Difference Between Condition and Warranty with an Example
X sells food-stuff to Y. The contract between X and Y states that the food to be sold should be fit for consumption and this is the essential term in the contract.
So, if it contains any poisonous substance, Y is entitled to reject the food-stuff and to repudiate the contract this essential term is called a condition.
On the other hand, if the contract stipulates that the food-stuff should be packed in 1 kilo box but the seller packs it in half-kilo box, only an auxiliary or minor term of the contract is broken, Y may be able to claim compensation in respect of its breach, but not avoid the contract. Such an auxiliary term is called warranty.
The importance of the distinction between a condition and a warranty is that the breach of a “condition” normally entitles the innocent party to terminate the Contract and claim damages; while the breach of a “warranty” normally entitles the innocent party to only claim damages.
An example of a “condition” is a term that entitles the Buyer to vacant Possession of the property. If the Seller is unable to deliver vacant possession and is in breach of the condition, then the Buyer may have the right to affirm the Contract and sue for damages for default and/or sue for specific performance and/or terminate the Contract.
The remedies available to the Buyer may be set out in detail in the Contract and may oblige the Buyer to first issue a default notice requiring the breached condition to be fulfilled within a certain time period before exercising its further rights. A Buyer who terminates a Contract after a breach of a condition by the Seller will normally be entitled to recover the deposit and any other moneys paid under the Contract.
An example of a “warranty” is where the Seller warrants or agrees that at Settlement the property will be in the same state and condition it was in immediately before the date of the Contract. There may be a change in a physical feature of the property between the date of the Contract and settlement that the Seller is not willing to rectify.
In this instance the Buyer normally does not have a right to terminate or delay settlement unless the Contract provides otherwise. Rather, the Buyer must settle and separately pursue a claim for damages/ Compensation from the Seller.
A party should always seek legal advice so it can correctly identify the nature of a term of a Contract and ascertain what remedies are available in each particular Case. Depending on the type of term, the remedies for breach are likely to be quite different and the strategies to deal with the breach are also likely to be Different.
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