Conditions, Warranties, and Repudiatory Breach

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

649

CHAPTER 15

CONDITIONS,

WARRANTIES, AND

REPUDIATORY BREACH

A. INTRODUCTION

Parties to enforceable agreements will often require an answer to either

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

plainly stipulate the order in which the performance of the respective

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

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

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

payment in return for the performance of certain services may wish to

know whether the payment is required to be 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 basis 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 issue could be the subject of stipulation in the employment

contract. In the absence of such a provision, however, the common law

must be able to determine whether the innocent party 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 are interrelated for the follow-

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

contract, one will also, as a consequence, identify circumstances in

THE LAW OF CONTR ACTS650

which a failure to perform by one party will provide the other party

with a basis for withholding 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 the service provider to pro-

vide the contractually required services will provide the payer with a

basis for refusing to make payment and to terminate the contractual

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 terminate the relationship, traditional

doctrine would consider whether the provision breached was properly

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

had the ability to terminate the agreement. With respect to the order

of performance, traditional doctrine would determine whether the per-

formance of a particular 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 the condition precedent, the victim of the breach will

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 “conditions” or “warranties” upon which it was based

created a doctrine that was considered by many to be unduly rigid

and therefore subject to manipulation in order to achieve satisfactory

results in particular cases. In the latter part of the twentieth century,

however, the doctrine underwent a substantial transformation. One of

the principal objectives of this chapter is to assess the nature and ex-

tent of that doctrinal modif‌ication.

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, alas, 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 Breach651

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

Transport Ltd.,1 Lord Wilberforce observed as follows:

A vast number of expressions are used to describe situations where

a breach has been committed by one party of such a character as

to entitle the other party of refuse further performance: 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 diff‌iculties can be 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 “rescission” rather

strictly to refer only to rescission 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 diff‌iculties. As we shall see, the use

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

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

ates its own set of hazards.

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

ing part icular breaches of contract as “repudiatory,” thus giving 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 AND CONDITIONS

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

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.