Conditions, Warranties and Repudiatory Breach
| Author | John D. Mccamus |
| Profession | Professor of Law. Osgoode Hall Law School, York University |
| Pages | 615-650 |
CHAP TER 15
CONDITIONS,
WARRANTIES AND
REPUDIATORY BREACH
A. INTRODUCTION
Parties to enforceable agreements wil l often require an answer to either
one or both of two interrelated questions. First, if an agreement does not
plainly stipulate t he order in which the performance of the respective par-
ties is to occur, a party m ay wish to know whether its per formance of a
particula r obligation must precede the other party’s performa nce of its cor-
responding obligation. Thus, a part y that has agreed to make a pay ment in
return for the performance of cer tain services may wi sh 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 i ssue that may arise relates to
the ability of a “vict im” of a breach of contract (also referred to here as the
“inn ocent par ty” or “th e party not at fault” o r “not in def ault”) to br ing 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 bre aches 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 t he absence of such a
provision, however, the common law must be able to determine whether
the innocent party i s entitled to terminate the ag reement on the basis of
the other party ’s breach of contract.
These two rather different issue s are interrelated for the following
reasons. In determining the order of performa nce required by the con-
615
THE LAW OF CONTR ACTS616
tract, one will also, as a consequence, identif y circumstances in which
a failure to perform by one par ty will prov ide the other part y with a
basis for withholding performance or, indeed, terminat ing the agree-
ment. Thus, in the context of an agreement under which a payer agrees
to pay money in return for serv ices to be provided by t he other party,
if it is determined th at the provision of services must precede payment,
it will follow that a fa ilure by the service provider to provide the con-
tractually required serv ices will provide the payer with a basis for re-
fusing to make pay ment and to terminate the contractual relationship.
Under traditional doctr ine, both of these sets of issues were determi ned
on the basis of whether the particular provi sions of the agreement in
issue were properly classi fi ed as either “condition s” or as mere “ war-
ranties.” In determining whether a breach of contract would entitle t he
other party to term inate the relationship, tradit ional doctrine would
consider whether the provision breached was properly classifi ed as a
“condition” of the agreement. If so, the innocent party had the ability
to terminate the agreement. With re spect to the order of performance,
traditional doctr ine would determine whether the perform ance 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 party. The party whose obligation to per form
is a condition precedent to the enforceability of the ot her party’s obliga-
tion must obviously “go fi rst.” Further, if that party fa ils 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 cla ssifi cation of terms
as being either “condit ions” or “war rantie s” upon which it w as based
created a doctrine t hat was considered by many to be unduly rigid and
therefore subject to manipulation in order to achieve sati sfactory re-
sults in particular cases. In t he latter part of the twentieth centur y,
however, the doctrine underwent a substanti al transformation. One of
the principal objectives of this chapter is to assess t he nature and ex-
tent of that doctrinal modifi cation.
A major diffi culty inherent in addressing this topic is termino-
logical in nature. The terms “rescission” and “repudiation” are ban-
died about in discussions of this topic as if they were subject to hard
and fast meanings, whereas, alas, they are not. The term “re scission” is
used to refer to equitable rescission for misrepresentation or on other
equitable grounds; or, to the discharge or termi nation 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
Conditions, War ranties and Repudiator y Breach 617
treat the contract as discharged by the breach. In Photo Production Ltd.
v. Securicor Transport Ltd.,1 Lord Wilberforce observed as follows:
A vast number of expre ssions are use d to describe sit uations where
a breach has been com mitted by one party of suc h a character as
to entitle the other pa rty of refuse f urther perfor mance: disch arge,
rescission, termination, the contract is at an end, or dead; or dis-
placed; clause s cannot survive or simply go. I have come to t hink that
some of these diffi culties can be avoided; in par ticular the use of the
ter m “re sci ssion” even i f di stin guis hed f rom re scis sion ab initio, as an
equivalent for disch arge, though justifi able in some contexts … may
lead to confusion in ot hers. 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 “re scission” rather
strictly to refer only to rescission on equitable grounds. The type of
breach of contract giving ri se 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 “repudiator y breach.” Without unrealistically
“crying for the moon,” these usages are at least followed in t his book.
But there are other terminological di ffi culties. As we shall s ee, the use
of the term “condition” has changed over time. The term “warranty”
has more th an one meaning. The concept of “fundamental breach” cre-
ates its own set of haz ards.
The primary t ask of this chapter is to a rticulate the r ules identify-
ing part icular bre aches of contract a s “repudiator y,” thus giv ing rise to
the innocent party ’s right to terminate for breach. The chapter provide s
an account of the development of the condition-warranty dichotomy
and the modern reform thereof and then br iefl y sketches the remedial
options open to the victim of a repudi atory breach of contract. The
chapter concludes with brief discussions of the remedies ava ilable for
breaches of terms dr afted in the form of representations and warra nties
and of the concept of material breach.
B. PROMISES AND CONDITIONS
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 undertak ings,
1 [1980] A.C. 827 (H.L.). See also Guarantee Co. of North Americ a v. Gordon Cap-
ital Corp. (1999), 178 D.L.R. (4th) 1 (S.C.C.).
2Photo Production Ltd . v. Securicor Transport Ltd., ibi d. at 844.
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