The Sale of Goods Act has created difficul-
ties for the application of general breach of
contract principles to sales contracts. The
author examines the evolution of the Anglo-
Canadian doctrine of conditions and warran-
ties, dictated by a search for certainty and a
desire to transfer questions of discharge for
breach from the jury to the judge. He ex-
plores the statutory enshrinement of this doc-
trine and analyses the problem of relating
this statutory regime to changes in the gener-
al law favouring flexibility and justice in the
individual case. The author also examines
the foundations of the doctrine of conditions
and warranties, namely the principles of de-
pendency of promises, concerned with con-
tractual construction, and failure of consid-
eration, which dealt with the effects of
breach on the contractual adventure. Fur-
ther, he investigates the effects, on the sel-
ler’s duty of delivery, and the buyer’s duties
of acceptance and payment, of the failure to
articulate them in the language of conditions
and warranties. Ultimately, the author’s pur-
pose is to explain and criticise the evolution
of sales and general contract law in order that
the sale of goods contract can be seen as an
offshoot of the general law, rather than as a
statutory mutation, thus producing that
understanding which is indispensable to any
reform of sales law.
Le Sale of Goods Act a rendu difficile, dans
les juridictions de common law, l’application
des principes g6n6raux du droit contractuel
aux contrats de vente. L’auteur examine 1’6-
volution de la doctrine anglo-canadienne des
conditions et garanties, motivde par la re-
cherche de la certitude et le d6sir de voir ces
questions d~termindes par un juge plut6t que
par un jury. I1 6tudie l’enchdssement statu-
taire de cette doctrine et analyse le probl~me
d’adapter ce r6gime statutaire A l’6volution
du droit en g6n6ral vers la flexibilitd et la
justice dans les cas individuels. L’auteur
examine aussi les fondements de la doctrine
des conditions et garanties, nomm6ment, les
principes de la r6ciprocit6 des engagements,
traitant de l’interpr6tation contractuelle, et
de l’absence de cause, traitant de l’effet de
l’inex6cution d’une obligation sur l’entre-
prise contractuelle. I1 constate aussi l’impor-
tance pour les parties d’articuler comme
conditions et garanties du contrat les obliga-
tions du vendeur, de livrer la chose, et de
l’acheteur, de l’accepter et d’en payer le
prix. L’objectif de l’auteur est d’expliquer et
de critiquer l’6volution des droits de la vente
et des contrats en g6n6ral, afin de d6montrer
que le premier n’est pas une cr6ation statu-
taire autant qu’un sous-produit du droit
commun. Toute r6forme du droit de la vente
repose sur la compr6hension de cette donn6e
essentielle.
*Of the Faculty of Law, McGill University.
McGILL LAW JOURNAL
Development of the Law Before the Sale of Goods Act: The
Emergence of Conditions and Warranties
II.
The Doctrine of Conditions and Warranties
II.
The Doctrine of Conditions and Warranties and the Sale of Goods
IV. Developments Outside the Sale of Goods Act and their Impact
upon Sale of Goods Cases
The Status of the Seller’s Duty to Deliver and the Buyer’s Duty to
Accept and Pay for Goods
In a lecture delivered recently in Canada, Lord Diplock criticised the
Sale of Goods Act’ for its influence in “preventing the development of [sales]
law from meeting the changes in society and recent business methods”.’
Prominent in his Lordship’s mind was the Act’s division of contractual terms
into conditions and warranties, which, he observed, was done only in the case
of the seller’s obligations.3 To this observation one might add that not all of
the seller’s obligations are classified in this way: the Act says nothing about
the seller’s duty of timely delivery, though the seller’s duty to deliver and the
buyer’s duty to pay for the goods are treated as mutual and concurrent
conditions .’
The purpose of this paper is twofold: first, to examine the origins of the
doctrine of conditions and warranties and to discuss the stresses and strains
I The Sale of GoodsAct was first passed by the United Kingdom Parliament as 56 & 57 Vict.,
c. 71 (U.K.). The Canadian common law provinces and the territories all have legislation
modelled closely on the U.K. Act. See R.O.Y.T. 1958, c. 97 [the Act appears in the Revised
Ordinances of the Yukon 1971 as c. S-1]; R.O.N.W.T. 1974, c. S-2; R.S.B.C. 1979, c. 370;
R.S.A. 1980, c. S-2; R.S.S. 1965, c. 388; R.S.M. 1970, c. S-10; R.S.O. 1980, c. 462;
R.S.N.B. 1973, c. S-1; R.S.N.S. 1967, c. 274 [theAct appears in the Consolidated Statutes of
N.S. as c. S-2]; R.S.P.E.I. 1974, c. S-1; R.S.N. 1970, c. 341. Unless otherwise indicated,
references in this paper will be to the provisions of the Ontario Act.
2Diplock, The Law of Contract in the Eighties (1981) 15 U.B.C.L. Rev. 371, 373-4.
3Ibid., 375.
4Sale of Goods Act, s. 27.
DISCHARGE FOR BREACH
imposed upon the law governing sales of goods by the incorporation of this
doctrine into the Sale of Goods Act;5 and secondly, to analyze the law
governing the interlocking obligations of the seller to deliver the goods and of
the buyer to accept and pay for the goods, as well as to perform certain acts to
enable the seller to make delivery.6 These issues have been complicated by the
collision in recent years of the doctrine of conditions and warranties and the
so-called doctrine of intermediate stipulations against the background of a
Sale of Goods Act which makes no provision for the latter doctrine. In this
paper, an attempt will be made to reconcile the two doctrines in the modem
law of sale of goods and the argument will be advanced that the law is in the
process of returning to basic principles from which it departed shortly before
the passing of the Sale of Goods Act. In the process, particular attention will
be paid to the recent decision of the House of Lords in Bunge Corp. v. Tradax
ExportS.A! which has made a significant contribution to this area of the law.
The starting point in an analysis of the Sale of Goods Act’s treatment of
contractual terms and breach of contract is subs. 12(1):
Whether a stipulation in a contract of sale is a condition the breach of which may give rise
to a right to treat the contract as repudiated or a warranty the breach of which may give rise
to a claim for damages but not to a right to reject the goods and treat the contract as
repudiated depends in each case on the construction of the contract, and a stipulation may
be a condition, though called a warranty in the contract.
The subsection appears to treat all terms of a contract of sale as either
conditions or warranties, an impression compounded by s. 1. This, the
definition section, contains no reference at all to conditions, and defines
warranty as:
[Ain agreement with reference to goods which are the subject of a contract of sale, but
collateral to the main purpose of the contract, the breach of which gives rise to a claim for
damages but not to a right to reject the goods and treat the contract as repudiated.
In sum, the Sale of Goods Act contemplates two types of remedy and two
types of term in its scheme of remedies for breach in subs. 12(2). The
definition section deals only with warranties and, consequently, one is led by
inference to the position that conditions must be the residuum of contractual
obligations, namely those promissory terms that are not collateral to the main
purpose of the contract. This simple, binary view of contractual terms leads to
the conclusion that even trivial breaches of a condition justify the innocent
party in terminating the contract (entitlement to regard the guilty party’s
51n s. 12.
6Sale of Goods Act, ss 26 and 27.
7[198112 All E.R. 513 (H.L.), affg the decision of the Court of Appeal, which had reversed
the decision of Parker J. (all reported at the same citation).
REVUE DE DROIT DE McGILL
behaviour as a repudiation of the contract is statutory shorthand for this right),
whereas not even breaches of warranty causing substantial injury will confer
such a right.
The above conclusion is reinforced by the way the Act classifies certain
implied terms. Thus the seller’s obligations regarding his right to sell,’
description, 9 merchantable quality, 0 fitness for purpose,” and sample ‘2 are
treated as conditions; quiet possession 13 and freedom from encumbrances,”
on the other hand, are classified as the subject matter of warranties. In
addition, the seller’s duty to tender the contractually agreed quantity is
clearly, though not explicitly, treated as a condition. 5 If the picture so far
seems clear, it is clouded somewhat by s. 11:
Unless a different intention appears from the terms of the contract, stipulations as to time
of payment are not of the essence of a contract of sale, and whether any other stipulation as
to time is of the essence of the contract or not depends on the terms of the contract.
If one recognizes in s. 11 a cryptic reference to the seller’s duty of timely
delivery, as well as to ancillary duties of the buyer relating, for example, to
acceptance of the goods, s. 11 states unhelpfully that the status of these time
provisions is a matter of construction of the contract, the Act adopting a
neutral stance towards them, while time of payment obligations are presump-
tively deemed not to be of the essence unless the contract provides otherwise.
To those who had hoped that breach of contract in sale of goods cases would
be a simple topic, s. 11 sounds the warning bell. First of all, it uses the
mysterious language of “the essence of the contract”, instead of the terms
“conditions” and “warranties”. Secondly, in view of the fact that the drafts-
man sought faithfully to record sale of goods law at the time he drew up the
‘Sale of Goods Act, subs. 13(a).
9Sale of Goods Act, s. 14.
“Sale of Goods Act, s. 15.2.
“Sale of Goods Act, s. 15.1.
2 Sale of Goods Act, s. 16.
“Sale of Goods Act, subs. 13(b).
“Sale of Goods Act, subs. 13(c).
“Sale of Goods Act, s. 30. The section speaks of the buyer’s right to reject goods. It could be
argued, therefore, that s. 30 implicitly recognizes the right of a defaulting seller to make a cure
of a defective tender of goods. The Sale of Goods Act can be faulted for failing to relate clearly
the buyer’s right to reject goods to his right to terminate the contract. Consequently, any right to
cure on the part of the defaulting seller is neither clearly spelt out nor denied by the Act. In
contrast to the Sale of Goods Act, the draft Sale of Goods Bill contained in the Ontario Law
Reform Commission, Report on Sale of Goods (1979), Appendix I, includes an explicit and
extensive cure provision in s. 7.7. A similar provision, also s. 7.7, is contained in the Uniform
Sale of Goods Act. See Uniform Law Conference of Canada, Proceedings of the Sixty-Third
Annual Meeting (1981), Appendix S, reprinted in Alberta Institute of Law Research and
Reform, The Uniform Sale of Goods Act (1982) 184-94 and 287-8 (Report No. 38).
DISCHARGE FOR BREACH
Act,” the very brevity of s. 11 alerts us to the possibility of undisclosed
difficulties in this area of sale of goods law. Thirdly, the section speaks only
of the time when something is to be done; it does not address the very
performance of the obligation in question. Williston once said that it is
“desirable to distinguish between a breach of promise to do a thing and a
breach of promise as to the time when it shall be done”. 7 Nowhere is it more
desirable than here. If the buyer’s duty of timely payment is a warranty, that
is, not of the essence of the contract, does this mean that, even if he never
pays, the seller is unable to terminate the contract? Or is there a distinction to
be drawn between non-payment and late payment? If there were, would it be
possible to permit the seller to terminate the contract where the buyer’s failure
to pay amounts to a repudiation of the contract or goes to the root of the
consideration bargained for by the seller? If the right to terminate exists in the
case of non-payment, at what point does late payment become non-payment?
Regardless of how obvious the answers to these questions are,’ 8 the fact that
they have to be asked shows that the simple condition-warranty distinction
formulated by subs. 12(2), which classifies terms at the time the contract is
entered into, cannot resolve the problems posed by late payment and non-
payment. Finally, whereas s. 11 appears to contemplate that the buyer’s duty
of timely payment is less strict than the seller’s duty of timely delivery, how
can this possibly be reconciled with s. 27, which states the presumptive rule
that payment and delivery are concurrent conditions?
The reform of sale of goods law has been debated exhaustively by law
reform agencies in Canada in recent years 19 and a substantial statutory reform
is likely to occur in at least some common law provinces 20 in the foreseeable
future. If such a reform follows the lead established by the Uniform Law
Conference of Canada, it will cast breach of contract into a mould so radically
different from the present one that an extensive discussion of these reform
“Introduction to first edition of M. Chalmers, The Sale of Goods Act, 1893 (1894),
reprinted in the 7th ed. (1910) vii.
17 S. Williston & G. Thompson, A Treatise on the Law of Contracts, rev’d ed. (1936), vol.
“A good discussion of the difficulties posed by late performance is to be found in the
judgment of Devlin J. in Universal Cargo Carriers Corp. v. Citati [1957] 2 Q.B. 401, [1957] 2
All E.R. 70 [hereinafter cited to Q.B.], affd [1958] 2 Q.B. 254, [1958]3 All E.R. 234 (C.A.).
In a case dealing with, inter alia, the duty of a voyage charterer to load a cargo, he said, at 430:
[A] party to a contract may not purchase indefinite delay by paying damages and a
charterer may not keep a ship indefinitely on demurrage. When the delay becomes so
prolonged that the breach assumes a character so grave as to go to the root of the contract,
the aggrieved party is entitled to rescind.
“See, e.g., Ontario Law Reform Commission, supra, note 15; Uniform Law Conference of
Canada, supra, note 15; and Alberta Institute of Law Research and Reform, supra, note 15.
10 See Alberta Institute of Law Research and Reform, ibid.
McGILL LAW JOURNAL
initiatives cannot be integrated into the text of this paper.2′ But because the
reform of existing law cannot confidently be predicted in the near future and,
in any case, one cannot be certain of the form it will eventually take, and
because it would be unrealistic to expect provincial governments to attach a
high priority to sales of goods law on their legislative agendas, an extended
analysis of the present law remains in order.
Enough has been said so far about existing law to show that the subject of
breach of the sale of goods contract requires far more than a mere reading of
the Sale of Goods Act if it is to be understood. In his celebrated judgment in
Bank of England v. Vagliano Bros,’ Lord Herschell advocated a conservative
approach to the treatment of pre-codification case law. Such decisions, he
said, should be resorted to only if the text of the codifying statute was unclear
or if it contained technical expressions that could be clarified by looking at the
earlier cases.3 Over an extended period, the image of clarity projected by a
codifying statute tends to break down as problems come to light in its
implementation. This observation is particularly true of those provisions in
the Sale of Goods Act dealing with breach of contract. An extensive analysis
of the law’s development in the years preceding the passage of the United
Kingdom Sale of Goods Act is therefore indispensable and will be undertaken
in Part I of this paper.
Development of the Law Before the Sale of Goods Act: The
4
Emergence of Conditions and Warranties 1
This Part deals with two separate principles that came to be incorporated
in the doctrine of conditions and warranties enacted in the Sale of Goods Act.
The first of these principles was that of the dependence of contractual
promises, which dealt with the order of performance of the parties’ obliga-
tions under an executory contract; the second principle was that of failure of
consideration, which was typically concerned with the effect of breach on a
contract that had been executed at least in part. The former principle was
therefore concerned with non-performance and the latter with defective or
incomplete performance. It will be demonstrated that these principles oper-
ated with different degrees of stringency. Put simply, it was easier for a party
2i The innovation lies in the combination of breach and cure principles. In the opinion of the
Committee on Sale of Goods which reported to the Sixty-Third Annual Meeting of the Uniform
Law Conference of Canada (see supra, note 15), a broad cure entitlement on the part of a
defaulting seller justified extensive rejection and termination rights on the part of a buyer if a
cure were not forthcoming.
z[1891] A.C. 107, [1891-4] All E.R. Rep. 93 (H.L.).
-Ibid., 145.
” See C. Morison, Rescission of Contracts (1916).
DISCHARGE FOR BREACH
to resist performance because a condition precedent to his duty to perform had
not been satisfied than it was to resist further performance or to rescind the
contract on the ground that there had been a failure of consideration. The
fusion of these essentially different principles in a unified doctrine of condi-
tions and warranties, accomplished through the medium of party intention,
created tensions in the law which came to the surface with the decision of the
English Court of Appeal in Hongkong Fir Shipping Co. v. Kawasaki Kisen
Kaisha I in 1962.
The decision of the Court of King’s Bench in Kingston v. Preston 26 in
1773 will be used as the focal point for an exposition of the principle of
dependent promises; Boone v. Eyre,2 decided by the same Court in 1777, will
illustrate failure of consideration and highlight the differences between this
principle and the dependent promises principle.
The origin of the principle of dependent promises can be traced to the rise
of assumpsit in the sixteenth century. Prior to that time, what we would now
call contractual actions were usually enforced by the writs of debt and
covenant,28 which did not address themselves to the mutual promissory
relationship engendered by a consensual transaction. Debt was concerned
with the liability to pay a liquidated sum by someone who had received a quid
pro quo and it was not confined to what we would now call contractual
relationships; 29 covenant dealt with the obligation to perform individual prom-
ises under seal. Assumpsit introduced the idea that contractual promises are
binding because each is consideration for the other.30 It therefore linked
together the parties’ promises in a state of mutual interdependence so as to
produce a contract that was binding from the moment of formation. Though it
might appear obvious to us that if the parties’ principal obligations are
mutually dependent at the moment of formation, so should they also be when
the time comes for them to be performed, it was not until Kingston v. Preston
that this link between formation and performance can be said to have been
– [1962] 2 Q.B. 26, [1962] 1 All E.R. 474 (C.A.) [hereinafter cited to Q.B.].
26Decided in 1773, as related by counsel for the plaintiff inJones v. Barkley (1781) 2 Dougl.
684, 689-91, (1781) 99 E.R. 434 (K.B.) [hereinafter cited to Dougl.].
2(1777) 1 H. Bl. 273, (1777) 126 E.R. 160 (K.B.).
2See A. Simpson, A History of the Common Law of Contract [:] The Rise of the Action of
Assumpsit (1975); S. Milsom, Historical Foundations of the Common Law, 2d ed. (1981); C.
Fifoot, History and Sources of the Common Law [:] Tort and Contract (1949); T. Plucknett, A
Concise History of the Common Law, 5th ed. (1956); J. Baker, An Introduction to English
Legal History, 2d ed. (1979); and S. Stoljar, A History of Contract at Common Law (1975).
9 See UnitedAustralia, Ltd v. Barclays Bank, Ltd [1941] A.C. 1, 26 (H.L.)per Lord Atkin.
See Norwood v. Norwood and Read (1558) 1 Plowden 180, 182, (1558) 75 E.R. 277
(“every contract executory is an assumpsit in itself”); and Slade’s Case (1602) 4 Co. Rep.
92(b), (1602) 76 E.R. 1074 (K.B.).
REVUE DE DROIT DE McGILL
decisively made. Thus, in the early assumpsit case of Nichols v. Raynbred,3′
where Nichols agreed to sell a cow to Raynbred for fifty shillings, Nichols
was able to sue Raynbred on his promise to pay without having to aver that he
had delivered the cow. If the cow were not delivered, the proper course for
Raynbred would be, not to resist payment, but to pay and bring a separate
cross action for damages for Nichols’s non-delivery.32
Until the late eighteenth century, the law tended to interpret contractual
promises as independent unless the parties used express language of de-
pendency in the contract or linked the promises explicitly,33 but Lord Mans-
field in Kingston v. Preston swept aside the language of formalism evident in
the earlier cases and extended the inquiry to the implied intention of the
parties. In that case, the defendant covenanted to surrender his business to a
partnership consisting of his own nominee and the plaintiff, the latter cove-
nanting in return to pay on an instalment basis for the stock-in-trade. The
plaintiff promised to provide security for his covenant to pay but, before
doing so, brought the present action against the defendant on the defendant’s
covenant. It was the plaintiff’s contention that his covenant to provide
security was independent, so that the defendant could not set up its non-
performance as a bar to his own obligation to perform. The defendant, on the
other hand, pleaded that the plaintiff’s duty to provide security operated as a
condition precedent to his own obligation to surrender the business and the
Court so held. In Lord Mansfield’s view, the question turned on “the evident
sense and meaning of the parties” 1 as to the order in which the transaction
required that the promises be performed. He divided promises into three
categories: independent promises, where a failure by one party to perform
does not release the other party from his obligation though it does give him a
claim for damages; dependent promises, where a party’s promise is depen-
dent upon the prior performance of his promise by the other party; and
concurrent dependent promises, where a party’s promise is dependent upon
prior performance of his promise by the other party and vice versa.35 A party
11 [1615] Hobart 88, (1615) 80 E.R. 238 (K.B.).
