For example, it is possible to draft an indemnity against losses not caused by the trigger event but only connected with it. Express words could require payment of losses that would be too remote to recover as damages for breach of contract. An indemnity may, therefore, have a number of advantages over a warranty and a claim under an indemnity is likely to be easier to establish than a claim for breach of warranty.
The most common form of a condition is a condition precedent, which is a term of the contract that prescribes a set of circumstances that must be fulfilled before the remaining terms of the contract become binding on the parties. Conditions precedent typically prescribe circumstances that are not within the full control of any one party and which if not obtained may render it impossible to complete the contract— for example, the obtaining of the requisite regulatory approvals or waivers or consents from existing shareholders.
Conditions can also be promissory, contingent, concurrent, or subsequent, but common to all types of conditions is that the beach of a condition entitles the innocent party to terminate the contract without having to prove that the innocent party has suffered any prejudice as a result of that breach.
It should be noted that much like warranties, conditions can be implied by the law. It should also be noted that whether a term is a condition does not depend solely on whether it is described as such in the contract — the key is whether the substance of the term that is purported to be a condition is so important so as to go to the "root" of the contract.
In the absence of an express right to terminate, the non-defaulting party may seek to terminate the agreement at common law if the defaulting party has breached a condition or a sufficiently serious breach of an intermediate term RDC Concrete Pte Ltd v Sato Kogyo S Pte Ltd [] 4 SLR R The parties are also free to classify a term of a contract as not amounting to a condition under general law, but clear and unambiguous words must be used as it would otherwise be possible to construe the term as a condition.
Warranties protect a buyer by providing a possible price adjustment mechanism if a warranty proves to be false and, in the context of a sale of shares of a company, by enabling a buyer to gather information on the business through a disclosure process.
The purpose of an indemnity is to provide guaranteed compensation to a buyer on a dollar for dollar basis in circumstances in which a breach of warranty would not necessarily give rise to a claim for damages or to provide a specific remedy that might not otherwise be legally available.
A condition, on the other hand, can protect both a buyer and a seller by ensuring that the parties are not obligated nor liable to one another under the contract unless and until the condition has been fulfilled. If a term is explicitly drafted as a condition, termination of the agreement will be permitted when it is breached. A warranty is subjected to contractual rules of mitigation, meaning that the buyer has the responsibility to mitigate losses incurred due to breach of warranty.
In contrast there is no clear obligation for a buyer to mitigate its loss under an indemnity. However in the absence of express words it may well be concluded that the parties to an indemnity against breach of contract must have intended to require a payment equivalent to damages for breach of contract.
Their decision was based on their interpretation of the contract, not on the nature of an indemnity claim. Therefore, contracting parties can create an indemnity that expressly applies or excludes the rules on mitigation, remoteness and causation. Whether they have done so is a question of interpretation.
In the absence of express wording, the courts are likely to interpret an indemnity against breach of contract as giving rise to a claim equivalent to damages for that breach. The purpose of a warranty is to encourage disclosures from the seller and therefore obtain from the seller material information which may not otherwise come to light. The process of putting forward warranties and obtaining disclosures should, therefore, complement the due diligence work for a transaction.
Assume that the buyer wants the seller to provide a warranty that there is no current or threatened litigation, but in practice, there may be claims or disputes that are likely to lead to litigation. The seller can make disclosures against the warranty to limit liability. Once proper disclosure has been made, the buyer can no longer make a claim for a breach of warranty due to that matter.
However, the buyer can seek indemnities after disclosure has been made so that the buyer can be indemnified against any loss that might arise from the circumstances made in the disclosure. Buyers are not prevented from claiming under an indemnity regardless of disclosure. Conditions can also be used to encourage disclosures and confirmations.
It is common for conditions to be inserted to state that the entire transaction is conditioned upon the buyer receiving written confirmations from the seller or from third parties of certain facts by a certain date. However, as noted above, a key difference between a condition and warranty is that the breach of a condition entitles the innocent party to terminate the contract.
As such, where the matter being disclosed is one of utmost importance to the contract, the disclosure or confirmation should be made a condition rather than a warranty.
Where conditions are concerned, the innocent party's conduct after having knowledge of the breach affects their entitlement to treat the contract as having been terminated. If the innocent party performs their obligations under the contract even though those obligations were subjected to conditions precedent and despite knowing that those conditions have been breached or not fulfilled, the innocent party would have waived their right to treat the contract as having been terminated.
This may also impact the amount of damages that the innocent party may be able to claim. It is necessary for a buyer to prove that losses arise as a result in order to claim damages for a breach of warranty or or of a condition — such as a fall in the value of the shares being acquired — and other contractual law issues relating to matters such as remoteness of damages apply.
An action for breach of the warranty or condition will leave it to the court to assess the extent of the loss which can be recovered, especially when there is a dispute as to the impact of the breach on the actual market value of the shares. Warranties may be for a limited time period or for a product's lifetime, and they're less important than conditions.
A services contract may contain a requirement that the staff is trained at a certain level, as an example of a warranty. Another example is a party warranting that it has all the necessary consents at the start of an agreement.
If this warranty is breached, it doesn't deprive the non-breaching party of the whole of the benefit of the agreement. Many contracts include either conditions or warranties, sometimes both. They're not required parts of a contract. However, parties often include them to clarify what they expect of one another. The status in a contract gives us our first difference between condition and warranty.
To examine this difference between contract and warranty let us look at a standard contract of sale that requires the buying party to be 18 years or older to participate in the contract. This is a condition of the contract. If a person enters into the contractual agreement but is proven not to be 18 years or older at the time the agreement was signed the contract is automatically voided.
Of course, the condition we have listed here is a statutory requirement but it also forms a very good example of a condition of a contract. This is a tacit or implied agreement that goods sold should be in a usable condition and applies where a vendor resells goods manufactured by another party.
Under such circumstances, if a good is found to be unusable for reasons to do with deficiency at manufacture the buyer is allowed to claim damages. Where a breach is committed to a condition of a contract the contract is considered void or invalid.
This means that the position legally is that the contract should have never existed in the first place. In the example of a condition that we used in the previous difference between condition and warranty where a contract is entered into with a minor the contract is considered to have never happened. This means that parties will need to be returned to their positions before the contract was entered into. In the case of a breach of warranty, the contract will still be in action and enforceable.
However, parties can seek damages, which we shall discuss next, with respect to the extent to which the breach of warranty has affected them. The difference between condition and warranty, in this case, is the status of the contract after a breach has been discovered and steps can be taken to recover any losses due to the specific breach. Basis for Comparison Condition Warranty Meaning A requirement or event that should be performed before the completion of another action, is known as Condition.
A warranty is an assurance given by the seller to the buyer about the state of the product, that the prescribed facts are genuine. Section 12 3 of Indian Sale of Goods Act, What is it? It is directly associated with the objective of the contract. It is a subsidiary provision related to the object of the contract.
Result of breach Termination of contract. Claim damages for the breach. Violation Violation of condition can be regarded as a violation of the warranty. Violation of warranty does not affect the condition.
Remedy available to the aggrieved party on breach Repudiate the contract as well as claim damages.
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