Make sure you exclude the implied conditions!

08.07.09 Share

 

Sellers will normally exclude all implied warranties, such as satisfactory quality.

A recent case (KG Bominflot Bunkergesellschaft fur Mineralole mbH & Co KG v Petroplus Marketing AG [2009]) has emphasised that getting the wording right is essential. This case also looks at implied conditions for deliveries on "F" terms such as FOB (Free On Board).

You should check that your drafting excluding implied terms is correct. Below is some suggested best practice wording.

The facts

The gist of the case is that the buyer purchased from the seller oil under a FOB contract. The oil passed tests and inspection on delivery onto the ship. However the oil was found to be of unsatisfactory quality when the ship arrived at its destination.

The buyer claimed the seller was in breach of an implied condition that the oil would be of satisfactory quality and fit for purpose not only on delivery to the ship but also for a normal voyage after delivery.

The seller claimed there was no such implied condition. All implied terms were excluded in the contract by a clause which stated that all 'guarantees, warranties or representations express or implied' were excluded.

The court's decision

In a FOB contract the court decided there was an implied term that goods would be of satisfactory quality both:

  • at the delivery to the ship; and
  • for a reasonable voyage after delivery.

This implied term is a "condition" - applying Sale of Goods Act 1979.

The contractual wording did exclude implied guarantees, warranties and representations. However the wording did not exclude implied conditions because "implied conditions" were not mentioned in the contract.

Practical drafting - how to exclude implied conditions

Make sure you use best practice wording such as:

"The express terms and conditions of this Agreement shall apply in place of all warranties, conditions, terms, representations, statements, undertakings and obligations whether expressed or implied by statute, common law, custom, usage or otherwise, all of which are excluded to the fullest extent permitted by law."

Revision - what is the difference between a condition and a warranty?

In this case the court held that satisfactory quality is an "implied condition" not an "implied warranty". What is the difference? Technically, a "condition" is an obligation breach of which allows a party to terminate the contract. A "warranty" is an obligation breach of which allows a party only to recover damages - not terminate the contract. In a modern contract with a well-drafted termination clause this is rarely relevant but it made the difference in this case.

Final point FOB and FCA contracts

FOB and FCA (Free Carrier) are delivery terms often used in international sales. Are you selling goods on an FOB or FCA basis? If so, bear in mind the implied obligation that goods must be of satisfactory quality not only on delivery to the ship or the carrier but also for the normal voyage/carriage after delivery.

Key Contact

David Lowe, partner, +44 (0)20 7664 0322, david_lowe@wragge.com

This action may contain information of general interest about current legal issues, but does not give legal advice.