2″Under the old common law a defendant who had any cross-claim against the plaintiff
could not raise it in the plaintiffs action: he had to bring a cross-action. But two stat-
utes … were passed in the reign of George 11, which enabled mutual debts to be set off; the
scope of these statutes was, however, somewhat limited.” D. Casson & L. Dennis, eds,
Odgers’ Principles of Pleading and Practice in CivilActions in the High Court of Justice, 22d
ed. (1981) 199.
“See, e.g., Pordage v. Cole (1669) 1 Wins Saund. 319, (1669) 85 E.R. 449 (K.B.)
[hereinafter cited to Wins Saund.].
3’Supra, note 26, 691.
“Morison, supra, note 24, 61-9, stresses that Lord Mansfield was dealing with covenants,
i.e., promises under seal, rather than with express promises at large. Itis submitted, however,
that there is no need to confine Lord Mansfield’s language and principles in this way.
DISCHARGE FOR BREACH
seeking to enforce another’s promise was required to aver performance of all
conditions precedent to that promise. Concurrent dependent promises there-
fore raised an obvious problem of circularity, but this was resolved by
allowing each party to aver that he was ready and willing to perform as a
condition precedent to recovery against the other.36
If the principle of dependent promises were applied to the limits of its
logic, then a party who had failed to perform in full a promise operating as a
condition precedent to the other’s obligation to perform would have been
unable to bring suit. In his famous notes on the decision in Pordage v. Cole,37
published in 1798, Serjeant Williams nevertheless asserted that this was not
the rule:
[W]here a person has received apart of the consideration for which he entered into the
agreement, it would be unjust that because he has not had the whole, he should therefore
be permitted to enjoy that part without either paying or doing any thing for it. Therefore
the law obliges him to perform the agreement on his part, and leaves him at his remedy to
recover any damage he may have sustained in not having received the whole consider-
ation. … Therefore, if an action be brought on a covenant or agreement contained in
articles of agreement or other executory contract where the whole is future, it seems
necessary to aver performance in the declaration of the whole, or at least of part of that
which the plaintiff has covenanted to do; or at least it must be admitted by the plea that he
has performed part.3”
Why an injured party should more readily be confined to a damages claim in
the event of a breach can be explained by reference to Boone v. Eyre.39
That case concerned the conveyance of a West Indian plantation,
together with the slaves on it, in consideration for 500 and an annuity of1 60
for life. The defendant declined to pay the annuity on the ground that at the
time of the deed of conveyance the plaintiff was not lawfully possessed of the
slaves. Upon general demurrer, judgment was given for the plaintiff. The
breach pleaded by the defendant went only to part of the consideration he
bargained for. Consequently, a failure by the plaintiff to transmit title to the
slaves would not excuse the defendant from paying the annuity, but would
instead be compensable in damages. Though there was nothing in the tersely
reported language of the Court to justify it, Serjeant Williams attached great
weight to the fact that the contract had been executed in part: “But as it
appeared that A. had conveyed the equity of redemption to B., and so had in
part executed his covenant, it would be unreasonable that B. should keep the
of the Williams Saunders Reports, published in 1798.
37Supra, note 33. Serjeant Williams’s notes follow the report of the case in the first editions
38Ibid., 320.
39Supra, note 27. See also Campbell v. Jones (1796) 6 T.R. 570, (1796) 101 E.R. 708
See Jones v. Barkley, supra, note 26.
McGILL LAW JOURNAL
plantation, and yet refuse payment, because A. had not a good title to the
negroes.” 40
This comment of Serjeant Williams points to shortcomings in the law of
quasi-contract at that time. Cutter v. Powell,4 decided three years before
Serjeant Williams’s notes were published, asserted the principle that quasi-
contractual recovery on a quantum meruit basis would not be available in
respect of a deceased seaman’s services where this was inconsistent with the
terms of an open, that is to say, unrescinded, contract.42 Put in the context of
Boone v. Eyre, this approach would mean that the seller could not recover the
value of what he had conveyed on a quantum valebat basis, nor compel
performance of the buyer’s obligation to pay the annuity, if the seller’s
obligation to transfer a good title to the plantation and slaves were treated as a
condition precedent to the buyer’s duty to perform. The obvious injustice of
such a result explains why the Court in Boone v. Eyre invoked the principle of
failure of consideration, not satisfied on the facts of the case, so as to permit
the defaulting party to recover on the contract. But to what extent did this
approach qualify the dependent promises principle?
In answering this question, reference can be made to the later case of
Duke ofStAlbans v. Shore.43 This was an action in debt for a penalty of500.
The parties agreed on the purchase by the defendant of a farm which was to be
paid for by a sum of 2,594 and a conveyance of certain property belonging to
the defendant on the following Lady Day. The defendant declined to complete
and pleaded that “the … duke cut down… 500… timber trees, 500… elms
and 500 … willow trees” 4 between the date of the contract and Lady Day.
The Court found for the defendant. According to Lord Loughborough, de-
livering the judgment of the Court: “It is clear in this case, that unless the
plaintiff has done all that was incumbent on him to do, in order to create a
performance by the defendant, … he is not entitled to maintain the action.” 45
Such a punctilious standard of performance, which requires strict compliance
with conditions precedent, is obviously inconsistent with the laxer standard
‘Supra, note 33, 320.
4 Ibid., 325, per Ashhurst J.:
6 T.R. 320, (1795) 101 E.R. 573 (K.B.) [hereinafter cited to T.R.].
This is a written contract, and it speaks for itself. And as it is entire, and as the defendant’s
promise depends on a condition precedent to be performed by the other party, the
condition must be performed before the other party is entitled to receive any thing under it.
It has been argued however that the plaintiff may now recover on a quantum meruit: but
she has no right to desert the agreement; for whenever there is an express contract the
parties must be guided by it….
‘(1789) 1 H. Bl. 270, (1789) 126 E.R. 158 (C.P.) [hereinafter cited to H. B1.].
“Ibid., 272. If the Duke’s depredations had not taken place in such an ordered, classical
45Ibid., 278.
age, they would doubtless have assumed asymmetrical proportions.
DISCHARGE FOR BREACH
laid down in Boone v. Eyre, yet the Court in Duke of StAlbans v. Shore itself
did not see any difficulty in reconciling the two cases. It did so by citing the
inequality of damages argument by which a promise would be held not to be
a condition precedent if to hold that it were would impose a prejudice on the
defaulting party out of porportion to the loss actually suffered by the injured
party. Thus, in Boone v. Eyre, the loss that would have been suffered by the
defaulting plantation owner if his promise had been treated as a condition
precedent to the buyer’s promise to pay the annuity would far have exceeded
the loss suffered by the buyer in obtaining defective title to some of the
slaves.47
The inequality of damages argument is clearly cut from the same cloth as
Serjeant Williams’s argument that a party who has received a benefit under an
executed contract should be confined to a damages action. 8 It mirrors the
execution argument when the injured party’s benefit can be translated into the
disproportionate loss of the defaulting party, but it has potentially a broader
field of application than the execution argument since it is not temporally
confined to the point at which a contract ceases to be purely executory. The
inequality of damages argument might conceivably have been prayed in aid
by those incurring great expense in preparing for performance without yet
having tendered performance.49
The inequality of damages and execution arguments were also employed
in later cases in drawing a distinction for the purpose of discharge between
executory and executed contracts. Two cases, Ellen v. Topp 50 and Graves v.
Legg,5 can be used for illustrative purposes. In Ellen v, Topp, the master of a
deserting infant apprentice brought an action against the apprentice’s father
on their indenture of apprenticeship. The father pleaded in defence that the
infant left the master’s service after the master, who carried on the trades of
auctioneer and appraiser, gave up the trade of contractor. Though the dispute
-Ibid., 279.
“Cutter v. Powell, supra, note 41, is hard to reconcile with the picture of the law thus
established by Boone v. Eyre and Duke ofStAlbans v. Shore. In the former case, the widow of a
deceased seaman was unable to recover for services he had rendered for most of the distance
between the West Indies and the port of destination, Liverpool. It seems a clear case for the
application of the inequality of damages argument (or the execution benefit principle) unless
one concludes that the very high rate of remuneration justified the inference that the seaman had
assumed the risk of non-payment for failure to complete the voyage. Indeed, Lord Kenyon
C.J., at 324, stressed that the deceased’s contractual stipulation was “a kind of insurance”.
“Supra, note 33, 320.
49But see Ritchie v. Atkinson (1808) 10 East 295, (1808) 103 E.R. 787 (K.B.).
-1(1851) 6 Ex. 424, (1851) 155 E.R. 609 [hereinafter cited to Ex.].
1′ (1854) 9 Ex. 710, (1854) 156 E.R. 304 [hereinafter cited to Ex.], rev’d on other grounds
subnom. Greavesv. Legg (1856) 11 Ex. 642, (1856) 156E.R. 988, whichwasaff dsub. nom
Graves v. Legg (1857) 2 H. & N. 210, (1857) 157 E.R. 88 (Ex. Ch.).
REVUE DE DROIT DE McGILL
arose some time into the period of indenture, the Court, not without some
difficulty, treated the contract as though it were severable and therefore
executory 52 for the purpose of applying the dependency principle:
If this had been an action on a covenant to pay an apprentice fee at the end of the term, and
the apprentice had served the whole period, and had had the benefit of instruction as such
in two of the trades, it would, we are disposed to think, have been no answer to the action
that the plaintiff had discontinued one. But this is an action for not continuing to serve as
an apprentice; and although the later services of an apprentice are much more valuable
than the early, and are in part a compensation to the master for his instruction in the
commencement of the apprenticeship, and so are analogous in some degree to an
apprentice fee payable in futuro, yet the immediate cause of action is the breach of the
contract to serve, and the obligation to serve depends upon the corresponding obligation to
teach as an apprentice; and, if the master is not ready to teach in the very trade which he has
stipulated to teach, the apprentice is not bound to serve.5”
Although it adhered to Serjeant Williams’s execution argument, the Court
was at pains to say that the mere fact of some performance, and hence the
receipt of some benefit by the injured party, would not prevent there arising a
failure of consideration. Referring to Boone v. Eyre, it observed that if “two
or three negroes had been accepted, and the equity of redemption not con-
veyed, we do not apprehend that the plaintiff could have recovered the whole
stipulated price, and left the defendant to recover damages for the non-
conveyance of it”.e A
Graves v. Legg concerned a contract that was more obviously executory
than the one in Ellen v. Topp. The parties agreed on the sale of a quantity of
fleece wool shipped at Odessa for carriage to an English port. The seller
undertook, inter alia, that he would declare the names of the vessels as soon
as the wool was shipped. The defendants refused to accept the wool and
pleaded the failure of the plaintiff to declare the names of the ships within the
agreed time. It appeared from the defence that the wool was destined for
resale, that it could not be sold until the names of the ships were known, and
that the market had fallen by the time the defendants were apprised of the
vessels’ names. Counsel for the defendants laid emphasis on the fact that his
clients had declined tender and had received no benefit from the contract.5″
Baron Parke delivering the judgment of the Court in favour of the defendants,
observed:
52By matching the early services of the apprentice against his early instruction, both parties
started with a clean slate with regard to future services and instruction. On the distinction
between entire and severable contracts, see G. Treitel, The Law of Contract, 5th ed. (1979)
594-9.
513Supra, note 50, 442.
Ibid.
55Graves v. Legg, supra, note 51, 714.
DISCHARGE FOR BREACH
[T]he reason of the decision in [Ellen v. Topp] and similar cases, besides the inequality of
damages, seems to be, that where a person has received part of the consideration for which
he entered into the agreement, it would be unjust, that, because he had not the whole, he
should therefore be permitted to enjoy that part without either payment or doing anything
for it. Therefore the law obliges him to perform the agreement on his part, leaving him to
his remedy to recover any damage he may have sustained in not having received the whole
consideration. Mr. Serjt. Williams goes on to observe, that it must appear on the record
that the consideration was executed in part.’
Construing the contract and the nature of the enterprise, the Court held that the
seller’s obligation to declare the vessels’ names was a condition precedent and
that nothing had subsequently occurred to alter the position. Consequently,
the defendants were excused from accepting the seller’s tender of the wool.
Since the inequality of damages and the fact of execution had such a
marked effect on the remedial position of the injured party, 7 what needs to be
considered now is how precisely the principles of dependence of contractual
promises and failure of consideration were reconciled when they came to be
incorporated in a unified doctrine of conditions and warranties.
-Ibid., 716-7.
7The effect of these arguments in drawing a distinction between executory and executed
contracts is apparent in the decisions inHoare v. Rennie (1859) 5 H. & N. 19, (1859) 157 E.R.
1083 (Ex.) [hereinafter cited to H. & N.]; and Simpson v. Crippen (1872) L.R. 8 Q.B. 14. In
the former case, the Court was clearly impressed by the fact that the defendant buyer had not
received a benefit from the contract when it repudiated the contract for the plaintiff seller’s
breach. According to Pollock C.B. (at 27-8): “Where a person has derived a benefit from a
contract, he cannot rescind it because the parties cannot be put in statu quo. .. . [T]he
defendants refused to accept the first shipment, because, as they say, it was not a performance
but a breach of the contract.” In Simpson v. Crippin, where doubt was cast on the decision in
Hoare v. Rennie, there had been part performance of the contract when the seller repudiated the
contract on the basis of the buyer’s failure to take punctual delivery of a quantity of coal sold on
an instalment basis. In a later instalment case, Honck v. Muller (1881) 7 Q.B.D. 92 (C.A.), the
buyer refused to take delivery of the first of three instalments of pig iron and was unsuccessful
in his action against the seller for failing to deliver the two remaining instalments. According to
Bramwell L.J., at 99: “If… the contract has been part performed and cannot be undone, then it
must be proceeded without [the] power of declaring off. If in this case the plaintiff had taken the
November delivery, but had refused the December, the defendant would have been bound to
make the January delivery.” Indeed, Bramwell L.J. was so insistent on the distinction between
executory and executed contracts that he proposed, at 98, a very strict standard of performance
in executory cases: “I think where no part of a contract has been performed, and one party to it
refuses to perform the entirety to be performed by him, the other party has a right to refuse to
perform any part to be performed by him.” It can be seen from the extracts from Hoare v.
Rennie and Honck v. Muller that the distinction between executory and executed contracts was
influenced by the old idea that termination of a contract operated retrospectively and could not
be effected where a restitutio in integrum was impossible as a result of a valuable benefit having
been received by one of the parties. See infra, note 104. This approach to termination produced
other effects in sale of goods law, notably in regard to the buyer’s right of rejection of specific
goods, which will be dealt with later in this paper.
McGILL LAW JOURNAL
H. The Doctrine of Conditions and Warranties
The law under consideration in this paper developed at a time when it
was believed that all manner of contractual problems could be solved by a
“true construction” of the agreement. Applying this approach, a court seeking
the “evident sense and meaning” 58 of contracting parties, who had not
expressly stated whether a promise was dependent or independent, would, in
searching for an implied intention, be guided by the consideration bargained
for by the promisee. Thus, in some cases where a promise was held to be a
condition precedent, emphasis was laid upon its effect in inducing the other
party to contract. 9 The more a party’s vital interests were engaged by a
contractual promise, the more that promise was likely to be treated as a
condition precedent. This made it inevitable that failure of consideration
would be taken into account in applying the dependent promises principle.
But how exactly was this to be done?
The basic choice was between an a priori and an ex post facto inquiry.
The former would be implemented by attributing an intention to the parties,
assessed at the date of the contract, based on the possible consequences of a
future hypothetical breach or breaches; the latter would weigh the parties’
intention in the light of the particular circumstances surrounding the actual
breach, which might occur some considerable time after the formation of the
contract. If the latter approach were taken, two awkward consequences would
ensue. First, if an obligation could be regarded as dependent only in the light
of the actual consequences of a particular breach, it would follow that a
promise would sometimes be dependent and sometimes independent, so that
any attempt to fasten an a priori label on it would be impossible. Secondly, a
good deal of commercial certainty would be sacrificed if terms could be
assessed only according to the actual circumstances of their breach, with the
result that cases could be treated as authorities only on their particular facts.
Furthermore, an advantage of the former approach, from the point of view of
courts seeking to control the verdicts of juries, was that it produced a question
of construction, which was a question of law, and so placed the issue of
discharge for breach firmly in judicial hands.
In the resolution of the above inquiry, Serjeant Williams’s notes to
Pordage v. Cole I are of no great assistance. Admittedly, he criticizes the law
prior to Boone v. Eyre on the ground that “the Judges in these cases seem to
have founded their construction of the independency or dependency of cove-
“BKingston v. Preston, supra, note 26, 691, per Lord Mansfield.
59See, e.g., Flight v. Booth (1834) 1 Bing. (N.C.) 370, (1834) 131 E.R. 1160 (C.P.);
Bannerman v. White (1861) 10 C.B. (N.S.) 844, (1861) 142 E.R. 685 (C.P.); and Associated
Newspapers Ltd v. Bancks (1951) C.L.R. 322 (AustI. H.C.).
‘Supra, note 33. See also discussion supra, note 37.
DISCHARGE FOR BREACII
nants or agreements on artificial and subtle distinctions, without regarding the
intent and meaning of the parties”.” Yet the five rules he formulated to
summarize the case law hardly make plain the role that intention or conse-
quences of breach should play, though his commentary does throw some light
upon the latter. Rules 1, 2 and 5 are concerned with the relative or absolute
date on which promises have to be performed;62 rules 3 and 4 deal with
promises that go to a part or the whole of the consideration. 63 Any elucidation
of the role played by intention and consequences of breach in deciding
whether a party is entitled to terminate a contract has to be sought in later
cases.
The state of the law in the years before the enactment of the United
Kingdom Sale of Goods Act in 189364 can be shown by analyzing two
decisions of 1876, Poussard v. Spiers I and Bettini v. Gye,l and one decided
in 1893 itself, Bentsen v. Taylor, Sons & Co. 67 Poussard v. Spiers concerned
a singer whom illness forced to her bed during rehearsals, some five days
before the opening night of an opera. A provisional arrangement was made by
the theatre management with a substitute and this became firm when Madame
6’Ibid., 320.
6 Ibid:
If a day be appointed for the payment of money, orpart of it, orfor doing any other act, and
the day is to happen, or may happen, before the thing which is the consideration of the
money, or other act, is to be performed, an action may be brought for the money, or for not
doing such other act before performance; for it appears that the party relied upon his
remedy, and did not intend to make the performance a condition precedent: and so it is
where no time is fixed for performance of that, which is the consideration of the money or
other act [Rule 1; emphasis in original].
[W]hen a day is appointed for the payment of money, &c. and the day is to happen after
the thing which is the consideration of the money, &c. is to be performed, no action can be
maintained for the money, &c. before performance [Rule 2; emphasis in original].
Where two acts are to be done at the same time, as where A. covenants to convey an estate
to B. on such a day, and in consideration thereof B. covenants to pay A. a sum of money
on the same day, neither can maintain an action without shewing performance of, or an
offer to perform, his part, though it is not certain which of them is obliged to do the first
act: and this particularly applies to all cases of sale [Rule 5; emphasis in original].
