C. The Condition-Warranty Dichotomy: Criticisms and Cure

• Author: John D. McCamus
• Profession: Professor of Law. Osgoode Hall Law School, York University
• Pages: 624-629

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A number of criticisms are commonly made of the condition-warranty analytical model, and in recent decades a more flexible and, arguably, rational analytical method for determining the consequences of a breach of contract appears to have been adopted by the courts.²¹A basic conceptual attack on the condition-warranty dichotomy is that it rests on a confusion of the concepts of promise and condition. Conditions, as traditionally understood, are not promises. They are arrangements that stipulate circumstances under which promises may be either enforceable or unenforceable. Thus, to use the term "condition" to refer to particular promises in an agreement introduces an element of terminological confusion. This is all the more so inasmuch as contractual stipulations that are properly regarded as conditions in the traditional sense are also frequently included in agreements. Thus, the condition concerning rezoning in the hypothetical real estate transaction is plainly a condition in the traditional sense of an arrangement or term stipulating circumstances under which the undertakings to close the transaction are enforceable or not. A possible response to this criticism is that this modern use of the term "condition" to refer to and classify particular contractual undertakings may be seen as simply an elliptical way of referring to the more complicated notion that this particular

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undertaking is one that is subject to an understanding that its performance is a state of affairs that must exist if the other party’s obligations are to be enforceable. Certainly, it is in any event a common drafting technique to use the term "condition" in this elliptical fashion and to stipulate that certain undertakings in the agreements are conditions, by which the drafter means to suggest that their breach will entitle the other party to treat the contract as discharged by breach. The call for conceptual clarity in the use of the term "condition" thus comes a little late in the day to be effective. We shall return to this drafting point.

A more telling criticism of the condition-warranty dichotomy is that it leads to an unnecessary and unhelpful rigidity in the determination of the consequences of particular breaches of contract. By focusing on the importance of the term rather than the significance of the actual breach of contract for the party not at fault, the condition-warranty dichotomy envisages a bipolar world in which a term must be classified either as one in which, the term being a condition, any conceivable breach of the undertaking will give rise to the right to disaffirm the contract or, being classified as a warranty, every conceivable breach of the undertaking must be considered to sound only in damages. Thus, the condition-warranty dichotomy appears to preclude the possibility that an undertaking could be of such a nature that some breaches should give rise to the right to disaffirm whereas others, being less severe in their impact on the party not at fault, should not have that effect. And yet, there are surely many contractual stipulations of this kind in fact. In the case of such stipulations, the condition-warranty dichotomy requires an all-or-nothing choice between condition, that is, treating all breaches, however trivial, as repudiatory or warranty, that is, treating none as repudiatory, however devastating the consequences of a particular breach might be.

A compelling illustration of this problem is to be found in the facts of Hong Kong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd.,²²a...