Conditions and Warranties in Australian Contract Law

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Corporation and Contract Law

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I INTRODUCTION
A contract is referred to a legally binding relationship which is constructed between
two or more parties who agree to its terms which are enforceable on them.1 The terms of a
valid contract are enforced on each contracting party and they have to comply with them.
Certain elements are necessary to be fulfilled by the parties in order to form a valid contract.
These elements include offer, acceptance, intention, consideration, and capacity of parties. In
case the contractual obligations are violated by a party, then the aggrieved party has the right
to claim remedies under the contract. Along with remedies the innocent party also has the
right to terminate the contract under the common law. This remedy is available for the parties
in case a condition of the contract is violated.
The terms of the contract are divided into two categories which include condition and
warranties. The conditions are essential terms of a contract based on which the contract is
formed between parties.2 On the other hand, warranties are referred to non-essential terms in
a contract. These terms are sub parts, and violation of these terms did not allow the parties to
terminate their contract. In the case of Australian contract law, the conditions are treated as
significant terms and violation of these terms allows the parties to terminate the contract. This
report will argue that even in the case of a “minor” breach of the condition of a contract, the
innocent party has the right to terminate the entire contract. Certain exceptions to this rule
will be evaluated in the report as well which are present in Australian contract law such as the
exclusion clause and waiver of rights in which the contract is not terminated even after
violation of a condition.
1 Ewan McKendrick and Qiao Liu, Contract Law: Australian Edition (Macmillan International Higher
Education, 2015).
2 Baris Soyer, Warranties in marine insurance (Routledge, 2012).

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II CONDITIONS AND WARRANTIES
Conditions and warranties are two classifications of contractual terms which are
included by parties into a legal contract. It is important for parties to identify each of these
terms since it assists parties in quickly determining their remedies in case of breach of the
contract.3 A warranty is referred to non-essential term of the contract which is less significant
than compared to a condition. Generally, the warranties in a contract are written as a promise
or an assurance which is given by one contracting party to another, for instance, the service
contract formed between two parties can have a term in which they agree to provide staff
training at particular level. In case this term is violated by the contractual party, then it did
not deprive the innocent party of the whole benefit of the contract. Furthermore, a term which
is considered as a warranty in one contract can be considered as a condition in another. In
case of violation of the warranty in a contract, the innocent party has the right to demand
damages only.4 The aggrieved party cannot terminate the contract in case a warranty is
breached by another party.
A condition is referred to a significant term of the contract which goes to its roots. In
case of a sale of goods contract, a clause can be included by the parties that states the time of
its essence, for instance, the goods must be delivered within a specified time. In case this
term is not fulfilled by the parties, then the aggrieved party has two options. The first option
is that the innocent party can terminate the contract to remove the contractual obligations.
The second option is that the aggrieved party can treat the contract as continuing and
continue to comply with the contractual terms. In either of these cases, the innocent party has
the right to claim damages from the party who violated the terms of the contract.5 Moreover,
3 John W Carter, G J Tolhurst and Elisabeth Peden, ‘Developing the Intermediate Term Concept’ (2006) 22
Journal of Contract Law 268.
4 Paul McDermott, Contract Law (Bloomsbury Publishing, 2017).
5 Roger Gamble, ‘Australia and the Intermediate Term – ‘No country for old rules’’ (2008) 34(2) Monash
University Law Review 457.