Where a covenant goes only to part of the consideration on both sides, and a breach of
such covenant may be paid for in damages, it is an independent covenant, and an action
may be maintained for a breach of the covenant on the part of the defendant, without
averring performance in the declaration [Rule 3; emphasis in original].
But where the mutual covenants go to the whole consideration on both sides, they are
mutual conditions, and performance must be averred [Rule 4; emphasis in original].
6’ See discussion supra, note 1.
-(1876) 1 Q.B.D. 410.
66(1876) 1 Q.B.D. 183, [1874-80] All E.R. Rep. 242 [hereinafter cited to Q.B.D.].
67[1893] 2 Q.B. 274 (C.A.).
REVUE DE DROIT DE McGILL
Poussard was unable to attend on opening night. When she recovered suffi-
ciently to offer her services a week after opening night, the management
declined the offer and an action was brought by Madame Poussard’s husband
for her wrongful dismissal. The management pleaded, inter alia, that her
illness prevented her from complying with a condition precedent to their
obligation to engage her, namely to be ready and willing to perform. Verdict
was entered for the plaintiff at trial but was reversed on appeal by the Court of
Queen’s Bench. In reaching its decision that the failure of Madame Poussard
to perform on the opening and early nights went to the root of the contract, the
Court was influenced primarily by the serious detriment that her illness had
caused the management.6 This detriment seems to have been assessed, not in
hypothetical terms at the date of the contract, but in the light of the circum-
stances prevailing at about the time of opening night when the management
had to decide whether to engage the substitute or delay the opening night for a
short time to permit Madame Poussard to recover;69 hence the Court’s conces-
sion that the question depended at least in part upon the evidence so that it was
one of mixed fact and law forjudge and jury to decide.7″ In the circumstances,
therefore, the Court’s use of the language of “breach of a condition precedent”
to describe her inability to perform is open to criticism for dressing up failure
of consideration in the clothing of the dependent promises principle, for
imposing an a priori label on a term classified by means of an ex post facto
inquiry.
Bettini v. Gye was the case of a tenor whom illness prevented from
attending rehearsals on time prior to a singing engagement. The engagement
was to begin on 30 March and Bettini was to arrive for rehearsals at least six
days before. In fact, he presented himself to the theatre management on 28
March. Bettini’s services were declined by the theatre and he brought an
action for wrongful dismissal. In the Court’s view, this depended upon
whether his attendance on time for rehearsals was “a condition precedent to
the defendant’s liability, or only an independent agreement, a breach of which
will not justify a repudiation of the contract, but will only be a cause of action
for a compensation in damages”.” The Court gave judgment for the plaintiff
because his failure to present himself for rehearsals did “not go to the root of
the matter so as to require us to consider it a condition precedent”.7″
The obvious question at this point is: Why had Bettini complied with all
conditions precedent when Madame Poussard had not? It need hardly be said
that the answer cannot be found in an a priori characterization of their
‘Poussard v. Spiers, supra, note 65, 414.
Ilbid., 415.
7OIbid.
71Bettini v. Gye, supra, note 66, 187.
nIbid., 189.
DISCHARGE FOR BREACH
contractual obligations without regard to the actual or hypothetical conse-
quences of their breach; the obligations of the two singers were essentially the
same. Nevertheless, the Court in Bettini v. Gye laid particular emphasis on
the intention of the parties, even to the extent of downplaying the conse-
quences of breach. Thus:
Parties may think some matter, apparently of very little importance, essential; and if they
sufficiently express an intention to make the literal fulfilment of such a thing a condition
precedent, it will be one; or they may think that the performance of some matter,
apparently of essential importance and prima facie a condition precedent, is not really
vital, and may be compensated for in damages, and if they sufficiently expressed such an
intention, it will not be a condition precedent.73
But the intention of the parties was not apparent on the face of the contract,
and the Court had to decide “whether the particular stipulation goes to the root
of the matter, so that a failure to perform it would render the performance of
the rest of the contract by the plaintiff a thing different in substance from what
the defendant has stipulated for”. 74 It resolved this issue by scrutinizing the
nature of Bettini’s engagement. Since Bettini was not singing only in opera,
where extensive rehearsals would be important, and his engagement was a
lengthy one running for three and a half months, against which a delay of four
days did not seem serious, his failure to attend did not go to the root. On the
facts, therefore, a distinction between the cases of Bettini and Madame
Poussard was clearly appropriate. Nevertheless, Bettini v. Gye may be criti-
cised for sowing the seeds of later trouble. It accorded particular weight to the
parties’ intention and, even though the circumstances of breach were investi-
gated, the inquiry was conducted on an a priori basis: the Court believed that
the answer was to be found in “the true construction of the contract taken as a
whole” .75 Such an approach has an obvious tendency to classify terms of the
contract on a once-and-for-all basis as either conditions or warranties. It tends
also to submerge the failure of consideration principle.
The above criticism is borne out by Bentsen v. Taylor, Sons & Co. ,76
which concerned a clause in a voyage charterparty that a ship was “now sailed
or about to sail”. The classic judgment of Lord Justice Bowen is replete with
the language of intention and construction and it is plain that he regarded
contractual promises as definitively either conditions or warranties. In clas-
sifying a promise, it depended
as a matter of construction, whether it is such a promise as amounts merely to a warranty,
the breach of which would sound only in damages, or whether it is that kind of promise the
WIbid., 187.
74Ibid., 188.
7 Ibid., 187.
76Supra, note 67.
McGILL LAW JOURNAL
performance of which is made a condition precedent to all further demands under the
contract by the person who made the promise against the other party….”
This question of construction was answered by seeking the intention of the
parties which in turn would lead to examining whether “the accuracy of the
statement. would be likely to affect the substance and foundation of the
adventure which the contract is intended to carry out”.78 Then Bowen L.J.
went on to state in no uncertain terms that the inquiry was an a priori
hypothetical one and not an ex post facto actual one:
In the case of a charterparty it may well be that such a test could only be applied after
getting the jury to say what the effect of a breach of such a condition would be on the
substance and foundation of the adventure; not the effect of the breach which has in fact
taken place, but the effect likely to be produced on the foundation of the adventure by any
such breach of that portion of the contract.”
Bowen L.J. concluded that the term “now sailed or about to sail” was a
condition 8 0 of the contract. A similar term, “now in the port of Amsterdam”,
had been held to be a condition in Behn v. Burness 81 and in both cases the term
served as an indispensable datum to enable the hirer of the ship to determine
when it would be ready for loading.
Bentsen v. Taylor, Sons & Co. is authority for the view that terms of the
contract are either conditions or warranties whose status is determined pro-
spectively from the date of the contract. The intention of the parties, whether
express or implied, is considered on the basis of the general foundation of the
contractual adventure and there is no room for a tertium quid assigning the
remedy best suited to the consequences of a particular breach.82 Hence, any
contrary approach in Poussard v. Spiers 83 would appear to have been aban-
doned. Failure of consideration was thus absorbed into the interstices of the
dependent promises principle. This terminological usage, adopted by all three
members of the Court, is reflected perfectly in the Sale of Goods Act.
It is worth repeating that the consequence of these developments was that
failure of consideration, so radically modified by the twin devices of intention
and a priori construction, had disappeared from sight in sale of goods law.
-Ibid., 280-1.
“Ibid., 281.
“9Ibid. It would not, of course, be open to the jury to decide whether the term breached was a
condition or a warranty.
11 Perhaps the earliest example of this terminology, later enshrined in the Sale of Goods Act,
is Glaholm v. Hays (1841) 2 Man. & G. 257, (1841) 133 E.R. 743 (C.P.).
8(1863) 3 B. & S. 751, (1863) 122 E.R. 281 (Ex. Ch.) [hereinafter cited to B. & S.].
But see the revisionist views of Lord Lowry inBunge Corp. v. TradaxExportS.A., supra,
note 7, 544 et seq.
“Supra, note 65.
DISCHARGE FOR BREACH
This was the law that Chalmers, the draftsman, codified in the Sale of Goods
Act and this is the reason why the Act contains no reference to the failure of
consideration principle.” Simple as this conclusion is, it leaves one crucial
question unanswered, namely, what became of the difference between the
principles of failure of consideration and dependent promises in their applica-
tion to cases of contractual discharge? Did it disappear too or does the Sale of
Goods Act retain it still, perhaps in a disguised form? Ellen v. Topp 85 and
Graves v. Legg,86 considered earlier, provide the clue.
In Ellen v. Topp, Pollock C.B., referring to Serjeant Williams’s asser-
tion that the execution of a contract and the conferment of a benefit on an
injured party confines him to a damages action in the event of breach, drew
attention to the fact that such an event served to alter the construction of the
contract:
It is remarkable that, according to this rule, the construction of the instrument may be
varied by matter ex post facto; and that which is a condition precedent when the deed is
executed may cease to be so by the subsequent conduct of the covenantee in accepting
less… .
This way of putting the matter was, however, modified by the same Court in
Graves v. Legg where Parke B., referring to the receipt by the injured party of
“part of the consideration”,” stated: “When that appears, it is no longer
competent for the defendant to insist upon the non-performance of that which
was originally a condition precedent; and this is more correctly expressed,
than to say it was not a condition precedent at all.” 89 Briefly put, the inequality
of damages and execution arguments had been reformulated in terms of
election: 9 notwithstanding the initial classification of a term as a condition
precedent, a party could not rely on it so as to discharge himself from the
contract if, by his conduct in accepting performance, he had elected to affirm
the contract and confine himself to his damages action. In the next Part of this
article, it will be demonstrated that the Sale of Goods Act, while formulating
the doctrine of conditions and warranties, absorbed the inequality of damages
and execution arguments in a number of ways, notably through this election
principle.
8 It will be shown that, despite the silence of the Sale of Goods Act, the failure of
consideration principle has been worked by the cases into various parts of sale of goods law.
“Supra, note 50.
ISupra, note 51.
“Supra, note 50, 441.
“Supra, note 51, 716.
SIbid., 717.
9See Morison, supra, note 24, 100-6, where the author refers to the behaviour of a
contracting party in waiving full performance of what had been a condition precedent to his
own duty to perform.
REVUE DE DROIT DE McGILL
M. The Doctrine of Conditions and Warranties and the Sale of Goods
Speaking of the Sale of Goods Bill shortly after its enactment, Chalmers
stated that “it endeavoured to reproduce as exactly as possible the existing
law, leaving any amendments that might seem desirable to be introduced in
Committee on the authority of the Legislature…
. [T]he conscious changes
effected in the law have been very slight.” 9 The condition-warranty usage,
best exemplified by Bentsen v. Taylor, Sons & Co.,92 which itself took the
lead from Bettini v. Gye 93 rather than Poussard v. Spiers,9′ is therefore writ
large in the Act. Its characteristics have been discussed in earlier sections of
this paper. An inquiry into the way the Act harmonized the a priori approach
to the construction of contracts and the different ex post facto approach
bearing on the distinction between executory and executed contracts, now in
order, is best conducted by scrutinizing the Act for traces of the distinction.
First of all, the implied terms of quiet possession95 and freedom from
encumbrances, 96 whose content suggests an ex post facto interference with a
flawed but real beneficial enjoyment of goods, are designated as warranties of
the contract of sale. Consequently, the injured buyer is left to his remedy in
damages and has no right to reject the goods and terminate the contract.
Secondly, the general tendency of the Act to confer on the buyer extensive
rejection and termination rights where the goods are non-conforming, expli-
cable by the likelihood that there has been a breach of condition by the seller,
is checked in the case of severable instalment contracts where the buyer’s
entitlement to put an end to the contract turns on whether the seller’s be-
haviour is repudiatory, which modem case law frequently regards as tanta-
mount to the concept of a breach going to the root of a contract.97 In many,
“Supra, note 16, viii-ix.
9Supra, note 67.
9’Supra, note 66.
‘4Supra, note 65.
9″Sale of Goods Act, subs. 13(b).
96Sale of Goods Act, subs. 13(c).
97Sale of Goods Act, subs. 30(2). The distinctions between, on the one hand, entire and
severable (or divisible) contracts, and on the other hand, instalment and non-instalment
contracts do not quite coincide. See further, M. Bridge & F. Buckley, Sales and Sales
Financing in Canada [:] Cases and Materials (1981) 144-5. The tendency nowadays is not to
draw a sharp distinction between repudiation as such and a breach going to the root of the
contract except in those cases where the breach is anticipatory in nature, and even there a
compelling argument can be made (see Dawson, Metaphors and Anticipatory Breach of
Contract (1981) 40 Camb. L.J. 83) that anticipatory repudiation can be rationalized in terms of
the present breach of an implied term of the contract not to impede the innocent party’s
performance of his conditions precedent under the contract. See furtherMcRae, Repudiation of
Contracts in Canadian Law (1978) 56 Can. BarRev. 233, who argues that there is a distinction
between repudiation and a breach going to the root, and the Ontario Law Reform Commission,
supra, note 15, 520, which stated that such a distinction would not be “meaningful”. The
DISCHARGE FOR BREACH
perhaps most, such cases, the buyer will have already taken delivery of one or
more instalments and thus will have derived a benefit from the contract.
The most important case, however, where the Sale of Goods Act recog-
nizes the distinction between executory and executed contracts lies in the
acceptance rules.98 Subsection 12(1) states that a buyer may waive a breach of
condition by the seller or may elect to treat it as a breach of warranty so as to
confine himself to a damages action. Although the two provisions are not
explicitly linked, subs. 12(1) may be seen as the inspiration behind s. 34
which lays out three sets of circumstances in which the buyer will be taken to
have lost his right to reject the goods and therefore also his right to terminate
the contract for breach of condition. According to s. 34, the buyer may no
longer reject where he intimates to the seller that he has accepted the goods,
where he performs after delivery an act inconsistent with the seller’s
ownership 99 or where he retains the goods beyond a reasonable time without
intimating to the seller that he will not accept them. The first of these cases is a
very clear instance of an express election and the second and third suggest an
implied or deemed election. In addition, the third case seems to be consistent
with execution benefit analysis: a buyer who retains even defective goods for
a lengthy period is likely to derive a benefit from the contract. Taking the
benefit theme further, it may be argued that the reason so many of the implied
terms are conditions is that the draftsmen contemplated a very short period
between delivery of the goods and acceptance. In such a short period, the
buyer would be unlikely to derive any benefit from the goods. But the modem
distinction between a repudiation and an actual breach is stated clearly by Upjohn L.J. in
Hongkong Fir, supra, note 25, 64. It is also acknowledged, though treated as immaterial on the
actual facts, in Shevill v. The Builders Licensing Board (1982) 56 A.L.J.R. 793, 795 (Austl.
H.C.)per Gibbs C.J. Lord Denning M.R. refers to the tendency to confuse the two concepts in
Cehave N.V. v. Bremer Handelsgesellschaft m.b.H. (The Hansa Nord), infra, note 144, 59.
No clear distinction is drawn between the two notions in Decro-Wall International S.A. v.
Practitioners in Marketing Ltd [1971] 2 All E.R. 216, [1971] 1 W.L.R. 361 (C.A.); Suisse
Atlantique Socijtj d’Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1967] 1
A.C. 361,421-2, [1966] 2 All E.R. 61 (H.L.)perLord Upjohn; Woodar Investment Develop-
ment Ltd v. Wimpey Construction U.K. Ltd [1980] 1 All E.R. 571, 589-90 (H.L.) per Lord
Scarman; or inFederal Commerce and Navigation Co. v. Molena Alpha Inc. [1979] A.C. 757,
778-9, [1979] 1 All E.R. 307 (H.L.) per Lord Wilberforce.
A recent dictum of Lord Diplock presents its own difficulties in relating repudiation to
actual breach. In his Lordship’s view, a repudiation can only entitle the innocent party to
terminate the contract if an actual breach of the term under threat would produce a substantial
deprivation of the benefit contracted for by the innocent party. See Afovos Shipping S.A. v.
Pagnan [1983] 1 All E.R. 449, 455 (H.L.).
91Sale of Goods Act, s. 34.
19See Hardy and Co. v. Hillerns and Fowler [1923] 2 K.B. 490, [1923] All E.R. 275
(C.A.);A.J. Frank & SonsLtdv. Northern Peat Co. [1963] 20.R. 415, (1963)39 D.L.R. (2d)
721 (C.A.); andE. & S. RubenLtdv. Faire Bros & Co. [194911 K.B. 254, [1949] 1 All E.R.
215, annotated by Gower, Sale of Goods – Right of Rejection (1949) 12 M.L.R. 368.
McGILL LAW JOURNAL
tendency, especially in Canada, is greatly to prolong this period. This pro-
longation occurs particularly in the case of seriously defective goods and it is
perhaps no accident that the principles of fundamental breach 110 and failure of
consideration 101 are invoked in support of this extention, for in cases of such
serious breach the buyer is unlikely to derive a net benefit from the contract. ,02
The receipt of a benefit is also implicit in the controversial provisions
dealing with specific goods whose apparent effect is to compel the buyer to
treat all breaches of conditions concerning the fitness and quality of goods as
breaches of warranty. 103 The reasoning behind this rule seems to be as follows.
At one time it was thought that a quasi-contractual action for money had and
received on a total failure of consideration could not be brought until the
plaintiff had rescinded the contract ab initio. ” Furthermore, a plaintiff who
101 See, e.g., Lightburn v. Belmont Sales Ltd (1969) 69 W.W.R. 734, (1969)6 D.L.R. (3d)
692 (B.C.S.C.); Murphy v. Penney Motors Ltd (1979) 23 Nfld & P.E.I.R. 152 (Nfld S.C.,
T.D.); Burroughs Business Machines Ltd v. Feed-Rite Mills (1962) Ltd (1973) 42 D.L.R. (3d)
303 (Man. C.A.); and Public Utilities Commission of City of Waterloo v. Burroughs Business
Machines Ltd (1974) 52 D.L.R. (3d) 481 (Ont. C.A.).
101 See, e.g., Rafuse Motors Ltd v. Mardo Construction Ltd (1963) 41 D.L.R. (2d) 340
(N.S.S.C.); Rowland v. Divall [1923] 2 K.B. 500, [1923] All E.R. Rep. 270 (C.A.) [hereinaf-
ter cited to K.B.]; and Buttenvorth v. Kingsway Motors [1954] 2 All E.R. 694, [1954] 1
W.L.R. 1286 (Liverpool Assizes).
101The benefit theme is also implicit in the duty imposed by the Sale of Goods Act on the
buyer not to take delivery of the goods, but to accept them. See s. 26.
103 This effect is achieved by s. 19, r. 1, which enacts the presumptive rule that the property in
specific goods passes at the time of the contract, in combination with subs. 12(3), which
reduces conditions to the remedial status of warranties in those cases where the property in
specific goods has passed to the buyer.
‘Cutter v. Powell, supra, note 41, illustrates the proposition that quasi-contractual
recovery will be denied where it is inconsistent with the terms of an open (i.e. unrescinded)
contract. Furthermore, cases such as Weston v. Downes (1778) 1 Dougl. 23, (1778) 99 E.R. 19
(K.B.) andTowersv. Barrett(1786) 1 T.R. 133, (1786) 99E.R. 1014(K.B.), showthat before
a quasi-contractual action for money had and received could be maintained, any contract
between the parties had to have been rescinded ab initio. Consequently, a defaulting party who
had conferred a benefit on the other would at this time have faced insurmountable obstacles in
recovering anything for his pains if it were held that he had not performed in full a dependent
covenant or that his breach had gone to the root of the contract.
