Conditions, Warranties, and Repudiatory Breach

• Author: John D. McCamus
• Pages: 705-745

705

CHAPTER 15

CONDITIONS,

WARRANTIES, AND

REPUDIATORY BREACH

A. INTRODUCTION

Parties to enforceable agreements w ill often require an answer to either

one or both of two interrelated questions. First, i f 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 part y that has agreed to make a

payment in return for the performance of certain ser vices may wish to

know whether the payment is require d 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 t he 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 terminate the agreement on the basis of the other party’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

THE LAW OF CONTR ACTS706

contract, 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

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 party. The party whose

obligation to perform is a condition precedent to the enforceability of

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

party fail s 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

extent of that doctrinal modif‌ication.

A major diff‌iculty inherent in addressing this topic is terminolog-

ical in nature. The terms “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 termin ation 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

Conditions, War ranties, and Repud iatory Breach707

contract as discha rged 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 thi nk that

some of these diff‌ic ulties can be avoided; in particular the use of the

term “resci ssion” even if distinguished from re scission ab initio, as an

equivalent for disch arge, though justif‌iable in some contexts . . . 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 ri se to the innocent party’s right to “termi nate”

the contract or treat it as “discharged” by breach is p erhaps 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” creates 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 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 bre ach of contract. The chap-

ter 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 cre-

ate or recognize the existence of enforceable promises or undertakings,

contracts are not simply composed of a string of promises given by

1 [1980] AC 827 (HL) [Photo Production]. See also Guarantee Com pany of North

America v Gordon Capit al Corp (1999), 178 DLR (4th) 1 (SCC) [Gordon Capital].

2 Photo Production, ibid at 844. See also Potterv New Brunswick Legal Aid Ser vices

Commission, 2015 SCC 10, [2015] 1 SCR 500 at paras 146 –48, Cromwell J

[Potter].