Conditions, Warranties and Repudiatory Breach

• Author: John D. Mccamus
• Profession: Professor of Law. Osgoode Hall Law School, York University
• Pages: 615-650

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 t he order in which the performance of the respective par-

ties is to occur, a party may wish to know whether its performance 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 is entitled to terminate the agreement on the basis of

the other party’s breach of contract.

These two rather different issues are interrelated for the following

reasons. In determining the order of performance required by the con-

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THE LAW OF CONTR ACTS616

tract, one will also, as a consequence, identify circumstances in which

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

basis for withholding performance or, indeed, terminating the agree-

ment. 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 th at the provision of services must precede payment,

it will follow that a failure by the service provider to provide the con-

tractually required services will provide the payer with a basis for re-

fusing to make payment 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 provisions of the agreement in

issue were properly classif‌i ed as either “conditions” or as mere “war-

ranties.” 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 classif‌i ed 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 performance 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 classif‌i cation 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 re-

sults 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 modif‌i cation.

A major diff‌iculty 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 termination 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 Breach617

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 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; 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 discharge, 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 “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 diff‌i culties. As we shall see, 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 hazards.

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

ing particular breaches of contract as “repudiatory,” thus giving 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 brief‌l y sketches the remedial

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

chapter concludes with brief discussions of the remedies available 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 existence of enforceable promises or undertakings,

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.