The modem position is both hostile to the idea of rescission ab initio for breach and
receptive to the proposition that quasi-contractual recovery can lie even if the contract has not
been “wiped out” completely. In overruling Chandler v. Webster [1904] 1 K.B. 493 (C.A.),
the House of Lords decision in Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour
Ltd [1943] A.C. 32, [1942] 2 All E.R. 122 (H.L.) held that a total failure of consideration could
lie for the purpose of an action for money had and received even if an executory but
unperformed promise had not been expunged by a rescission ab initio. This created the
possibility that quasi-contractual recovery might be permitted even if inconsistent with an
“open”, i.e. unrescinded, contract. The Supreme Court decision in Deglman v. Guaranty Trust
Co. [1954] S.C.R. 725, [1954] 3 D.L.R. 785, held that a quantum meruit action could lie even
if inconsistent with an unenforceable contract; afortiori, it should lie where a contract has been
DISCHARGE FOR BREACH
had already derived a benefit from a contract was, by virtue of the benefit,
disabled from rescinding the contract because the parties could not be put
back in statu quo ante. 5 Consequently, a contract of sale of goods could not
be rescinded where the buyer had had even the abstract enjoyment of the
property in specific goods from the date of the contract.”6 This line of
reasoning was extended from buyers seeking recovery of a price paid to
buyers resisting any liability under the contract to pay the price. 7 Conse-
quently, buyers of specific goods were in effect denied any right to reject them
in the absence of an agreed condition subsequent permitting a return of the
goods.108 Such an agreed condition subsequent would be regarded as a special
agreement permitting rescission.
The significance of the buyer’s receipt of a benefit in the case of specific
goods was stressed by Williams J. in a dictum drawn from a charterparty case,
Behn v. Burness:1 9
[1] f a specific thing has been sold, with a warranty of its quality, under such circumstances
that the property passes by the sale, the vendee having been thus benefited by the partial
execution of the contract, and become the proprietor of the thing sold, cannot treat the
failure of the warranty as a condition broken. but must have recourse to an action for
damages in respect of the breach of warranty. But in cases where the thing sold is not
specific, and the property has not passed by the sale, the vendee may refuse to receive the
thing proffered him in performance of the contract, on the ground that it does not
correspond with the descriptive statement, or in other words, that the condition expressed
prospectively terminated. The attempt in Horsier v. Zorro [1975] Ch. 302, [1975] 1 All E.R.
54 to restate the old orthodoxy that a contract might in some circumstances be terminated ab
initio for breach was roundly suppressed by the House of Lords in Johnson v. Agnew [1980]
A.C. 367, [1979] 1 All E.R. 883 (H.L.). Consequently, a defaulting plaintiff should not be
embarrassed nowadays by the existence of an inconsistent contract, that has been prospectively
terminated by the innocent party, in making a quasi-contractual claim.
“‘See, e.g., Hunt v. Silk (1804) 5 East 449, (1804) 102 E.R. 1142 (K.B.). In such cases, the
rescission process was not flexible enough to allow a minor monetary adjustment in order to
effect a true restitutio in integrum. Contrast the American position as set forth in Williston,
Repudiation of Contracts (1901) 14 Harv. L. Rev. 317 (Part I) and 421 (Part II); and American
Law Institute, Restatement of the Law of Contracts (1939) 349, as reformulated in broader
discretionary terms in Restatement of the Law Second [:] Contracts (1982) 384(2)(b).
‘6See, e.g., Street v. Blay (1831) 2B. &Ad. 456, (1831) 109 E.R. 1212 (K.B.) [hereinafter
cited to B. & Ad.]. Street v. Blay can be contrasted usefully with Rowland v. Divall, supra,
note 101, where it was held that the enjoyment of the possession in goods did not prevent a total
failure of consideration from arising when this possession was unlawful, the seller having no
right at all to sell the goods. More than anything else, the comparison of these two cases shows
the vital significance of the transfer of the property in goods in existing sales law.
107 Street v. Blay, ibid, 462.
,01 This entitlement was preserved by the concluding words of the Sale of Goods Act, subs.
12(3). See, e.g., O’Flaherty v. McKinlay [1953] 2 D.L.R. 514 (Nfld S.C.); and Rowland v.
Divall, supra, note 101, per Atkin L.J. Head v. Tattersall (1871) L.R. 7 Ex. 7 may be regarded
as a pre-statutory example of such an agreed condition.
19Supra, note 81.
REVUE DE DROIT DE McGILL
in the contract has not been performed. Still, if he receives the thing sold, and has the
enjoyment of it, he cannot afterwards treat the descriptive statement as a condition, but
only as an agreement, fora breach of which he may bring an action to recover damages.110
It can therefore be seen that the execution benefit theme is retained by the Sale
of Goods Act, but in such a way as not to conflict with the doctrine of
conditions and warranties by which terms are classified on a once-and-for-all,
apriori basis. Hence the proposition established by Graves v. Legg,I’ that the
difference for purposes of discharge between executory and executed con-
tracts does not affect the initial characterization of a term as a condition
precedent, is confirmed by the Act and supported further by the celebrated
judgment of Fletcher Moulton L.J. in Wallis, Son & Wells v. Pratt &
Haynes,”‘ in which he states that the condition of correspondence to contrac-
tual description is no less a condition because, the goods having been
accepted, it has to be treated as though it were a warranty.
The corollary to the proposition, once a condition always a condition, is
of course the proposition, once a warranty always a warranty. This would
follow from the virtual disappearance of failure of consideration from sales
law.” 3 The Sale of Goods Act does not contain the obverse of an acceptance
rule, namely that a warranty may in certain circumstances be treated as a
condition.” 4 Thus, the Act does not state that a buyer may decline tender, as
opposed to rejecting goods already delivered to him, in the event of a breach
of warranty. This is not surprising if only because the implied terms, almost
all of which are conditions, cover a wide range of attributes in the goods and a
breach resulting in defective goods evident at tender would necessarily be a
breach of condition.” 5 Nor does theAct provide that a breach of warranty may
“Ibid., 755-6.
“‘Supra, note 51.
12 1910] 2 K.B. 1003, (1910) 79 L.J.R. (N.S.) 1013 (C.A.). The dissenting judgment of
Fletcher Moulton L.J. in this case was adopted by the House of Lords on appeal as a model
statement of the law at [19111 A.C. 394, [1911-13] All E.R. Rep. 989.
13″The principle re-emerges strikirigly in the judgment of Bankes L.J. in Rowland v. Divall,
supra, note 101, tojustify the rescission of the contract (at the time, a necessary prerequisite to
the action for money had and received) where the buyerhad otherwise lost his entitlement under
the Sale of Goods Act itself to reject the goods and terminate the contract.
“‘Hence there is no provision in the Act corresponding to the second statement quoted from
the judgment of Bramwell L.J. in Honck v. Muller, supra, note 57, that a party may not
demand the acceptance of a tender amounting to less than the “entirety” of his own obligations.
“‘It may be argued that the reason so many of the implied terms are conditions is that the
draftsman contemplated a very short time between delivery of the goods and acceptance. The
modem tendency to extend this period, particularly in cases of breach where the consequences
are serious, may be regarded, when coupled with the above observation, as reproducing in a
concealed fashion the distinction between executory and executed contracts: a buyer who has
had quite a lengthy possession of seriously defective goods could be denied as having received
a benefit from them. Lord Diplock has remarked that the enactement of the Sale of Goods Act
DISCHARGE FOR BREACH
be treated as a breach of condition in a particular case where the effects of its
breach are grave. Once again, the breadth of the implied terms and the fact
that they are principally conditions obviates any need on the buyer’s part to
invoke the failure of consideration principle.
Although the serious breach of warranty has not proved troublesome in
sale of goods cases, the trivial breach of condition certainly has, and nowhere
more so than under s. 14, which provides for an implied condition that goods
shall correspond with their contractual description. The judicial experience
with this provision poses in acute fashion the question whether it was wise to
subject so much breach of contract law to the principle of apriori construction
of the contract. This is not the place to undertake an extended analysis of the
scope of the description condition and the modem tendency to confine it. “1 It
suffices to say that the courts, in line with the modem tendency to play down
the distinction between specific and unascertained goods,” 7 have assimilated
the two classes for the purpose of description. ” Furthermore, while descrip-
tion at one time appeared to encompass all attributes of unascertained
goods,” 9 the general rule would now appear to be that the condition of
correspondence with description is broken only if the departure of such goods
from the contractual description goes to their very identity. 120 Consequently, it
would be most unlikely today that cans of peaches packed in cases of
twenty-four instead of thirty “I or staves departing from the contractual
measure but still remaining perfectly fit for the construction of barrels,’
stultified sales law. See supra, text accompanying notes I to 3. One might also observe that the
Act has interposed a barrier between us and an understanding of the themes and impulses behind
the development of sales rules. For many, the Sale of Goods Act has been responsible for
inculcating a mechanical understanding of sale of goods law.
t16 See Bridge & Buckley, supra, note 97, 151-64; Coote, Correspondence with Description
in the Law of Sale of Goods (1976) 50 A.L.J. 17; and Stoljar, Conditions, Warranties and
Descriptions of Quality in Sale of Goods (1952) 15 M.L.R. 425 (Part I) and (1953) 16 M.L.R.
174 (Part II).
“7This approach is apparent in cases dealing with the buyer’s right of rejection. See, e.g.,
Diamond v. B.C. ThoroughbredBreeders’ Society (1965) 52 W.W.R. 385, (1965) 52 D.L.R.
(2d) 146 (B.C.S.C.); and Wojakowski v. Pembina Dodge Chrysler Ltd [1976] 5 W.W.R. 97
(Man. S.C.).
“‘See, e.g., Ashington Piggeries Ltd v. ChristopherHill Ltd [1972] A.C. 441, [1971] 1 All
E.R. 847 (H.L.); and Reardon Smith Line Ltd v. Hansen-Tangen [ 1976] 3 All E.R. 570, [1976]
1 W.L.R. 989 (H.L.).
“1 See, e.g., Taylorv. CombinedBuyers Ltd [1924] N.Z.L.R. 627; and Burlington Canning
Co. v. Campbell (1908) 7 West. L.R. 544 (Man. S.C.).
‘”Arcos, Ltd v. E.A. Ronaasen & Son [1933] A.C. 470, [1933] All E.R. 646 (H.L.).
‘2’See, e.g., Reardon Smith Line Ltd, supra, note 118. The approach in this case would
appear to be somewhat stricter than that in Ashington Piggeries Ltd, supra, note 118, though
Lord Wilberforce introduced the possibility of the old broad view of description being applied
to future unascertained goods, i.e., commodities.
21In re an Arbitration between Moore & Co. and Landauer & Co. [1921] 2 K.B. 519,
[1921] All E.R. 466 (C.A.).
McGILL LAW JOURNAL
would entail a breach of s. 14. It is worth underlining precisely what has
happened. Denied by the Act the opportunity of treating some breaches of
s. 14 as breaches of warranty giving rise at most to nominal damages, the
courts have done the next best and, in practical terms, functionally identical
thing: they have, by narrowing description, denied that trivial breaches of s.
14 are breaches at all. 123
IV. Developments Outside the Sale of Goods Act and their Impact
upon Sale of Goods Cases
Though it was noted above that the breach of warranty having serious
consequences has not posed a problem in sale of goods cases, it has to be
remembered that the Sale of Goods Act studiously refrains from subjecting
payment and delivery obligations to condition-warranty analysis, except to
the extent that it provides that payment obligations are primafacie not of the
essence of the contract. 24 In so far as this suggests that not all obligations in a
sale of goods contract can be subjected to condition-warranty analysis. this
absence of a definitional mould prompts a discussion of the developments set
in train by the English Court of Appeal in Hongkong Fir Shipping v. Kawasa-
ki Kisen Kaisha.26
Though it was never easy to see how the doctrine of conditions and
warranties applied to certain classes of cases, such as building contracts and
other lump sum agreements,1 7 the doctrine certainly straddled a broad area of
‘This approach is evident particularly in Lord Wilberforce’s interpretation of the disputed
words in Reardon Smith Line Ltd, supra, note 118.
114 Sale of Goods Act, s. 11.
15 A suggestion rendered plausible by the decision in Cehave N.V. v. Bremer Handels-
gesellschaft m.b.H., infra, note 144, that subs. 12(2) does not impose a strict condition-
warranty straitjacket on all the terms, express and implied, in a sale of goods contract.
‘Supra, note 25.
127 See, e.g.,H. Dakin & Co. v. Lee [1916] 1 K.B. 566 (Div. Ct and C.A.); Hoenig v. Isaacs
[1952] 2 All E.R. 176 (C.A.); Bolton v. Mahadeva [1972] 1 W.L.R. 1009, [1972] 2 All E.R.
1322 (C.A.); and MarklandAssociates Ltd v. Lohnes (1973) 33 D.L.R. (3d) 493 (N.S.S.C.).
Cf. Fairbanks Soap Co. v. Sheppard [1953] 1 S.C.R. 314, [1953] 2 D.L.R. 193. These cases
of course amount to an acceptance of the failure of consideration principle as formulated by
Boone v. Eyre, supra, note 27. They also reject the proposition that the promisor under a lump
sum entire contract must perform in full before becoming entitled to any payment at all. Cutter
v. Powell, supra, note 41, had refused a quasi-contractual quantum meruit action to a party,
who had not performed in full, as an alternative to an action on the contract. Sumpter v. Hedges
[1898] 1 Q.B. 673 revealed the technical limitations in the idea that a retention of the fruits of
performance could raise a genuine implied contract (and thus a quantum meruit claim) after the
termination of the express contract. H. Dakin & Co. v. Lee, cited immediately above,
introduced the idea that, subject to a counterclaim for damages, a substantially performing
plaintiff could recover the contract price on the express contract itself. The idea was refined in
DISCHARGE FOR BREACH
the law of contract, including charterparty contracts, at the time when the Sale
of Goods Act was passed. Bentsen v. Taylor, Sons & Co.,’ perhaps the
common law locus classicus of the doctrine, was a charterparty case and when
the doctrine came under fire in Hongkong Fir, a time charterparty case, notice
was effectively served that the application of the doctrine of conditions and
warranties to sale of goods contracts would eventually come under review.
The facts of Hongkong Fir are too well known to rehearse at length here.
The case concerned the breach of the seaworthiness term in a two-year
charterparty in circumstances where the charterer had already lost five weeks
and was set to lose a further fifteen when it repudiated the contract. The Court
of Appeal held that the charterer’s repudiation at this point was unlawful.
According to Diplock L.J., the question when a party is relieved from the duty
to perform his contractual undertakings depends upon whether an event has
occurred which has deprived him of substantially the whole of the benefit
which the contract gave him as consideration for performing those undertak-
ings; in assessing the existence of such an event, it did not matter that it was
produced by a breach of contract or in circumstances whereby the contract
was frustrated. 12 9 Moreover, since the injured party obtained his release from
the event irrespective of its pedigree (breach or frustration), it followed that
the doctrine of conditions and warranties was inadequate as a means of
explaining when a breach of contract produced this event.’30 Quite why this
conclusion was dictated by the previous proposition, his Lordship did not say,
but it is a matter of reasonable inference that the doctrine of conditions and
warranties was judged insufficient because it paid no attention to the actual
circumstances surrounding a particular breach. Thus, according to Diplock
L.J., many complex contractual undertakings, such as the shipowner’s duty
to tender a seaworthy ship, which can be breached in circumstances as diverse
as the presence of a rusty nail in the deck and the broken-down state of the
ship’s engines, could not be fitted into the condition-warranty classification
later cases. It is evident that this idea of substantial performance is closely affiliated to the
Hongkong Fir principle; indeed, the judgment of Denning L.J. in Hoenig v. Isaacs, cited
immediately above, at 180-1 anticipates Hongkong Fir. See also the judgment of Somerwell
L.J. in Hoenig v. Isaacs, at 177 et seq., where he refers to the use of waiver to blunt the rule that
there must be performance in full before the plaintiff can recover the price under a lump sum
entire contract.
It can therefore be seen that the rejection of Sumpter v. Hedges, implicit in the evolution of
the substantial performance rule, was the rejection of a case which ignored execution benefit
and inequality of damages arguments in denying relief to the defaulting builder. In light of the
cases discussed in this paper, Sumpter v. Hedges was tantamount to persisting in applying the
dependent promises principle notwithstanding the partial execution of the contract.
“‘Supra, note 67.
119 See Hongkong Fir, supra, note 25, 68-9. But see Peter Lind and Co. v. Constable Hart
and Co. [1979] 2 Lloyd’s Rep. 248, 253 (Q.B.) per Mustill J.
‘See supra, text accompanying note 25.
REVUE DE DROIT DE McGILL
’31 Hongkong Fir, supra, note 25, 69-71.
132 Ibid., 72.
“‘Just as one cannot accept the proposition mentioned supra, note 82, that Hongkong Fir
was implicit in Bentson v. Taylor, Sons & Co., supra, note 67, so must one reject the view that
the Hongkong Fir decision introduced a novel principle. For examples of this latter view, see
Weir, Contract – The Buyer’s Right to Reject Defective Goods [1976] Camb. L.J. 33; and
Hutchison & Wakefield, Contracts -Innominate Terms: Contractual Encounters of the Third
Kind (1982) 60 Can. Bar Rev. 335.
134Ibid.
‘ Besides being echoed in the judgment of Judson J. in Field v. Zien [1963] S.C.R. 632,
635, (1963) 42 D.L.R. (2d) 708, this approach has recently been approved in Table Stake
Construction Ltd v. Jones (1977) 18 O.R. (2d) 203 (H.C.). It was also applied, heterodoxically
and in conflict with the language of the Sale of GoodsAct, in PolarRefrigeration Service Ltd v.
Moldenhauer (1967) 61 D.L.R. (2d) 462 (Sask. Q.B.).
“Maredelanto CompaniaNaviera S.A. v. Bergbau-Handel G.m.b.H. (The MihalisAnge-
los) [1971] 1 Q.B. 164, [1970] 3 All E.R. 125 (C.A.).
“7T. Scrutton, Scrutton on Charterparties andBills of Lading, 10th ed. (1921) (an edition
for which the original author retained responsibility).
3’See, e.g., Finnish Government v. H. Ford & Co. (1921) 6 Lloyd’s List L. Rep. 188
’39Supra, note 136, 205.
DISCHARGE FOR BREACH
addition, Edmund Davies L.J. applied a passage in the judgment of Williams
J. in Behn v. Burness,’40 approved also by Megaw L.J. ‘141 to the effect that the
time of a ship’s arrival was of prime importance to a charterer “considering
winds, markets and dependent contracts”.’4 2
Helpful as The Mihalis Angelos is on the status of the expected ready to
load clause, it affords little assistance in the interpretation of other express
contractual terms beyond informing us that there are limits to the acceptability
of the Hongkong Fir approach. Most of the arguments cited by the Court for
its reaction against Hongkong Fir are cogent, except for the assertion that
defaulting shipowners cannot complain if they have to suffer termination of
the contract, which could be applied to any breach of any contractual term.
The Mihalis Angelos stands strongly in support of the a priori constructionist
approach and its conflict with Hongkong Fir reveals the eternal clash between
certainty and flexibility. But how the line is to be drawn between these
competing values is not shown clearly by The MihalisAngelos. Nevertheless,
and despite the fact that the point was not relied upon in the disposition of the
case, it is surely significant that the contract was breached at an executory
stage in its life: the charterer refused tender of the ship before the commence-
ment of the voyage. This echo of the old law appears in a more explicit way in
Hongkong Fir itself where Sellers L.J. stated that the charterer, if it had
learned of the incompetence of the engine room staff before tender of the ship,
could have refused to take her in that state.’4 3 This dictum clearly raises the
possibility of a differential approach to the innocent party’s remedy according
to whether the breach occurs at the executory stage or in the course of
performance of a contract, and encourages a search for this theme in the cases
following The Mihalis Angelos.
