Breach of warranty
Contract Law

A party to a contract is entitled to perfect performance of a contract. Where performance is not in accordance with the contractual terms, the party failing to perform will be in breach of the contract. Whether or not this is a repudiatory breach or a breach of warranty depends upon the relative importance of the term of the contract that has not been complied with.

The innocent party is entitled to claim damages for a breach of warranty, but is not entitled to terminate the contract and bring both parties obligations to an end. It must be a breach of condition to entitle the innocent party to terminate the contract.

The surrounding circumstances will be of assistance in determining this question of construction of the contract (whether or not the term was a condition or warranty), and by analysing the term and how it affects the substance and foundation of the transaction that the contract is intended to carry out. To amount to a breach of a condition, it must go to the root of the contract; affect the very substance of the contract; or frustrate the commercial purpose of the venture in order to be a condition. If the term is not a condition of the contract, it will be a warranty.

A frequently adopted test is that from Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kasisha Ltd. In that case Diplock LJ stated, “Does the occurrence of the event deprive the party who has further undertakings to perform substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain as the consideration for performing those undertakings”.