Conditions, Warranties, And Innominate Terms
Contractual terms are considered conditions, warranties, or innominate, all parties will agree how to classify each term when they start negotiating contract.3 min read
3. Innominate Terms
What are conditions, warranties, and innominate terms? Contractual terms are considered either conditions, warranties, or innominate (or intermediate) terms. In an ideal situation, all parties will agree how to classify each term when they start negotiating a contract. This is helpful so that if the contract is breached, parties can quickly consider what solutions are available. Contractual terms can be stated in writing or agreed upon orally. Terms can also be implied by the law, the actions of either party, or be based on previous interactions.
A condition is part of the contract that the parties think is so vitally important that is has to be performed. A condition is the heart of the contract and the most important part. In a contract to sell goods, a condition could the a clause that says that the goods are required to be delivered by a certain time.
If one party doesn't fulfill a condition, the other party is allowed to act as if the contract is dead. As an example, a contract for a phone repair could have a condition that says the company that is repairing the phone is required to use brand new parts to replace the pieces that are broken. If the repairing party doesn't use brand new parts, the customer can consider it a breach of the condition and take legal action against the repairer. The customer is also allowed to end the contract and find another service provider.
If a breach of condition occurs, the party that is innocent can make a choice between two actions:
- End the contract and sue for damages
- Continue the contract by performing the actions they are contractually obligated to do, sue for damages, and go after other solutions like injunctions
No matter the scale or type of damage that comes from a condition being breached, the more important question is if there has been a repudiatory breach.
A contractual warranty is not the same thing as a warranty that comes when you purchase things like electronics. In this case, a warranty is a term of the contract that is written as a promise or guarantee. It is not as powerful as a condition.
If one party breaches a warranty, the innocent party may sue for damages but isn't allowed to terminate the contract. If the innocent party ends the contract, they are at risk for being sued for unjustified contract termination.
What is considered a warranty in one contract could be a condition in a different contract. It all depends on how important the term is to the parties involved. Common warranties include statements about factual matters, such as a party including a warranty saying it has received all of the necessary paperwork at the beginning of a contract.
Innominate terms or intermediate terms are terms of a contract that are in limbo and are somewhere between a condition and a warranty. A term becomes innominate when it can't be shown that it is a condition or warranty.
An important innominate term, such as one that if breached would deprive one of the parties of the entire benefit of the contract, means that the innocent party is allowed to terminate the contract and find other alternatives. If the innominate term isn't as important, such as a term that wouldn't ruin the entire contract if it is breached, the innocent party isn't allowed to terminate the contract. In that case, the innocent party can only sue for damages.
If a breach occurs that deprives the wronged party of the entire benefit of the contract, then the term is considered a condition and would allow the party to end the contract. If that isn't the case, the term would be considered a warranty, and the wronged party would be eligible to claim damages. However, if the breach didn't really deprive one party of the benefit of the entire contract, that party could be liable for wrongful termination.
Parties give up a degree of certainty because an innocent party could become liable if a third party decides that the breach didn't deprive them of the entire value of the contract.
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