Cehave N. V . v. Bremer Handelsgesellschaft “* was the case where the
Hongkong Fir revision of the doctrine of terms was imported into the law
governing sale of goods contracts. It concerned the sale by Bremer to Cehave
on c.i.f. instalment terms of 12,000 tons of citrus pulp pellets for compound-
ing into cattle food. The contract incorporated Form 200 of the Cattle Food
I’Supra, note 81.
“‘Supra, note 136, 207. The approval of Edmund Davies L.J. can be found at 199.
“2Behn v. Burness, supra, note 81, 759.
“‘ Supra, note 25, 56. An interesting exercise is posed by the hypothesis of Hongkong Fir as
a sale of goods case. Suppose that the fault had rested exclusively in the condition of the engines
and that there had been a breach of the fitness for purpose condition. The likely result would be
that the “buyer” would have accepted the goods so as to lose the right of rejection and thus the
right to terminate the contract. It is precisely because the acceptance rules in the Sale of Goods
Act amount to an extension of common law rules of waiver and election, and because there are
no analogous statutory rules in charterparty cases, that a result similar to the one aimed at in the
sale of goods hypothesis has to be reached with the failure of consideration principle in
Hongkong Fir.
1[1976] Q.B. 44, [1975] 3 All E.R. 739 (C.A.) [hereinafter Cehave; cited to Q.B.].
McGILL LAW JOURNAL
Trade Association, clause 7 of which provided that shipment was to be made
in good condition. A dispute arose over one shipment of 3,400 tons, a
substantial proportion of which had suffered heating damage. The buyer had
already paid the price against shipping documents and, claiming the right to
reject the shipment, sought to recover this sum. The contract price of the
3,400 tons was 100,000 but the consignment would, if sound, have fetched
only 86,000 on the falling Rotterdam market prevailing at the date the pellets
were unloaded. Had the buyer elected to keep the goods and sue for damages,
it seems that it would have received an allowance of 20,000 off the contract
price. 45 The rejected goods, sold by order of a Rotterdam court, were
purchased by the original buyer, Cehave, through a strange backdoor proce-
dure at a third of the contract price.’ 6 Subsequently, Cehave used the entire
shipment in compounding cattle food, though in more conservative propor-
tions than would have been the case with perfectly sound goods.
Cehave raises two principal issues: first, whether the condition of mer-
chantable quality 47 had in the circumstances been breached; and secondly,
whether the Sale of Goods Act permitted the express term that the goods
should be shipped in good condition to be treated in the same way as the
seaworthiness term in Hongkong Fir. Little will be said here about the first
issue. Cehave did nothing to overturn the orthodox view that the statutory
conditions in the Sale of Goods Act cannot be subjected to the Hongkong Fir
analysis:4 8 the practical consequences of a particular breach are irrelevant in
settling the status of the implied term, which is either breached so as to confer
on the buyer a right of rejection, or not breached at all, in which latter case the
buyer is entitled to nothing by way of damages.’ 49 The English Court of
Appeal, no doubt influenced by its desire that the buyer on these facts should
1’1bid., 68, where Roskill L.J. points out that the findings of the Board of Appeal of the
Grain and Feed Trade Association Ltd would lead to a damages award in the region of this
figure.
‘6In what Lord Denning, ibid., 55-6 describes as “an astonishing sequence of events”, a
Rotterdam court appointed agents to conduct a sale of the goods in dispute. The agents
approached only one person, a Rotterdam importer of feeding products, who bought the whole
shipment for 33,720 and sold it on the same terms and at the same price to the original buyer,
Cehave.
14TSale of Goods Act, s. 15.2.
141 But see the curious decision in Polar Refrigeration Service Ltd v. Moldenhauer, supra,
“gThis approach is surely responsible for the difficulties experienced in recent years in
defining the merchantable quality standard, and for the relaxation introduced into that standard.
See Atiyah, From Principles to Pragmatism: Changes in the Function of the Judicial Process
and the Law (1980) 65 Iowa L. Rev. 1249, 1258, where the author sees the modem attitude to
the merchantable quality term, exemplified by the statutory definition of merchantable quality
in the Sale of GoodsAct 1979, 1979, c. 54 (U.K.), subs. 14(6), as part of the metamorphosis of
legal rules from universal principle to fact-based pragmatism.
DISCHARGE FOR BREACH
not get away with rejection, held that the merchantable quality term had not
been broken. But for the express term in the contract, the buyer would
therefore have recovered nothing despite the severe heating damage suffered
by the citrus pellets. The decision is plainly undesirable in respect of this
holding and a most unsatisfactory guide for the resolution of cases where no
express terms dealing with the quality of goods are to be found in a contract of
sale of goods.’50
The Court’s decision on merchantable quality did, however, prepare the
way for the flexible disposition of the case under the express term. The Court
was unanimous in holding that this shipment term was not a condition: there
was no case law holding that this term was a condition “I and the Court was
reluctant to add to the stock of known conditions. 52 There was also unanimity
in the conclusion that this term was not a warranty in the sense used by the
Sale of Goods Act, namely that the remedy for its breach could never be
anything other than damages. Rather, the buyer’s remedy turned on the actual
consequence of the seller’s breach. If this breach went to the root of the
contract or deprived the buyer of the benefit it bargained for, the buyer would
then be entitled to reject the goods and terminate the contract. According to
Lord Denning M.R., this result was dictated because the shipment term
belonged to that majority of contractual terms which could neither be classi-
fied as conditions nor as warranties, but constituted a tertium quid, intermedi-
ate stipulations.’53 Ormrod L.J., however, seems to have regarded parties as
entitled to terminate a contract if the term in question were either a condition
or if its breach produced a failure of the consideration bargained for by the
buyer,’54 a view apparently shared by Roskill L.J. 55 The practical point in this
difference of opinion is that under Lord Justice Ormrod’s scheme, the breach
of a term commonly regarded as a warranty, as opposed to a condition, could
lead to termination in the absence of a legislative provision or contractual
intention that only damages would lie in the event of a breach.
On the facts of the case, the Court was unanimous in holding that the
seller’s breach did not go to the root of the contract or result in a failure of
1 On one reading of Lord Denning’s judgment, however, the presence of the express term
“shipped in good condition” was relevant in defining the standard of merchantable quality in
that it indicated that a money allowance was the appropriate remedy for goods that were not
seriously defective. This approach would, of course, open the door to a contrary holding on
merchantable quality on similar facts where there was no such express term. See, Cehave,
supra, note 144, 63.
” See Cehave, ibid., 61 (per Lord Denning M.R.), 70 (per Roskill L.J.), and 80 (per
” Ibid., 70-1, per Roskill L.J.
“‘3Ibid., 61.
— Ibid., 84.
“‘Ibid., 73.
REVUE DE DROIT DE McGILL
consideration. All the goods could be used for their intended purpose so that
the appropriate remedy was a price allowance. Moreover, the tribunal of fact
had made no finding that there had been a failure of consideration.
There remained, however, the seller’s argument that the Sale of Goods
Act required all terms of a contract of sale to be classified as conditions or
warranties and left no room for rights of termination depending on failure of
consideration. Support for the seller’s argument was to be found in the United
Kingdom equivalents of subss 12(2) and 30(2).156 The former provision does
two things: it states that whether a term is a condition or warranty turns on the
construction of the contract, and that a breach of condition may give rise to a
right to terminate the contract but a breach of warranty does not. 57 According
to the seller, this provision put in place a comprehensive scheme of remedies
leaving no room for a tertium quid in sale of goods law. The latter provision,
which deals with certain instalment contracts,” 8 provides that a breach by
buyer or seller as to one or more instalments gives rise to a right to terminate
the contract if the breach is repudiatory of the whole contract, which turns,
inter alia, on “the circumstances of the case”. 59 Because subs. 30(2) is the
only section in the Act, so the seller’s argument would run, which takes the
consequences of a breach into consideration in fixing the remedy,’1
the
consequences of breach must be irrelevant where a buyer’s or seller’s right to
terminate a sale of goods contract arises other than under subs. 30(2). 61
‘1’Sale of Goods Act, 1893, 56 & 57 Vict., c. 71 (U.K.), para. I l(1)(b) and subs. 31(2).
Now see subss 11(3) and 31(2) of the Sale of Goods Act 1979, 1979, c.54 (U.K.).
“‘Sale of Goods Act, subs. 12(2):
Whether a stipulation in a contract of sale is a condition the breach of which may give rise
to a right to treat the contract as repudiated or a warranty the breach of which may give rise
to a claim for damages but not to a right to reject the goods and treat the contract as
repudiated depends in each case on the construction of the contract, and a stipulation may
be a condition, though called a warranty in the contract.
’58See supra, note 97; and Ontario Law Reform Commission, supra, note 15, 541-5.
“Sale of Goods Act, subs. 30(2):
Where there is a contract for the sale of goods to be delivered by stated instalments, that
are to be separately paid for and the seller makes defective deliveries in respect of one or
more instalments or the buyer neglects or refuses to take delivery of or pay for one or more
instalments, it is a question in each case depending on the terms of the contract and the
circumstances of the case whether the breach of contract is a repudiation of the whole
contract or whether it is a severable breach giving rise to a claim for compensation but not
to a right to treat the whole contract as repudiated.
On the approach taken by the courts before the enactment of the United Kingdom statute in
1893, see, e.g., Mersey Steel and Iron Co. v. Naylor, Benzon & Co. (1884) 9 App. Cas. 434,
[1881-85] All E.R. Rep. 365 (H.L.); and Freeth v. Burr (1874) L.R. 9 C.P. 208, [1874-80] All
E.R. Rep. 751. The principal modem case is Maple Flock Co. v. UniversalFurnitureProducts
(Wembley) Co. [1934] 1 K.B. 148, [1933] All E.R. Rep. 15 (C.A.).
lwSee supra, note 97.
161 The argument does not emerge with the greatest clarity from the report of the arguments of
counsel for the buyer in Cehave, supra, note 144, 51.
DISCHARGE FOR BREACH
The first of these provisions affords the main support for the seller’s
argument, since the latter section would be significant only if the scheme of
remedies in the Sale of Goods Act were intended to be comprehensive.
Subsection 12(2) itself appears to be more formidable if one accepts Lord
Justice Ormrod’s, rather than Lord Denning’s, scheme of contractual terms.
It is not easy to see how a warranty can ever give rise to a right to terminate a
contract of sale when subs. 12(2) states that “the breach of [a warranty] may
give rise to a claim for damages but not to a right to reject the goods and treat
the contract as repudiated”. It is much easier to believe that the section applies
only to conditions and warranties and not to any invented tertium quid,
intermediate stipulations.
Consequently, Lord Denning did not feel troubled by the seller’s argu-
ments on the construction of theAct.’62 Roskill and Ormrod L.JJ., on the other
hand, were compelled to lay emphasis on the body of contract law, drawn
from the executed consideration cases, which stressed the ex post facto
consequences of breach. 63 It was unthinkable that a statute like the Sale of
Goods Act, which was intended to codify rather than reform the antecedent
case law governing sale of goods contracts, should have produced a radical
change in sale of goods contract law, which after all was but a branch of the
general law of contract. 64 Although this may indeed be a sound way of
disposing of sale of goods problems, particularly the problem of breach of a
warranty whose effects can range from the trivial to the severe, it fails to do
justice to the impact of cases like Bettini v. Gye 65 and Bentsen v. Taylor, Sons
& Co. ” on the law before the Act. Cehave does not repair a deficiency in the
Act so much as a deficiency in the law codified by the Act, and its construction
of the Act can only be described as heroic.
One does not find in the reasoning of the Court in Cehave any acknowl-
edgement of its decision being influenced by the fact that the contract had
been executed wholly or in part. Nevertheless, the contract had been ex-
ecuted, in the sense that the shipping documents had already been transferred
to the buyer and the goods carried onward to their destination. It had also been
executed in the indirect but very real sense that the goods had been purchased
again after the judicial sale and consumed. Given the circumstances of the
rejection of the goods, the seller would have been prejudiced severely if the
rejection had been held to be lawful. 67 To that extent, the old inequality of
1621bid., 60.
113Ibid., 71 (per Roskill L.J.), and 82-3 (per Ormrod L.J.).
11AIbid., 60 (per Lord Denning M.R.), 72-3 (per Roskill L.J.), and 82-3 (per Ormrod L.J.).
10Supra, note 66.
‘ Supra, note 67.
167 He would have recovered 33,720, less the expenses of the judicial sale, for goods all of
which could be used (and were used) in compounding cattle food, and which were originally
priced at 100,000.
McGILL LAW JOURNAL
damages argument comes to mind and the position of the seller can be
compared with that of the tenor in Bettini v. Gye who had refrained for three
months from singing in the London area, as required by the contract, before
turning up late for rehearsals. Unless one reads Cehave as giving a large
measure of dispensation to sellers supplying faulty goods, one should not
assume that it would entitle a seller to compel a buyer to accept tender of
manifestly defective goods when in no respect has the contract been
executed.’ll This would explain the strict attitude of the law towards the tender
of defective documents, which the Court in Cehave had difficulty in reconcil-
ing with its actual decision that the buyer had no right to reject the defective
goods. ,69
The question of remedies for breach of the contract of sale was explored
further in the important case of Bunge Corp. v. Tradax S.A.’70 The seller was
required to ship 5,000 tons of soya meal by 30 June 1975 at a Gulf of Mexico
port of its own choice under an f.o.b. contract for the sale of 15,000 tons of
soya meal containing the usual term that each shipment was to be regarded as
a separate contract. It was the buyer’s duty to nominate an effective ship and
to give the seller fifteen days’ notice of readiness to load. The buyer was itself
the seller of the same quantity of goods in a string and, because the ultimate
purchaser was late in starting the process of giving notice, the buyer was four
days late in notifying the seller’s agent of readiness to load. The seller in
consequence repudiated this separate 5,000 ton contract and sued for damages
for the loss it sustained by reselling the goods on a falling market.”‘ Its
entitlement to recover such damages turned on whether its repudiation was
lawful, which depended upon the status of the term in question, namely the
obligation of the buyer to give fifteen days’ notice of readiness to load. The
buyer did not argue that the term was a warranty, in the sense that its breach
could lead only to damages, so the choice came down to condition or
intermediate stipulation. As for intermediate stipulation, the seller did not
161 See the words of Bramwell L.J. in Honck v. Muller, supra, note 57, 99 and of Sellers L.J.
in Hongkong Fir, supra, note 25, 56 to the effect that the charterer could have declined tender
of the ship if it had then been apprised of the incompetence of the engine room staff. If a bill of
lading, claused to show that the goods had not been shipped in good condition, had been
tendered to the buyer in Cehave, the buyer would have been perfectly free to reject the
appropriation. Consequently, there would never have been a tender of the goods themselves.
‘9See the judgment of Roskill L.J., supra, note 144, 70. The learned judge justified this
discrepancy on the ground that “the seller’s obligation regarding documentation had long been
made sacrosanct by the highest authority”. Thus does authority supplant reason.
70 Supra, note 7. See Reynolds, Discharge of Contract by Breach (1981) 97 L.Q. Rev. 541,
“I On the facts presented in Bunge, it cannot be understood why the seller should have been
so punctilious about its rejection rights on a falling market. The facts are outlined in the
judgment of Megaw L.J. in the Court of Appeal. See supra, note 7, 525-8.
DISCHARGE FOR BREACH
press the argument that in the circumstances the breach went to the root of the
contract or deprived the seller of the consideration for which it bargained.
Consequently, the seller’s repudiation was lawful, if the term was a condi-
tion, and unlawful, if the term was an intermediate stipulation.
A special case was stated to Parker J., who held, following Hongkong
Fir and Cehave, that the term was an intermediate stipulation. The Court of
Appeal unanimously reversed him, holding that the term was a condition, and
the House of Lords confirmed the decision of the Court of Appeal.” Briefly,
Bunge is another step in the process of accommodating the failure of consid-
eration principle by charting a route between conditions and intermediate
stipulations. The first point to note is that both the Court of Appeal and House
of Lords, though holding the term in question to be a condition, gave their
approval to the doctrine of intermediate stipulations. 73 It is therefore proposed
to analyze the decision along the following lines: first, to consider why the
two Courts concluded that the buyer’s duty to give notice of readiness to load
was a condition and whether they were right in so deciding; and secondly, to
assess the decision in terms of its success in drawing or predicting a consistent
line between conditions and intermediate stipulations. One of the criticisms
levelled against the doctrine of intermediate stipulations, that it promotes
uncertainty, 74 can be met to a considerable degree if this dividing line is a
predictable one and if respect continues to be paid to party autonomy in
defining the status of a contractual term.
The parties in this case failed to express their intention regarding the
status of the notice of readiness to load term so it fell to the courts to remedy
the deficiency. It can be said with certainty that in concluding that the term in
question was a condition, neither the Court of Appeal nor the House of Lords
saw its role in terms of a discovery of the real but inarticulated intention of
these particular parties. How could such a search be consistent with the
arguments raised concerning the authority of decided cases ‘I and the princi-
ples expressed in support of the policy behind treating the term in question as a
condition?’76 It has been seen that the introduction in the nineteenth century of
112A very similar term was held to be a condition by Mocatta J. in Bremer Handels-
gesellschaft v. J.H. Rayner & Co. [1978] 2 Lloyd’s Rep. 73, 89 (Q.B.), rev’d on different
grounds in [1979] 2 Lloyd’s Rep. 216 (C.A.).
‘Supra, note 7, 531 and 534 (per Megaw L.J.), and 539 (per Browne L.J.) in the Court of
Appeal. In the House of Lords, see 541-2 (per Lord Wilberforce), 542-3 (per Lord Scarman)
and 550 (per Lord Roskill). In most cases, this recognition of Hongkong Fir takes the form of
clear implication.
’74See, e.g., Weir, supra, note 133.
1 Such arguments were raised throughout the various judgments in the Court of Appeal and
in the House of Lords.
the Court of Appeal.
176 Such principles were also expounded throughout the judgments in the House of Lords and
REVUE DE DROIT DE McGILL
Two principal justifications were given by the Courts in Bunge in
concluding that the buyer’s duty to give notice of readiness to load was a
condition: first of all, there was a series of related policy arguments pointing
rnSupra, note 67.
17 ,[i]t was no part of the Judge’s duty to leave to the jury any question as to the construction
of the contract, or the materiality of any of its statements. It was his function to construe the
contract with the aid of the surrounding circumstances found by the jury, and to decide for
himself whether the statement that the ship was in the port, supposing it to be untrue, was an
essential part of the contract, or a mere representation …” Behn v. Burness, supra, note 81,
756-7, per Williams J.
179(1854) 9 Ex. 341, (1854) 156 E.R. 145. In view of developments like Hongkong Fir,
supra, note 25, concentrating on events occurring at the time of a contractual breakdown, one
wonders how long the principle will hold that the application of remoteness rules in contract
cases depends upon what was within the reasonable contemplation of the parties at the date of
the contract, rather than at the date of breach.
180Supra, note 7, 532.
181 Ibid., 553.
‘-Ibid., 532.
1″Frustration of contract is another area which in relatively recent years has witnessed a
movement in the law away from the construction of the contract and towards an assessment of
the actual supervening event on the foundation of the adventure. Lord Radcliffe is perhaps the
leading exponent of the latter approach, and it is probably no accident that he had to address
himself to the respective roles ofji~dge and arbitrator in ruling on questions of law and fact in his
speech in Davis Contractors Ltd v. Fareham Urban District Council [1956] A.C. 696, 730,
(1956) 2 All E.R. 145 (H.L.).
