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.
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