CONDITIONS VS WARRANTIES

There is sometimes confusion surrounding the differences between conditions and warranties.  In this case, rather than attempting to describe the differences myself, I prefer to turn to Jordan CJ’s summation in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) who aptly described the differences between conditions and warranties as:

“If it is a condition that is broken, ie, an essential promise, the innocent party, when he becomes aware of the breach, has ordinarily the right at his option either to treat himself as discharged from the contract and to recover damages for loss of the contract, or else to keep the contract on foot and recover damages for the particular breach.

If it is a warranty that is broken, ie, a non-essential promise, only the latter alternative is available to the innocent party: in that case he cannot of course obtain damages for loss of the contract.”

When drafting contracts it is essential for those drafting to properly describe both warranties and conditions. Once defined, it will usually provide certainty as to rights in termination and the consequences of any breach of the contract.

What About Intermediate Terms?

Further, it is important to be aware of the parties’ rights to terminate. Especially when it comes to intermediate terms, which lay somewhere between essential terms and warranties.

A significant breach of an intermediate term can give rise to right of termination.