DISCHARGE FOR BREACH
to the wisdom of this conclusion; and secondly, there was the established
status as a condition of the seller’s duty of timely shipment in commercial
contracts, a duty dependent upon the prior performance of the buyer’s duty to
give notice of readiness.
The primary policy argument in favour of treating the buyer’s obligation
as a condition was certainty in commercial transactions. This value was
expressed best by Megaw L.J.:
The parties, where time is of the essence, will at least know where they stand when the
contractually agreed time has passed and the contract has been broken. They will not be
forced to make critical decisions by trying to anticipate how serious, in the view of
arbitrators or courts, in later years, the consequences of the breach will retrospectively be
seen to have been, in the light, it may be, of hindsight.”‘
Treating the term in question as a condition spares the aggrieved party the
following dilemma: if he repudiates the contract too soon, before the guilty
party’s breach goes to the root of the contract, he will be held to have
unlawfully repudiated the contract; if he acts cautiously and bides his time
before repudiating, his delay could be regarded as tantamount to accepting the
other party’s breach, in which case his repudiation would again be unlawful.
A number of other policy arguments emerge in the judgments, particu-
larly in that of Lord Lowry who stressed the practical expediency of an
approach which avoided the difficulties of damages assessment, protracted
trials and the making of time of the essence in contracts of this nature. 5 His
Lordship made particular mention of the characteristics of string contracts
where “today’s buyer may be tomorrow’s seller” and where the administra-
tion of many ongoing contracts would be eased by the simple practice of
designating the readiness to load term as a condition; ’86 he also emphasized the
desirability of consistency of result in adjudicating upon different contracts in
the same string, which the intermediate stipulation approach would certainly
jeopardize.’87 As important as the certainty argument is in the disposition of
this case, perhaps even more important was the argument that, given the
established status as a condition of the seller’s duty to deliver in commercial
contracts, it was a logical corollary that the readiness to load term should be
characterized in the same way.’88 The status of the seller’s obligation was
accepted with very little question, though one might wonder whether a need
“‘Bunge Corp. v. Tradax Export S.A., supra, note 7, 536 (in the Court of Appeal).
“‘Ibid., 545-6 (in the House of Lords).
6 Ibid., 545 and 547.
“1
[- Ibid., 546.
‘Ibid., 542 (per Lord Wilberforce), 543 (per Lord Scarman), and 553 (per Lord Roskill).
In the Court of Appeal, see supra, note 7, 532 (per Megaw L.J.), and 540 (per Browne L.J.).
McGILL LAW JOURNAL
arises to justify this conclusion de novo in view of the fact that the scope of the
concept of description, so important in the Court’s conclusion in Bowes v.
Shand “9 that the seller’s obligation of timely shipment was a condition, has
been so narrowed in recent years as to make impossible a similar resort to
description today.”9
Although performance of the buyer’s duty to give notice of readiness to
load was a condition precedent to the seller’s duty to deliver, should this
necessarily have meant that any breach by the buyer of its obligation would
permit the seller to terminate the contract? To put it another way, could a
contractual term be a condition precedent with regard to working out the order
of performance of contractual obligations, and yet not a condition, but instead
a warranty or intermediate stipulation, when it came to the actual discharge of
the contract? This approach would amount to invoking the old principle of
dependent promises to justify non-performance, but invoking the more strin-
gent principle of failure of consideration if one wanted to go further and
terminate the contract.’ 9′ It is hard to see any logical reason why this should
not be possible and there is nothing in the judgments of the Courts in Bunge to
deny such an analysis. Nevertheless, this analysis was not considered at all by
either the Court of Appeal or the House of Lords. When they declined to
(1877) 2 App. Cas. 455, [1874-80] All E.R. Rep. 174 (H.L.).
190See supra, text accompanying notes 117 to 123.
9 A related idea is put forward by Reynolds, supra, note 170, 547 where he states:
The special English use of the word “condition” undoubtedly facilitates the operation of a
policy favourable towards rejection (or other forms of treating a contract as discharged).
But it also blurs considerably another possibility: that a term may simply lay down a
condition of one party’s liability without implying also a promise to perform the condi-
tion. If the condition does not occur, the party concerned is discharged from the relevant
duty: but there is no breach by the other.
Although the Reynolds approach is directed at the concept of non-promissory conditions, the
idea in the text, similarly blurred as a possibility by existing terminology, concerns terms which
in one respect are promissory conditions but in another sense are promissory warranties or
intermediate stipulations. The same dual possibility is evident in the judgment of Lord Denning
M.R. in Wickman Machine Tool SalesLtdv. L. SchulerA.G. [1972] 2 All E.R. 1173, [1972] 1
W.L.R. 840 (C.A.) [hereinafter cited to All E.R.], aff d [1974] A.C. 235, [1973] 2 All E.R. 39
(H.L.) [hereinafter cited to A.C.], where, at 1180, Denning M.R. draws a distinction between
a condition that is “a prerequisite to the right to recover on the agreement” [emphasis in
original] and a condition in the sense of a promissory term, any breach of which gives rise to
termination rights.
Splitting the condition in this way would lead to the result that in some cases of breach the
innocent party would be permitted to do no more than suspend the contract. This result would
be conceptually awkward in that the modem approach to contractual termination, exemplified
by cases such as Photo Production Ltd v. Securicor Transport Ltd [1980] A.C. 827, [1980] 1
All E.R. 556, would make it hard in practice to distinguish the suspension and the termination
of a contract. There would also be difficulties in applying the principle of waiver. See
Tsakiroglou and Co. v. Transgrains S.A. [1958] 1 Lloyd’s Rep. 562 (Q.B.).
DISCHARGE FOR BREACH
characterize the buyer’s obligation as an intermediate stipulation, it was not
because of any illogicality in setting up performance of an intermediate
stipulation as a condition precedent to the seller’s duty to perform a condition
of the contract; rather, the Courts believed that the parties had quantified at
fifteen days the reasonable time in which the buyer had to nominate a ship,
and there was no justification for any court to disturb the parties’
assessment.’92 Had the Courts concluded otherwise and held that the assess-
ment of a reasonable time was at large for them to discover, the buyer’s duty
to give notice of readiness could have been seen as a curious hybrid, condition
in form and intermediate stipulation in substance, which should give one
pause as to whether the distinction between conditions and intermediate
stipulations can truly be regarded as an absolute one. 93 The Courts’ reasons
for not disturbing the parties’ assessment of fifteen days is best expressed by
Megaw L.J. in the Court of Appeal: “It would, in my opinion, be arrogant and
unjustifiable for a court to substitute any view of its own for the view of the
parties themselves as to what was a reasonable time for this purpose.” 194
A remaining stumbling block to the Courts’ conclusion that the buyer’s
obligation was a condition was a dictum of Diplock L.J. in Hongkong Fir
which appeared to suggest that, for any term to be a condition, it had to be
predicated that any breach thereof would deprive the injured party of the
consideration for which he bargained.’ 9 Such a test would be difficult indeed
to satisfy and would apparently deny parties the unfettered right of classifying
their contractual obligations. The test was rejected by Megaw L.J. as being
inconsistent with a number of decided cases and as so strict that no contractual
term could possibly satisfy it. 196 Furthermore, if each and every breach had to
deprive a party of substantially the whole benefit he contracted for, it was hard
House of Lords. See the judgment of Lord Roskill, supra, note 7, 548.
112Supra, note 7, 532, per Megaw L.J. The judgment of Megaw L.J. found favour in the
9I It is, to this writer, noteasy to see how DiplockJ. could have characterized as a condition a
seller’s obligation to deliver within a reasonable time of a certain date, as he did in McDougall
v. Aeromarine of Emsworth Ltd [1958] 3 All E.R. 431,439. In practical terms, how different
would such an approach be from intermediate stipulation analysis? The same difficulty is
referred to in D.T.R. Nominees Pty Ltd v. Mona Homes Pty Ltd (1978) 138 C.L.R. 423,430,
(1978) 19 A.L.R. 223 (Austl. H.C.) per Stephen, Mason and Jacobs JJ.: “[W]e fail to see how
a stipulation calling for action to be taken expeditiously of itself constitutes an essential term.”
11’Bunge, supra, note 7, 532.
95 Supra, note 25, 69-70 where a number of lengthy passages suggest this requirement. This
same approach has re-emerged in a slightly different context, namely anticipatory repudiation.
See Lord Diplock’s observations in Afovos Shipping S.A., supra, note 97.
96Bunge, supra, note 7, 537:
Conditions would no longer exist in the English law of contract. For it is always possible to
suggest hypothetically some minor breach or breaches of any contractual term which
might, without undue use of the imagination, be wholly insufficient to produce serious
effects for the innocent party, let alone the loss of substantially all the benefit.
REVUE DE DROIT DE McGILL
to speak realistically of the injured party’s right to elect between accepting the
breach and continuing with the contract, on the one hand, and terminating the
contract, on the other.’97 In the House of Lords, Lord Roskill added the
observations that Lord Justice Diplock’s words were taken out of context,
intended to be applied only to intermediate stipulations, and that even if his
words were meant to have universal significance, they were not consistent
with dicta of the two other judges in Hongkong Fir.’98 Lord Roskill also had to
contend with a passage from Lord Diplock’s speech in United Scientific
Holdings Ltd v. Burnley Borough Council,’99 which stated that, by the time of
the fusion of the courts of common law and equity in 1873, it had become
accepted law that time obligations were never of the essence of a contract and
could only confer the right of termination for breach if the injured party were
deprived of substantially the whole benefit for which he contracted. 2″ Declin-
ing to believe Lord Diplock intended the passage to be read literally, Lord
Roskill also stressed its inconsistency with cases decided before and after
1873.201
The decision in Bunge that the readiness to load term was a condition is,
it is submitted, a perfectly sound one. The reasons given by the Courts are
compelling, though it is difficult to say how far they will extend outside
international commodities contracts. It is apparent that parties engaged in
such transactions attach a great measure of importance to the prompt perfor-
mance of obligations: in a rapidly moving market where parties have to
manage a complex array of contracts, that is only natural. The certainty factor
here is paramount. It is difficult to know, however, how far Bunge can be
taken if the matter in dispute concerns the timely delivery of consumer
durables 2 2 or even of custom-built machinery for industrial purposes .203 In the
“1Ibid., 537. Cf. Harbutt’s “Plasticine” Ltd v. Wayne Tank & Pump Co. [1970] 1 Q.B.
447, [1970] 1 All E.R. 225 (C.A.).
“Supra, note 25, 60 (per Sellers L.J.), 63 (per Upjohn L.J.).
N[1978] A.C. 904, [1977] 2 All E.R. 62 (H.L.) [hereinafter cited to A.C.].
Ibid., 928.
“‘Supra, note 7, 552.
‘See, e.g., Allen v. Danforth Motors Ltd (1957) 12 D.L.R. (2d) 572 (Ont. C.A.) and
Alteen’s Jewellers Ltd v. Cann (1980) 40 N.S.R. (2d) 504. In the former case, the Court
rejected parol evidence that a particular delivery date had been agreed on for a consumer car but
also expressed its disinclination to treat such a term as a condition. In the latter case, the Court
ignored the possibility of treating a delivery term giving a precise date as a condition, but
instead addressed itself to the question whether delivery had taken place within a reasonable
time. In a consumer contract where the buyer must wait patiently for a distant delivery date, a
stricter attitude may be appropriate. See Charles Rickards Ltd v. Oppenheim [1950] 1 K.B.
616, [19501 1 All E.R. 420 (C.A.).
103 In the supply of labour and materials case of Fairbanks Soap Co. v. Sheppard, supra, note
127, the Supreme Court applied the doctrine of substantial performance in deciding whether a
factory owner was entitled to reject a machine for manufacturing soap chips so as to terminate
DISCHARGE FOR BREACH
former case, it is hard to believe that consumer buyers attach as much
importance to timely performance of the seller’s obligations as is the case in a
commodities market; in the latter case, the prejudice that a seller would suffer
if the buyer promptly terminated as soon as the delivery date had passed
should persuade a court, assuming the parties had made no express provision
for termination rights, to extend a measure of leniency to the seller.
It is pertinent to ask how far Bunge, a decision attaching considerable
weight to certainty in commercial dealings, itself assures certainty in drawing
the line between conditions and intermediate stipulations. This discussion can
be pointed by returning to Lord Denning’s judgment in Cehave 2I where he
said that, in deciding whether an injured party could terminate a contract, the
inquiry was conducted in two stages:
First, see whether the stipulation, on its true construction, is a condition strictly so called,
that is, a stipulation such that, for any breach of it, the other party is entitled to treat
himself as discharged. Second, if it is not such a condition, then look to the extent of the
actual breach which has taken place. If it is such as to go to the root of the contract, the
other party is entitled to treat himself as discharged: but, otherwise, not.”
It can readily be seen that Lord Denning’s inquiry starts with an a priori
construction of the contract and culminates, if the second stage of the inquiry
is necessary to give the injured party termination rights, in an ex post facto
assessment of the consequences of breach. Now, it is evident that there is a
degree of tension between these radically different approaches to contractual
termination, the one stimulated by the choice of the parties and the other by
the nature of the event attendant upon the breach of contract. This tension can
be accommodated in practice if the two stages are mutually exclusive and all
rights of termination can be fitted into one or other of the two stages, but it
cannot be eliminated in doctrinal terms by the observation that, if parties
designate a particular term as a condition of the contract, it can only be
because they regard each and every breach as satisfying the Hongkong Fir test
of contractual termination.2″ One can think readily of other reasons why
parties may designate a term as a condition. A party may wish to have an
effective lever to ensure punctilious performance by the other, or may wish to
the contract. On the facts, the Court concluded that the builder had not substantially performed
the contract and so could not claim the price subject to a counterclaim for damages. The
significance of a case like this lies in the way in which a strict condition precedent logic is
eschewed. It is most unlikely that a party tendering late performance under such a contract
would suffer termination and unlikely too that a court would permit radically divergent results
according to whether such a contract were classified as one for labour and materials or one for
the sale of goods.
2Supra, note 144, 55.
2See, e.g., the excerpts from Bunge cited supra, note 173.
McGILL LAW JOURNAL
have the option of termination instead of a difficult, perhaps unprovable,
claim for damages for certain types of repeated or continuing breaches. 7
It was doubtless a sense of unease about attempting to harmonize the
twin approaches of party intention and event assessment to termination that
led Diplock L.J. in Hongkong Fir to play down the role of the former and exalt
that of the latter. Indeed, at one point he appeared to deny the relevance of
party intention at all when he said that a term could be regarded as a condition
only if each and every breach satisfied the test for a discharging event;”‘
elsewhere, he was prepared to accede to party intention only in so far as it was
based upon an express characterization of the term as a promissory
condition.2’ These passages were criticized in Bunge 2 0 but the difficulty of
harmonizing the two approaches survives that case. In Bunge, Lord Roskill
states that his conclusion that the buyer’s duty to give notice of readiness to
load was a condition was based on “the construction of the relevant clause”21
but it is difficult to see that this adequately describes an inquiry ranging across
a broad band of the contract economy, namely commodities contracts, and in
which a judicial legislative function is being employed to set the characteris-
tics of a particular type of standard form contract. Lord Lowry’s judgment is
no more helpful, with its invocation of the “business efficacy” test laid down
in The Moorcock 2 2 for the implication of terms into contracts. 23 According to
that test, which exists because the parties in a given case have presumably
intended their agreement to have some contractual force, terms are implied in
contracts when and to the extent that they give the contract a minimum of
business efficacy. There is nothing in Bunge to suggest that the contract could
not have functioned in the event of the disputed term being treated as an
intermediate stipulation. Consequently, Lord Lowry’s explanation can hardly
be the correct one and the decision in Bunge is most difficult to fit within Lord
Denning’s two-stage inquiry in Cehave. The result is uncertainty in charting
the boundary between conditions and intermediate stipulations.
It is therefore necessary to consider whether some other approach can
give a bearing on the decision in Bunge in such a way as to diminish this
uncertainty. In the Court of Appeal in Bunge, Megaw L.J. cryptically
observed: “It is possible that somewhat different considerations may apply,
mSupra, note 25, 69-70.
10 This fact is a cogent reason why the disputed term in Wickman Machine Tool Sales Ltd v.
L. Schuler A.G., supra, note 191 may truly have been intended as a condition.
2 ‘Supra, note 7. See the speeches of Lords Wilberforce, Lowry and Roskill.
2-Ibid., 553.
212(1889) 14 P.D. 64, [1886-90] All E.R. Rep. 530 (C.A.).
2’ 3Bunge, supra, note 7, 545.
DISCHARGE FOR BREACH
when the question arises as to condition or ‘intermediate’ term, as regards, on
the one hand, provision [sic] as to time and, on the other hand, provisions
unrelated to time.”2 14 Two possible meanings of this passage are that time
obligations are conditions and hence cannot be intermediate stipulations; or
that time obligations cannot be intermediate stipulations, though they may be
conditions or warranties. The first meaning surely cannot be right as far as the
buyer’s payment duty is concerned and is probably wrong in so far as it
purports to apply to all delivery obligations of sellers. The second meaning is
also suggested by the following words of Lord Wilberforce:
The fundamental fallacy of the appellants’ argument [that the Hongkong Fir approach be
applied to the readiness to load term] lies in attempting to apply this analysis [of Diplock
L.J. in Hongkong Fir] to a time clause such as the present in a mercantile contract, which
is totally different in character. As to such a clause there is only one kind of a breach
possible, namely to be late, and the questions which have to be asked are: first, what
importance have the parties expressly ascribed to this consequence? and, second, in the
absence of expressed agreement, what consequence ought to be attached to it having
regard to the contract as a whole? 215
This passage amounts to a bold statement that the Hongkong Fir approach has
no part to play in time stipulations in mercantile contracts, presumably
because, to a commercial party, gross and venial lateness are all one. While
this might strike a responsive chord in the man who just misses the last train, it
would hardly approximate to the experience of the hungry patron in a res-
taurant where the service is slow. Lord Wilberforce’s logic may be unfortun-
ate, but the clear message flowing from Bunge is that time obligations in
commodities contracts are immune from intermediate stipulation analysis.
Consequently, the impression remains that a significant, though inar-
ticulated, distinction exists between time obligations and other obligations
arising under the contract. To fill the gap, it is tempting to judge Bunge as yet
another example in the long line of cases drawing a distinction between
executory and executed contracts, although the length of the tradition has
obscured the logic of the law in a way that case law has a habit of doing.
Almost by definition, time obligations arise before tender and therefore pose
problems when the contract is still executory. This would also explain why,
notwithstanding s. 11 of the Sale of Goods Act, many (perhaps most) time
obligations in mercantile sale contracts are conditions. Yet there remains very
little direct evidence that the Courts in Bunge rationalized the law along these
lines, apart from the following words of Lord Scarman:
The contract, when made, was, to use the idiom of Diplock L.J. [in Hong Kong Fir]
“synallagmatic”, ie a contract of mutual engagements to be performed in the future, or, in
24Ibid., 534.
215Ibid., 541.
REVUE DE DROIT DE McGILL
the more familiar English/Latin idiom, an “executory” contract. The seller needed
sufficient notice to enable him to choose the loading port; the parties were agreed that the
notice to be given him was 15 days; this was a mercantile contract in which the parties
required to know where they stood not merely later with hindsight but at once as events
occurred. Because it makes commercial sense to treat the clause in the context and
circumstances of this contract as a condition to be performed before the seller takes his
steps to comply with bargain [sic], I would hold it to be not an innominate term but a
condition.
