives rise to the right to terminate and/or claim damages no matter
how small the breach.
(b) Warranty
A warranty is a term that is subsidiary to the main purpose of the contract (Bettini v Gye).
A breach of a warranty entitles the innocent party to damages only and does not give him
or her right to terminate the contract.
A consistent approach to the meaning of "warranty" is taken in the sale of goods
legislation. "Warranty" is defined in s.3 of the Sale of Goods Act 1896 (Qld) to mean "an agreement with reference to goods which are the subject of a contract of sale
but collateral to the main purpose of such contract, the breach of which gives rise
to a claim for damages but not to a right to reject the goods and treat the contract
as repudiated".
(c) Intermediate Terms
An intermediate term may be defined as one capable of a variety of breaches, some
serious some trifling (Bunge Corporation New York v Tradax Export SA Panama)
An intermediate term cannot be categorized as either a condition or warranty (Hong
Kong Fir Shipping Co v Kawasaki Kisen Kaisha Ltd).
In Bunge Corporation & Tradax it was established that to determine whether a term is an
intermediate term, two steps must be followed:
it is necessary to determine the type of term the parties intended using general
objective test i.e. is it a term or warranty; and then
if it is a term that is capable of both major and minor breaches (intermediate term)
how serious was the breach?
If the breach was serious in that it deprived the innocent party of substantially the whole
of the benefit of the contract, the innocent party has the right to terminate the contact and

sue for damages, and if the breach was not to serious, the innocent party will only be
entitled to damages.
Time clauses are terms which are capable of only one kind of breach, namely to be late,
and therefore cannot be an intermediate term (Bunge Corporatin New York v Tradax
Export SA).
This approach was adopted in Australia in Ankar v National Westminster Finance.