Conditions, Warranties, and Repudiatory Breach

• Author: John D. McCamus
• Pages: 649-688

649

CHAP TER 15

CONDITIONS,

WARRANTIES, AND

REPUDIATORY BREACH

A. INTRODUC TION

Parties to enforceable agreements will often require a n answer to either

one or both of two interrelated questions. First, if an agreement does not

plainly stipulate the order in wh ich the performance of the re spective

parties is to occur, a party may wish to know whether it s performance

of a particular obligation must precede the other party’s performance of

its corresponding obligation. Thus, a party that has ag reed to make a

payment in return for the perform ance of certain services may wish to

know whether the payment is required to b e made before the provision

of the services or only after they have been received. A second issue that

may arise relates to the ability of a “victim” of a breach of contract (also

referred to here as the “innocent party” or “the party not at fault” or “not

in default”) to bring an end to a contractual relationship on the ba sis of

the other party’s breach. An employer, for example, may wish to know

whether certain breaches of the employment contract on the part of the

employee entitle the employer to terminate the employment relationship.

Again, this is sue could be the subject of stipulation in the employment

contract. In the absence of such a provi sion, however, the common l aw

must be able to determine whether the innocent par ty is entitled to ter-

minate the agreement on the basi s of the other part y’s breach of contract.

These two rather different issues a re interrelated for the follow-

ing reasons. In determining the order of performance required by the

contract, one will also, as a consequence, identify circ umstances in

THE LAW OF CONTR ACTS650

which a failure to perform by one part y will provide the other pa rty

with a basis for with holding performance or, indeed, terminating the

agreement. Thus, in the context of an agreement under which a payer

agrees to pay money in return for services to be provided by the other

party, if it is determined that the provision of services must precede

payment, it will follow that a failure by t he service provider to pro-

vide the contractually required services will provide the payer wit h a

basis for refusing to make pay ment and to terminate the contract ual

relationship. Under traditional doctrine, both of these sets of issues

were determined on the basis of whether the particular provisions of

the agreement in issue were properly classif‌ied as either “conditions”

or as mere “warranties.” In determining whether a breach of contract

would entitle the other party to term inate the relationship, traditiona l

doctrine would consider whether the provision breached wa s properly

classif‌ied as a “condition” of the agreement. If so, the innocent party

had the ability to term inate the agreement. With respect to t he order

of performance, trad itional doctrine would determine whether the per-

formance of a particula r obligation was not merely the performance

of a “condition” but the performance of a “condition precedent” to the

enforceability of the obligation of the other part y. The party whose obli-

gation to perform is a condition precedent to the enforceability of the

other party’s obligation must obviously “go f‌irst.” Further, if that party

fails to perform t he condition precedent, the victim of the breach wi ll

be entitled to treat the contract as discharged by that breach.

Although much of the law on this topic adopted its modern shape

by the end of the nineteenth century, the rigid classif‌ication of terms

as being either “condit ions” or “war rantie s” upon which it was base d

created a doctrine th at was considered by many to be unduly rigid

and therefore subject to manipulation in order to achieve satisfactor y

results in part icular case s. In the latter part of the twentieth cent ury,

however, the doctrine underwent a substantial t ransformation. One of

the principal objectives of this ch apter is to assess t he nature and ex-

tent of that doctrinal mod if‌ication.

A major diff‌iculty inherent in addressing this topic is termino-

logical in nature. The term s “rescission” and “repudiation” are bandied

about in discussions of th is topic as if they were subject to hard and fast

meanings, whereas, al as, they are not. The term “rescission” is used to

refer to equitable rescission for misrepresent ation or on other equitable

grounds; or, to the discharge or terminat ion of an agreement for breach.

The term “repudiation” is used to refer to a severe breach of contract;

or, alternatively, to the election by the party not at fault to treat the con-

Conditions, Warr anties, and Repudiator y Breach 651

tract as disch arged by the breach. In Photo Production Ltd. v. Securicor

Transport Ltd.,1 Lord Wilberforce observed as follows:

A vast number of expres sions are used to des cribe situation s where

a breach has been comm itted by one party of such a ch aracter as

to entitle the other par ty of refuse fur ther performa nce: discharge,

rescission, termination, the contract is at an end, or dead; or dis-

placed; clauses c annot survive or simply go. I have come to thin k that

some of these dif f‌iculties can b e avoided; in particul ar the use of the

term “rescission” even if distinguished from rescission ab initio, as an

equivalent for disch arge, though justif‌iable in some context s . . . may

lead to confusion in othe rs. To plead for complete uniformity m ay be

to cry for the moon.2

The safest course, in my view, is to use the term “resc ission” rather

strictly to refer only to resci ssion on equitable grounds. The type of

breach of contract giving rise to the innocent party’s right to “termin-

ate” the contract or treat it as “discharged” by breach is perhaps most

clearly referred to as “repudiatory breach.” Without unrealistically

“crying for the moon,” these usages are at least followed in this book.

But there are other terminological d iff‌iculties. As we shall see, the use

of the term “condition” has changed over time. The term “warranty”

has more than one meani ng. The concept of “fundamental breach” cre-

ates its own set of hazards.

The primary ta sk of this chapter is to articulate the rules identify-

ing part icular breaches of cont ract as “repud iatory,” thus givi ng rise to

the innocent party’s right to ter minate for breach. The chapter provides

an account of the development of the condition-warranty dichotomy

and the modern reform thereof and then brief‌ly sketches the remedial

options open to the victim of a repudiatory breach of contract. The

chapter concludes with a brief discussion of the concept of material

breach.

B. PROMISES A ND CON DITIONS

Although the point of a contract or of contract law may be said to cre ate

or recognize the exi stence of enforceable promises or undertakings, con-

1 [1980] A.C. 827 (H.L.) [Photo Production]. See also Guarantee Company of North

America v. Gordon Capital Corp. (1999), 178 D.L.R. (4th) 1 (S.C.C.) [Gordon Cap-

ital].

2Photo Production, ibid. at 844.