It is useful at this point to rehearse the arguments in favour of execution
analysis in the discharge of contracts for breach. Undoubtedly, the courts in
the early cases were impressed by deficiencies in quasi-contract law when
faced with the predicament of a defaulting party who had performed at least in
part: in principle, the injured party was entitled to retain the benefits of the
performance received without accounting for them.2″7 The defaulting party
was in no position to rescind the contract, a step necessary before one of the
common counts could be used.2″‘ A quasi-contractual action would not be
tolerated when it was not consistent with the terms of an open contract which
had not been rescinded ab initio.19 There were difficulties, too, in the
inference of a genuine implied contract when the injured party had no choice
but to accept performance or had already consumed the benefits thereof.2
More recently, in Canada at least, developments in unjust enrichment law
would appear to permit recovery even if a contract has not been wiped out
completely 22 and so would take the edge off the argument that the execution
of a contract, for reasons of unjust enrichment or quasi-contractual deficien-
cies, should markedly lessen the chances of an injured party to terminate the
contract. The same could be said for a related argument which has arisen in
the case law, namely that executed contracts should be permitted to continue
because of the practical impossibility of undoing performance that has already
been rendered. 2
216 Ibid., 543-4.
217 See Cutter v. Powell, supra, note 41.
211 Ibid.
219Whether implied in law – Cutter v. Powell, ibid. –
Hedges, supra, note 127.
or implied in fact – Sumpter v.
=See, e.g., Sumpter v. Hedges, ibid.; and Boston Deep Sea Fishing and Ice Co. v. Ansell
(1888) 39 Ch. D. 339, 364-5, [1886-90] All E.R. Rep. 65, per Bowen L.J.
2’ See Deglnan v. Guaranty Trust Co., supra, note 104. In Britain v. Rossiter (1879) 11
Q.B.D. 123, however, the English Court of Appeal declined to imply a contract that was
inconsistent with the terms of an existing but unenforceable contract. This limitation was
understood in Degiman as being confined to the implication in fact of a new contract, as
opposed to the implication in law of quantum meruit recovery to prevent unjust enrichment.
22 See Honck v. Muller, supra, note 57, 99-100, per Bramwell L.J. explaining the decision
inHoare v. Rennie, supra, note 57. It has been seen that this approach owes much to the dated
view of contractual termination whereby the contract is rescinded ab initio in accordance with
restitutio in integrum principles.
DISCHARGE FOR BREACH
But there are continuing arguments in favour of execution analysis, apart
from the one that the force of inertia separating an executory contract from
execution dictates a division along this line in the discharge of contracts. One
such argument is that an executing defaulter is more likely to suffer prejudice
than one whose default takes place when the contract is still executory. This
argument has some substance to it, though a more exact division, following
the old inequality of damages argument, might be between defaulting parties
only one of whom has taken substantial steps in preparation for performance
rather than in actual performance. To the extent that execution analysis can
adduce other arguments in its favour, it may need to be corrected somewhat to
take account of the prejudice suffered by a defaulting party.
A forceful argument in favour of execution analysis is that requiring an
innocent party to accept tender of defective performance is tantamount to
compelling him to contract again on different terms and with different ex-
pectations, and, besides altering the basis of the original bargain, constitutes a
serious abridgement of his right of freedom of contract. The practical consid-
erations set in train when some performance has already been rendered
would, of ‘course, blunt this argument to a degree. Finally, compelling an
injured party to give up the security inherent in the retention of performance
on his part and to have recourse only to substitutional damages relief with its
vagaries, imperfections and undercompensation 223 seems unjust and supports
the case for a strict approach to executory breaches.224
For the reasons given above, it is submitted that the distinction between
executory and executed contracts remains a useful analytical starting-point in
charting the distinction between conditions and intermediate stipulations.
Nevertheless, even assuming some support for it in Bunge, the distinction
cannot be applied too rigidly, or universally to all contracts. For the purpose
of contractual discharge, it would be convenient to deal with sale of goods
contracts under broad heads, for example, commodities and consumer dura-
bles transactions. One of the prices23 paid for a supposedly general law of
contract is the difficulty experienced in knowing how much to rely on a
commodities case like Bunge when dealing with contracts of a different type,
such as one for the production of custom-built machinery. This example
suggests that the distinction between executory and executed contracts should
be tempered by consideration of whether the defaulting party would be unduly
prejudiced by termination. This consideration could also be rationalized in
m Any legal system whose remoteness of damage rules cut back on the compensation that
would flow from a factual causation rule applied alone surely produces undercompensation.
24A case going against this analysis is Table Stake Construction Ltd v. Jones, supra, note
135.215There are others, as anyone who has taught the doctrine of consideration can surely attest.
McGILL LAW JOURNAL
terms of the parties’ reasonable expectations, an approach which could also
be usefully applied in the case of consumer durables.
The Status of the Seller’s Duty to Deliver and the Buyer’s Duty to
Accept and Pay for Goods
In the Introduction to this paper, it was stated that s. 11 of the Sale of
Goods Act, avoiding any reference to the doctrine of conditions and warran-
ties, treated the buyer’s duty of payment as presumptively not of the essence
of the contract and the seller’s duty of delivery and the buyer’s duty of
acceptance as open questions of construction. It was further stated that theAct
was unhelpful in drawing a necessary distinction between late performance
and non-performance in those cases where a term was not of the essence of the
contract.
This Part of the paper serves a three-fold purpose. First, an attempt will
be made to show the evolution of the common law in relation to timely
performance and how this body of law responds to the doctrine of conditions
and warranties and the doctrine of intermediate stipulations, the latter of
which serves to reintroduce the failure of consideration principle. This discus-
sion has already been anticipated to a degree in the treatment of the Bunge
case. Secondly, references will be made to the problem of reconciling com-
mon law and equity a century after fusion, particularly in the light of the
House of Lords decision in United Scientific Holdings Ltd v. Burnley
Borough Council,226 which has an obvious bearing on attempts made in recent
years to extend the scope of the doctrine of intermediate stipulations.” 7
Finally, the Sale of Goods Act will be examined to see how far it is consistent
in its treatment of the timely performance of the various duties of buyer and
seller and it will be shown that once again there emerges the intractable
26Supra, note 199.
2t7See the expanded principle of equitable forfeiture in Stockloser v. Johnson [1954] 1 Q.B.
446, [1954] 1 All E.R. 630, and the attempts made, so far with little success, to extend this
principle to contracts for the hire of machinery (see, e.g., Barton Thompson and Co. v.
Stapling Machines Co., [1966] Ch. 499, [1966] 2 All E.R. 222), and to time charterparties
(see, e.g., Mardorf Peace & Co. v. Attica Sea Carriers Corp. of Liberia [1977] A.C. 850,
873-4, [1977] 1 All E.R. 545 (H.L.) per Lord Simon; Afovos Shipping Co. S.A. v. Pagnan
[1980] 2 Lloyd’s Rep. 469, 476-80, per Lloyd J, rev’d [1982] 3 All E.R. 18 (C.A.) on other
grounds; and Scandinavian Trader Tanker Co. A.B. v. Flota Petrolera Ecuatoriana (The
Scaptrade) [1983] 1 All E.R. 301 (C.A.)). If the owner of goods is prevented from exercising a
contractual right to withdraw them from hire when the hirer is late in making payment, this is,
of course, tantamount to denying that the payment term is a condition and, moreover,
equivalent to denying the entitlement of the parties to make particular terms conditions of the
contract.
DISCHARGE FOR BREACH
problem of reconciling the principles of dependent promises and failure of
consideration.
One of the reasons advanced in Bunge for classifying the buyer’s duty to
give timely notice of readiness to load as a condition of the contract was that it
was necessarily preliminary to the seller’s duty of timely delivery, which had
been treated as a condition of the contract by the House of Lords in Bowes v.
Shand,28 decided a hundred years earlier. In that case, a seller, who had
shipped part of a quantity of Madras rice aboard a vessel in February when the
contract called for shipment “during the months of March and/or April”, was
held to have disabled himself from suing the buyer when he refused to accept
the cargo. The seller had failed to comply with all the requisite conditions
precedent because, as held by the House of Lords, the time of shipment was
part of the description of the goods so that the goods tendered were different
from those called for by the contract. Given the strict attitude of the courts of
this period towards the seller’s time obligations, 29 it is perhaps surprising that
s. 11 of the Sale of Goods Act, after dealing with stipulations as to the time of
payment, went on to state that “whether any other stipulation as to time is of
the essence of the contract or not depends on the terms of the contract”. The
neutrality of this wording, coupled with the concentration of the decided cases
on the seller’s obligation of timely delivery in the area of commodities
contracts, in particular those complex contracts containing interlocking
obligations on the part of buyer and seller,” should leave the courts free to
strive for a sensible result in other commercial and consumer contracts?21
Consequently, in cases where the parties do not invest the same degree of
importance in timely delivery as they do in commodities contracts, it should
msSupra, note 189.
2 See, for example, the strict canons of construction adopted in Coddington v. Paleologo
(1867) L.R. 2 Ex. 193. See also Stoljar, Untimely Performance in the Law of Contract (1955)
71 L.Q. Rev. 527, 531-44. The effect of Bowes v. Shand, ibid., on the seller’s delivery
obligations can also be seen in contracts designating a particular mode of shipment where
compliance with the buyer’s shipping instructions, the reasons for which were not communi-
cated to the seller, was held to be of the essence of the contract. See McLean v. Brown (1887)
15 O.R. 313 (Ch. Div.); and California Prune and Apricot Growers, Inc. v. Baird [1926]
S.C.R. 208, [1926] 1 D.L.R. 314. In both cases, Bowes v. Shand was relied upon by the Court.
‘Besides Bunge, supra, note 7, a recent example of the tendency of courts to characterize
as conditions interlocking obligations in commodities contracts is afforded by Toepfer v.
Lenersan-Poortman N.V. [1980] 1 Lloyd’s Rep. 143 (C.A.) (late tender of shipping docu-
ments). This interlocking aspect being absent in Bremer Handelsgesellschaft m.b.H. v.
Vanden Avenne-Izegem P.V.B.A. [1978] 2 Lloyd’s Rep. 109, the House of Lords declined to
treat the seller’s obligation, contained in a GAFTA form, to give timely notice of prohibition of
performance, as a condition; it was analyzed instead as an intermediate stipulation.
“‘In Ballantyne v. Watson (1880) 30 U.C.C.P.R. 529, the seller’s obligation to make
timely delivery of 700 boxes of cheese was held to be not of the essence of the contract. In
pre-contractual negotiations, the parties had shown a lack of concern for precise dates.
REVUE DE DROIT DE McGILL
be possible, now that the core of the condition of correspondence with
description has been shrunk, to characterize the seller’s duty of timely
delivery as an intermediate stipulation .232 The buyer would then be entitled to
terminate on the occurrence of a failure of consideration, in other words, at
the point where he is entitled to treat late delivery as non-delivery. It should,
however, be emphasized that a commitment to the intermediate stipulation
approach would not necessarily import the stringency of the test 23 favoured
by Diplock L.J. in Hongkong Fir. Rather, an entitlement to terminate might
be accorded a buyer who has been deprived of a substantial part of the benefit
for which he bargained.
Section 11 of the Sale of Goods Act treats the buyer’s duty of timely
acceptance as a question of open construction. Though, on one reading, s. 36
of the Act indicates a preference for treating the buyer’s duty as not of the
essence of the contract,2- it is submitted that the better view is that the Act is
neutral on the status of this obligation. Section 36 has not been taken up by the
case law, which is generally unilluminating. These cases do nevertheless
reveal that sometimes the status of the buyer’s duty is dealt with by a
construction of the contract, while in others, the particular consequences of
the buyer’s breach are examined to see if the seller is entitled to terminate the
contract.
In Woolfe v. Horne, 5 the purchaser of specific goods at an auction was
one working day late in removing his goods from the auction room. A nonsuit
having been entered against the plaintiff in his action to recover damages for
non-delivery of the goods which had been disposed of by the defendant to a
third party, the defendant failed in his attempt to show cause why the nonsuit
should not be set aside; the Court of Queen’s Bench entered judgment in
favour of the plaintiff. There is little reasoning in the Court’s decision to
support its conclusion that the plaintiff’s duty to accept the goods was not a
12Pace Lord Wilberforce in Bunge, supra, note 7, 541.
‘Lord Justice Diplock’s reference to the injured party being deprived of substantially the
whole benefit he bargained for, and his insistence that in breach cases the nature of the event
discharging the injured party is the same as it is in cases of frustration and impossibility, suggest
that the test he advocates is too strict. See Hongkong Fir, supra, note 25.
‘Section 36 reads as follows:
When the seller is ready and willing to deliver the goods and requests the buyer to take
delivery and the buyer does not within a reasonable time after such request take delivery of
the goods, he is liable to the seller for any loss occasioned by his neglect or refusal to take
delivery, and also for a reasonable charge for the care and custody of the goods, but
nothing in this section affects the rights of the seller where the neglect or refusal of the
buyer to take delivery amounts to a repudiation of the contract.
See also Ontario Law Reform Commission, supra, note 15, 148.
5(1877) 2 Q.B.D. 355.
DISCHARGE FOR BREACH
condition because it did not go to “the whole root of the consideration”,2 6 In
Lasby v. Walsh,21 on the other hand, the Saskatchewan Court of Appeal, in a
contract for the sale of specific goods, namely two horses, held that the
buyer’s failure to take delivery of the horses entitled the seller to terminate the
contract. The buyer was nearly two weeks late in taking delivery and the
contract required the seller to maintain the horses at his own expense until
actual delivery. In a terse judgment, the Court treated the buyer’s default as
going to payment and simply observed that, for the purpose of s. 11 of the Sale
of Goods Act (in Saskatchewan, s.12), a different intention had appeared
making time of the essence? 38 Notwithstanding this reference to the initial
construction of the contract, the Court’s decision seems to have been domi-
nated by its assessment of the effect of the buyer’s breach upon the seller.
Consequently, if the two cases are to be reconciled at all, it is on the ground
that the failure of consideration principle produced different results on the two
sets of facts.
There is a little more authority in the case of unascertained goods. In
Sharp v. Christmas,”‘ the purchaser of an unascertained quantity of potatoes
was in breach of his obligation to take delivery of the potatoes by canal before
Christmas. Laying stress on the fact that the goods were perishable, the Court
of Appeal held that time was of the essence. No indication appears in the
report as to the extent of the buyer’s tardiness. A different result was reached
in Kidston and Co. v. Monceau Ironworks Co. 24 where the buyer was late in
furnishing specifications for a quantity of iron to be manufactured by the
seller. The decision of the Court that the buyer’s obligation was not a
condition, which may not be easy to reconcile with Bunge since the buyer’s
obligation had to be performed before the seller could ship the goods in May
and June as required by the contract, emphasized the fact that the buyer’s
default did not impede the seller’s ability to organize its production and
arrange for shipment. 4
In Thames Sack and Bag Co. v. Knowles & Co.,242 Sankey J. held that
time was of the essence regarding the buyer’s duty to make payment and take
delivery of goods. The seller agreed to sell to the buyer ten bales of Hessian
bags on terms requiring cash against delivery order on or before 19 Septem-
2Ibid., 360, per Field J.
211(1920) 13 Sask. L.R. 201, [1920] 1 W.W.R. 1027 (C.A.) [hereinafter cited to Sask.
” 8Ibid., 202. But see RatnerBros v. Porter (1911) 1 W.W.R. 236 (Sask. Dist. C) (time not
originally of the essence in the case of a contract for the sale of twenty-five steers).
“9(1892) 8 T.L.R. 687 (C.A.).
240(1902) 7 Com. Cas. 82.
241 Ibid., 86-7.
24(1918) L.J.K.B. 585.
McGILL LAW JOURNAL
ber. This “spot” contract further required prompt delivery and provided for
storage and insurance at the seller’s expense up to 19 September. It is quite
clear from Mr Justice Sankey’s judgment that his conclusion that the buyer’s
duty to take timely delivery was of the essence of the contract turned on the
construction of the contract: “I think the whole object of the contract was to
make a bargain which should be completed by the buyers at least by Septem-
ber 19, and the object of the contract was that by that date the matter was to be
entirely finished.” 2 43
Finally, in the companion cases of Sierichs v. Hughes24 and Gerow v.
Hughes,245 which dealt with severable instalment contracts for the sale of
flour, the Ontario Appellate Division held that the buyer’s duty to give timely
instructions for the delivery of the various instalments of flour was of the
essence of the contract. In the Sierichs case, Ferguson J.A. observed that “it
was material to the [seller] in the carrying on of his jobbing business to
contract ahead for the requirements of his customers, and from time to time to
know what flour he might be called upon to deliver”. 246 The decision of the
Courts in these two cases concerned the discharge of individual instalments
under the contract and Ferguson J.A. in Sierichs, following the earlier
Ontario Appellate Division decision in Doner v. Western Canada Flour Mills
Co.,247 concluded that “each delivery stipulated for should be treated like a
delivery under a separate contract”.248 Consequently, the particular regime in
s. 30 of the Sale of Goods Act, which governs only the discharge of severable
instalment contracts and not individual instalments thereunder, would have
no application.2 49
These decisions dealing with unascertained goods, like those dealing
with specific goods, appear to draw no sharp distinction between the a priori
construction of the contract and an examination of the consequences of breach
dictated by the failure of consideration principle. Despite doubts expressed in
Bunge about the appropriateness of the doctrine of intermediate stipulations in
matters of late performance, one can be certain that courts will be flexible in
choosing between that doctrine and the doctrine of conditions and warranties
in resolving individual cases. There is, after all, no statutory presumption that
the buyer’s duty to accept goods is of the essence of the contract, that is to say,
2 W3Ibid., 587.
2″(1918) 42 Ont. L.R. 608, (1918) 43 D.L.R. 297 (App. Div.) [hereinafter cited to Ont.
141(1918) 42 Ont. L.R. 621, (1918) 43 D.L.R. 307 (App. Div.).
24 Supra, note 244, 617.
247(1917) 41 Ont. L.R. 503, (1917) 41 D.L.R. 476 (App. Div.).
mSupra, note 244, 617.
24’At the time the cases referred to in this paragraph were decided, Ontario had not yet
adopted the Sale of Goods Act.
DISCHARGE FOR BREACH
a contractual condition. In the case of commodities transactions, one can
predict a strict approach in the form of a construction of the contract that the
buyer’s duty of timely acceptance is of the essence. The buyer’s duty to give
notice of readiness to load under an f.o.b. contract, the subject of the Bunge
decision, was indeed a component of his duty of acceptance.
The Sale of Goods Act is unclear whether payment and acceptance are
separate obligations of the buyer or components of an omnibus obligation.
The case law, however, appears to treat them as separate obligations. Indeed,
an examination of the payment cases reveals a different development to that
occurring in the acceptance cases. The starting point is Martindale v. Smith,”‘
decided in 1841, which relaxed any requirement that a plaintiff buyer, as a
condition precedent to suit, had to aver and prove his readiness to perform at
all material times.
In that case, the defendant sold the plaintiff six stacks of oats on terms
providing that the plaintiff was at liberty to let the oats stand on the defen-
dant’s land until the middle of August but that he should pay for the oats no
later than 16 July. Early in July, the defendant notified the plaintiff that the
oats had to be paid for by the agreed date or the contract would be at an end.
When the plaintiff failed to pay on time, the defendant informed him that he
could not have the stacks and refused two late tenders of the purchase price
and a demand from the plaintiff that he be allowed to remove the stacks on 14
August.
