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Introducation - Contract Law
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Whether innominate term approach has created certainty in commercial contracts?
If the meaning of the term innominate term is to be considered literally, it shall mean that it is an intermediated term that does not fall within the definition of condition or warranty. This term was for the first time opined in the case of Hong Kong Fir Shipping Co Ltd v. Kawasaki Kisen Kaisha Ltd in which the court of appeal of England and Wales. But Lord Wilberforce spoke for the breach of such term for the first time in the case of Bremer Handelsgesellschaft Schaft v. Vanden Avenne Izegem. The judge opined that the breach of this term depends on the gravity and nature of the breach.
Beginning of the term
Regarding the certainty of an innominate term in a commercial contract, it can be stated that the importance of classifying the terms in the contract is seen at that time when the contract was breached. Innominate term in the contract is one among the three terms where the other two are condition and warranties. Though there is no express mention of this term in the judgment given in the above case the justice stated that it is the legal principle and reasoning of the case which gives it fundamental importance.
The importance of the term innominate term in giving certainty to a commercial contract can be seen as explained by Diplock LJ who has stated that there are some of the undertakings in the contract either in an expressway or in an implied way and due to the simplicity of the contract, it can be made clear that in case of breach of contract, the party which is not at default gets the advantage of the contract. But the parties to the contract must have agreed to the compensation in case of breach of condition. Further, in a contract, it is also important that the parties to the contract have taken the undertaking that the non-defaulting party shall be compensated in case of breach of warranty. But there are certain circumstances where contractual undertakings are complex. In these cases, the undertaking can neither be described as a condition nor as a warranty. In such a case, the compensation of the party shall be depending on the nature of the event which has given rise to the breach.
Moreover, the importance of innominate terms can also be seen in giving certainty to the contract as this has made the third classification apart from condition and warranty and this classification has made the parties rely on it confidently where neither condition nor warranty applies. This term is important in the commercial contract because it is commercial contracts where there are more instances of falling neither under condition nor warranty.
Facts of the case Hong Kong Fir
In this case, the charter party was a charter time for 24 months. The vessel was carried and delivered in 1957. It was used to ship coal from Virginia to Japan. Due to the age of the ship, it required expert and skilled engine staff and room staff but the main technologist was addicted to alcohol and the staff members were also inappropriate and posts were vacant. The ship during the sail faced a lot of breakdowns and repairs due to which it reached late at the destination. The charterers relied on the ground for breach of obligation by the shipowners on the basis that the owner of the ship has not maintained the ship properly and also failed in delivering the goods in a seaworthy vessel. Further, the charterers also stated that the ship was not capable of speedy sailing which caused a delay in delivery and thus, the charterers claimed that they were entitled to terminate due to the failures of the owners to give remedy. But the court, in this case, held that though the ship was delayed and there were not a complete number of staff members, yet the charterers have no right to terminate the contract as the amount which the charterers have paid for repairs could be easily compensated through damages. The breach of the obligation was not serious enough to give them a right to rescind the contract.
On analysing the above case, it can be observed that it has been stated by the court that the term shall not fall within the meaning of innominate term unless the innocent party is not deprived of the material advantage of the contract. If the innocent party has got some of the benefits of the contract though late, he may be entitled to damages through compensation but not entitled to terminate the contract. The inclusion of innominate terms in a commercial contract has been effective in giving certainty to these contracts as these terms have limited the scope of termination of the contract and pushed the parties towards the performance of the contract and claiming damages and not termination. This has also added to the certainty of a commercial contract as it has made the court focus on clear sorting of the term to fall within the definition of condition or warranty.
Thus, to conclude, it can be asserted that the innominate or the intermediate terms have created in the certainty of the commercial contracts as these terms have avoided rigidity and provided flexibility in contracts. The traditional classification of terms being a condition or a warranty was too rigid and the inclusion of innominate terms has enhanced flexibility and certainty. These terms have interpreted for courts easy in cases of breach and also helped in asserting the fact that the innocent party has not got the material advantage from the contract. If the party is deprived, it shall have the right to rescind the contract otherwise it shall only have a right to get damages as deprivation from benefit amounts to a breach of condition.
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