Conditions, Warranties, and Repudiatory Breach

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

705

CH AP TER 15

CONDITIONS,

WARR ANTIES, AND

REPUDI ATORY BR EACH

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 t he 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 pa rty’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 ari se relates to the ability of a “v ictim” of a breach of contract

(also referred to here as the “innocent par ty” 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 i ssue 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 pa rty’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 cons equence, identify circumst ances in

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

with a basis for wit hholding performance or, indeed, terminating the

agreement. Thus, in the context of an agreement under which a payer

agrees to pay money in return for ser vices to be provided by the other

party, if it is determined that the provision of services must precede

payment, it will follow that a fai lure by the service provider to pro-

vide the contractually required service s will provide the payer w ith a

basis for refusing to ma ke payment and to terminate the contractual

relationship. Under traditional doctr ine, both of these sets of issues

were determined on the basis of whether t he particular prov isions of

the agreement in issue were properly clas sif‌ied as either “conditions”

or as mere “warrantie s.” In determining whether a breach of contract

would entitle the other party to ter minate the relationship, traditional

doctrine would consider whether the provision breached wa s properly

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

had the ability to term inate 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 perform ance of a “condition precedent” to the

enforceability of the obligation of the other part y. 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 t reat 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 centur y, the rigid classif‌ication of term s

as being either “conditions” or “warranties” upon which it was based

created a doctrine th at was considered by many to be unduly r igid

and therefore subject to manipulation in order to achieve satisfactor y

results in particular case s. In the latter part of the t wentieth century,

however, the doctrine underwent a substantia l transformation. One

of the principal objectives of thi s chapter is to assess the nature and

extent of that doctrin al modif‌ication.

A major diff‌iculty inherent in addre ssing thi s topic is terminolog-

ical in nature. The terms “re scission” 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 “resci ssion” 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 Breach 707

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 expre ssions are used to de scribe situ ations where

a breach has been com mitted by one part y of such a character as

to entitle the other pa rty of refuse f urther perfor mance: disch arge,

rescission, ter mination, t he contract is at an end, or dead; or d is-

placed; clause s cannot survive or simply go. I have come to thi nk that

some of these diff‌ic ulties can be avoided; in particul ar 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 ow n set

of haza rds.

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

ing particula r 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 br ief‌ly 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 undertaking s,

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 Potter v New Brunswick Legal Aid Ser vices

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

[Potter].