The plaintiff brought an action in trover for the wrongful conversion of
the stacks of oats to which the defendant pleaded, inter alia, that the plaintiff
did not have the necessary possessory right to the goods to maintain the
action. The existence of such a right depended upon whether the defendant
was entitled to terminate the contract for the plaintiff’s failure to make timely
payment. The jury returned a verdict in favour of the plaintiff and this verdict
was later confirmed by the Court of Queen’s Bench. Two reasons were given
by the Court to justify its decision. According to the first and less clear of the
reasons, the transfer of the property in specific goods to the buyer prevents the
seller from rescinding the contract on account of the buyer’s late payment; the
seller is left with an action against the buyer for the price and a lien over the
goods while they remain in his possession.Y’ This approach would seem
ultimately to depend upon execution analysis in that the transfer of the
property in the goods to the buyer renders impossible the rescission ab initio
of the contract of sale 52and the revesting of the property in the seller. The role
“:(1841) 1 Q.B. 389, (1841) 113 E.R. 1181.
— Ilbid., 395.
2Supra, notes 104 to 106.
REVUE DE DROIT DE McGILL
of execution analysis in this part of the Court’s reasoning becomes a little
clearer if it is borne in mind that the stock reason for the passing of property in
specific goods to the buyer at the date of the contract had previously been
formulated by Parke J. in Dixon v. Yates213 as follows:
[W]here, by the contract itself, the vendor appropriates to the vendee a specific chattel,
and the latter thereby agrees to take that specific chattel, and to pay the stipulated price, the
parties are then in the same situation as they would be after a delivery of goods in
pursuance of a general contract. The very appropriation of the chattel is equivalent to
delivery by the vendor, and the assent of the vendee to take the specific chattel, and to pay
the price, is equivalent to his accepting possession. The effect of the contract, therefore, is
to vest the property in the bargainee.’
The first of the two reasons given by the Court in Martindale would not,
of course, have been open to it if the goods had been unascertained and the
property in them had not passed to the buyer. The second reason advanced by
the Court, however, would apply to all kinds of goods. According to Lord
Denman C.J., delivering the judgment of the Court: “In a sale of chattels,
time is not of the essence of the contract, unless it is made so by express
agreement, than which nothing can be more easy, by introducing conditional
words into the bargain.”211 Though no reference is made to Seton v. Slade, 6
the leading equity decision which formulated the same rule for sale of land
contracts, the reasoning of the Court on this point in Martindale v. Smith is
clearly influenced by equity thinking; it also avoids the classical common law
language of the buyer’s breach going to a part only of the consideration
bargained for by the seller.
Before leaving Martindale v. Smith, two further points can be made.
First, subsequent decisions established that the language of Lord Denman in
the passage quoted above was too broad in so far as it stated that the prima
facie rule for all time obligations was that they were not of the essence of the
contract.5 7 Secondly, it should be noted that the buyer in Martindale v. Smith,
though in breach of his duty to pay for the goods in accordance with the terms
of the contract, was not in breach of his duty to accept the goods.Y8 Martindale
-1(1833) 5 B. & Ad. 313, (1833) 110 E.R. 806 (K.B.).
2″Supra, note 250, 395.
2(1802) 7 Ves. Jun. 265, (1802) 32 E.R. 108 (Ch.). An earlier case, Gregson v. Riddle
(1784), cited in Seton v. Slade, would apparently have denied parties the power to make time of
the essence. Rather than stating that common law courts were “influenced by equity thinking”
as said in the text, it may be more accurate to say, as Lord Diplock put it in United Scientific
HoldingsLtd, supra, note 199,925-6, that the common law courts increasingly tended to adopt
a more rational scheme for the classification of contractual obligations and to that extent
pre-empted intervention by courts of equity.
27See, e.g., Bowes v. Shand, supra, note 189.
2″ He was not obliged to take away the oats until a month after he paid the price.
DISCHARGE FOR BREACH
v. Smith therefore leaves open a different approach to the timely performance
of the buyer’s duty of acceptance.
Section 11 of the Sale of Goods Act legislated the result in Martindale v.
Smith in two respects. First, it recorded faithfully the fact that Martindale did
not deal with the buyer’s duty of acceptance by leaving timely performance of
this duty to be worked out according to the construction of individual
contracts. 9 Secondly, in respect of the buyer’s obligation of timely payment,
it stated that “[u]nless a different intention appears from the terms of the
contract, stipulations as to time of payment are not [deemed to be] of the
essence of a contract of sale”. 2
10 Notwithstanding inflation and the law’s
slowness in coming to terms with the problem of pre-judgment interest, 26 1 this
provision seems to have survived relatively unscathed. Where it applies and
the buyer is in default, this does not of course mean that the buyer can
postpone payment indefinitely. At some point, his late payment may be seen
as a repudiation or as a breach going to the root of the contract. 62 There will be
cases too where the presumption is ousted. In the light of Bunge, commodities
contracts, where the buyer’s breach will frequently consist of a failure to
make available on the due date a banker’s documentary credit, constitute a
likely example.263
29 Sale of Goods Act, s. 11.
2Sale of Goods Act, s. 11.
See the discussion of the problem in Tehno-Impex v. Gebr. Van Weelde Scheepvaartkan-
toor B.V. [1981] 1 Q.B. 648, [1981] 2 All E.R. 669 (C.A.). See also the Judicature Act,
R.S.O. 1980, c. 223, s. 36; Manitoba Law Reform Commission, Report on Prejudgment
Compensation on Monetary Awards: Alternatives to Interest (1982) (Report No. 47); Law
Commission [of England], Report on Interest (Law of Contract) (1978) (Report No. 88); and
Western Australia Law Reform Commission, Report on Pre-Judgment Interest (1981) (Project
No. 70, Part 1).
mSee, e.g., Decro-Wall International S.A. v. Practitioners in Marketing Ltd, supra, note
97; and Shevill v. The Builders Licensing Board, supra, note 97. A case where the rule in s. 11
of the Sale of Goods Act that timely payment is not of the essence was ousted was Hayden v.
Rudd (1922) 17 Alta L.R. 452, (1922) 66 D.L.R. 619 (S.C., App. Div.). The contract was a
complex one for the purchase of a quantity of straw produced by a certain acreage which also
permitted the buyer to run his stock on the seller’s ranch between the end of threshing and the
beginning of seeding. Beck J.A. stressed how important it was for the seller to have timely
payment, which combined the costs of the straw and the pasturage, so that he would “know
promptly … whether the plaintiffs [sic] intended to take advantage of it, or, on the other hand,
whether the pasturage would be thrown back upon his hands and he at such an advanced and late
date, in the season during which stockmen would naturally be looking for pasturage, would be
compelled to find a new customer” (at 466). The dissenting judgment of Stuart J.A. is
interesting if only for its narrow proposition that an intention ousting the rule in s. 11 must be
sought in the contract itself and not in the general circumstances of the case. This approach
would come close to requiring an express exclusion of the s. 11 rule.
mSee P. Atiyah, The Sale of Goods, 6th ed. (1980) 172, fn. 7.
McGILL LAW JOURNAL
Equity has long adopted a more lenient attitude to timely performance
than has the common law. The fusion of the courts of common law and equity
by the Supreme Court of Judicature Act, 1873 24 necessitated subs. 25(7) of
the same Act for the purpose of resolving conflicts between the rules of
common law and those of equity in a unified court system. According to subs.
25(7):
Stipulations in contracts, as to time or otherwise, which would not before the passing of
this Act have been deemed to be or to have become of the essence of such contracts in a
Court of Equity, shall receive in all Courts the same construction and effect as they would
have heretofore received in equity. 64
Putting aside the difficulty that the courts of equity had not before fusion
indicated their attitude towards time provisions in a contract of sale of goods,
the effect of this provision would apparently have been to enact the words of
Lord Denman quoted above 26 in all their generality.
Nevertheless, the English Court of Appeal, in the years following
fusion, betrayed a notorious hostility towards equitable principles which is
illustrated clearly by the words of Cotton L.J. in Reuter, Hufeland, & Co. v.
Sala & Co.,267 a case involving an entire contract to sell a quantity of pepper
where the seller was unable to make a timely appropriation to the contract of
the whole quantity of twenty-five tons. Cotton L.J. said:
It was argued that the rules of courts of equity are now to be regarded in all courts, and that
equity enforced contracts though the time fixed therein for completion had passed. This
was in cases of contracts such as purchases and sales of land, where, unless a contrary
intention could be collected from the contract, the Court presumed that time was not an
essential condition. To apply this to mercantile contracts would be dangerous and
unreasonable. We must therefore hold that the time within which the pepper was to be
declared was an essential condition of the contract, and in such a case the decisions in
equity, on which reliance is placed, do not apply.’
There the matter rested for almost a hundred years until it came to the
fore again in a forceful way in the decision of the House of Lords in United
Scientific Holdings Ltd v. Burnley Borough Council.269 This case concerned
26436 & 37 Vict., c. 66 (U.K.).
15 Subsection 25(7) was replaced by the slightly different s. 41 of the Law of Property Act,
1925, 15 & 16 Geo. V, c. 20 (U.K.), according to which: “Stipulations in a contract, as to time
or otherwise, which according to rules of equity are not deemed to be or to have become of the
essence of the contract, are also construed and have effect at law in accordance with the same
rules.” A provision very similar to subs. 25(7) is to be found in the Mercantile Law Amendment
Act, R.S.O. 1980, c. 265, s. 15.
2 See supra, text accompanying note 255.
267(1879) 4 C.P.D. 239 (C.A.).
26 Supra, note 199.
DISCHARGE FOR BREACH
the question whether a lessor had timeously set in motion the machinery for
conducting a rent review in a long-term lease of commercial premises. The
decision of the House of Lords on this point is of no particular concern to sale
of goods lawyers, but the case is of general interest in what it reveals of the
attitude of equity towards time provisions in contracts and in the opinions
expressed about the relationship of common law and equity a century after
fusion. Some of the statements made by Lord Diplock about the attitude of the
common law towards time provisions, consistent with his more general
remarks about discharge in Hongkong Fir, also repay examination, particu-
larly in the light of the later decision in Bunge.
Equity’s attitude towards time provisions is brought out well in the
following summary of its pre-fusion development by Lord Diplock:
[T]he rules of equity, to the extent that the Court of Chancery had developed them up to
1873 as a system distinct from rules of common law, did not regard stipulations in
contracts as to the time by which various steps should be taken by the parties as being of
the essence of the contract unless the express words of the contract, the nature of its subject
matter or the surrounding circumstances made it inequitable not to treat the failure of one
party to comply exactly with the stipulation as relieving the other party from the duty to
perform his obligations under the contract.”
A number of observations flow from this passage. The first point, which
anticipates the question whether this attitude of equity can be expanded
beyond its traditional boundaries encompassing mortgages and sale of land
contracts and into an area regarded as the preserve of common law, concerns
the doctrine of specific performance. One of the difficulties in estimating the
scope of equitable intervention outside its traditional boundaries, and the
resurgence of the doctrine of forfeiture in Stockloser v. Johnson27′ furnishes a
good example of this problem, lies in knowing whether equitable intervention
is indissolubly linked to the equitable doctrine of specific performance.272 To
put the question in a sale of goods context: If the equitable attitude towards
time provisions were to be imported into sale of goods law, would this attitude
apply only in those rare cases 273 where a court might be prepared to decree
specific performance of a sale of goods contract? Such a limitation seems
27Ibid., 927.
“‘Supra, note 227.
2 ‘A good example in sales law is that of equitable appropriation in the area of passing of
property. Seeln re Wait [1927] 1 Ch. 606, [1926] All E.R. Rep. 433 (C.A.) and the discussion
of this problem in Bridge & Buckley, supra, note 97, 309-21.
“‘3The self-imposed limitations on the courts’ discretion to grant this decree are revealed by
cases such as Cohen v. Roche [1927] 1 K.B. 169, and Falcke v. Gray (1859) 4 Drewry 651,
(1859) 62 E.R. 250 (Ch.). The extensive nature of interlocutory replevin relief in the Canadian
common law provinces serves to undermine the strictness of the position taken on specific
performance. See Ontario Law Reform Commission, supra, note 15.
REVUE DE DROIT DE McGILL
unlikely in an age which is becoming increasingly unsympathetic to technical
legal argument.
The second point suggested by the passage from Lord Diplock’s judg-
ment concerns the efficacy of the parties’ initial designation of a contractual
term as being of the essence. If the court were to conduct a broad-ranging
inquiry into the equity of treating time as being of the essence, and if this
inquiry were to be carried out according to conditions prevailing at the date of
the hearing, 274 it should follow that the parties’ designation of a term as being
of the essence would not be determinative of the inquiry,275 though it would be
a very strong factor to be considered. Consequently, to return to the language
employed in the earlier part of this paper, the court would not be concerned
solely with an a priori construction exercise, but would have to conduct an ex
postfacto assessment of, inter alia, the consequences of the defaulting party’s
breach.
The third point, which follows from the second, is that the introduction
of equitable considerations into commercial contracts of sale of goods,
especially commodities contracts, would undermine forward planning and
would be destructive of that certainty upon which the House of Lords put such
a high value in Bunge.
In view of the above problems, it is appropriate to consider the judg-
ments in United Scientific Holdings Ltd in order to assess the likelihood of an
extension of equity beyond its traditional boundaries. Subsection 25(7) of the
Judicature Act, 1873, set out above, stated that time stipulations in contracts
should be construed according to the effect they would have been given, prior
to 1873, in equity. The vital questions raised by this provision are whether it is
confined to transactions preoccupying equity before fusion, namely mort-
gages and contracts for the sale of land, or whether it gives precedence to
equitable rules over common law rules in any area that equity chooses to
inhabit after fusion.” 6 Cotton L.J., a member of a Court which had no
enthusiasm for extending the scope of equity, made it plain in a passage in
Reuter, Hufeland, & Co., v. Sala & Co.,”‘ quoted above, that in his view
“‘Cf., Price v. Strange [1978] Ch. 337, [1977] 3 All E.R. 371 (C.A.).
7 This approach would be broadly consistent with attempts to cut back on party autonomy,
evident in the judgment of Diplock L.J. in Hongkong Fir, supra, note 25, in Wickman Machie
ToolSalesLtd v. L. SchulerA.G., supra, note 191 and in recent attempts to invoke forfeiture
principles to prevent a shipowner from terminating a time charterparty under a provision
explicitly allowing cancellation and withdrawal of the ship in the event of a late payment of
hire. See supra, note 227.
176The point seems less controversial once it is realized that the generalization of certain
equitable rules, notably those concerning innocent misrepresentation and promissory estoppel,
that has taken place since fusion, has necessarily been at the expense of common law rules.
217Supra, note 267.
DISCHARGE FOR BREACH
subs. 25(7) was an historical provision confined to the scope of equity in the
years preceding fusion. In United Scientific Holdings Ltd, a number of
passages in the judgments of Lords Diplock2″8 and Simon 279 reveal the
opposite view, but this contrary position is expressed most concisely in a
passage from Lord Fraser’s judgment:
I am not qualified to explore the history of the two streams of English jurisdiction, legal
and equitable, which formerly flowed in separate channels. But since the Supreme Court
of Judicature Act 1873 they have at least shared the same channel, and I gratefully adopt
the reasons given by… Lord Diplock and Lord Simon of Glaisdale for thinking that they
have now merged into a single stream. Consequently rules of equity, so called because
they are as a matter of history derived from equity are now simply part of the corpus of
English law and as such they are free to develop like other parts of that law. Neither section
41 of the Law of Property Act 1925 nor section 27(5) of the Supreme Court of Judicature
Act 1873 contains any negative provision against the development or extension of
equitable principles, and the effect of those sections is quite different from the incorpora-
tion into the law of a colony of the law of England as it stood at some specified date.
It is therefore no wonder that the decision in United Scientific Holdings Ltd
caused some alarm in the commercial bar. Even if it were significant for
nothing else, the decision inBunge would be important for its reassurance that
certainty and forward planning have not been undermined by United Scien-
tific Holdings Ltd.
The final question raised by United Scientific Holdings Ltd concerns
certain statements made by Lord Diplock which reveal a measure of internal
inconsistency. On the one hand, his Lordship was prepared to concede that
“[i]n commercial contracts for the sale of goods prima facie a stipulated time
of delivery is of the essence”.28″ ‘ On the other hand, it is not easy to reconcile
this dictum with more general statements such as the following about the state
of the common law at the time of fusion:
The question whether a stipulation as to the time at which the event should occur was of the
essence of the contract depended upon whether even a brief postponement of it would
deprive one or other of the parties of substantially the whole benefit that it was intended
that he should obtain from the contract. z
This statement, similar to others made by him in Hongkong Fir, must now be
taken to have been authoritatively disapproved by the House of Lords in
Bunge.
“‘Supra, note 199, 924-8.
ZIbid., 943-5.
uIbid., 957-8 [emphasis in original].
‘ Ibid., 924.
2Ibid., 928. See also Lord Diplock’s similar observations on anticipatory repudiation in
Afovos Shipping S.A., supra, note 97..
McGILL LAW JOURNAL
Finally, since Bunge appears to have halted the penetration of equity into
the discharge of commercial contracts of sale of goods, it is now pertinent to
inquire whether the law governing the status of the seller’s duty to deliver and
of the buyer’s duty to accept and pay for goods can be reconciled with s. 27 of
the Sale of Goods Act which reads:
Unless otherwise agreed, delivery of the goods and payment of the price are concurrent
conditions, that is to say, the seller shall be ready and willing to give possession of the
goods to the buyer in exchange for the price and the buyer shall be ready and willing to pay
the price in exchange for possession of the goods,3
How is this provision consistent with the presumptive treatment of the seller’s
delivery obligation in a commercial sale of goods contract as a condition,
while the buyer’s payment obligation is generally regarded as presumptively
not being a condition and the status of his duty of acceptance is an open
question of construction? And why does s. 27 make no reference to the
buyer’s duty of acceptance when this duty is clearly recorded, along with the
seller’s duty to deliver and the buyer’s duty to pay the price, in s. 26? One is
compelled to agree with statements made about the difficulty of reconciling
s. 27 with other provisions of the Sale of Goods Act.2
It is nevertheless worth considering whether sense can be made of s. 27.
A number of possibilities present themselves. First of all, one can simply do
as the Saskatchewan Court of Appeal did in Mooney v. Lipka 2 85 and disregard
s. 11, which makes time of payment presumptively not of the essence of the
contract. In that case, the Court observed that, since the seller’s obligation to
load a rail car with a quantity of potatoes was of the essence of the contract, it
followed that the buyer’s duty to pay, a contemporaneous act under the terms
of the contract, must also be of the essence. It is appropriate to consider,
however, whether a less drastic and less artificial solution is available.
A second possibility is to modulate the language of s. 11 and to assert
that, although time of payment may presumptively be not of the essence of all
contracts, this does not prevent it from being presumptively of the essence of
commercial contracts, or at least of certain types of commercial contracts.
This argument may be consistent with the approach of courts to payment in
e.g., Ontario Law Reform Commission, supra, note 15, 148. Atiyah, ibid., finds
that there is nothing really inconsistent in the relationship between ss 11 and 27 (ss 10 and 28 of
the U.K. Act). He points out that subs. 46(3) (subs. 48(3) of the U.K. Act), which deals with the
entitlement of an unpaid seller to sell perishable goods when the buyer defaults on his
obligation to pay, creates indirectly an exception to s. I 1 and so tends to harmonize ss 11 and
27.
See generally Atiyah, supra, note 263, 172-3.
“(1926) 21 Sask. L.R. 40, [1926] 4 D.L.R. 647 (C.A.).
DISCHARGE FOR BREACH
commercial cases, but it fails to reconcile the conflicting language of ss 11
and 27.286
Thirdly, one can separate the buyer’s duty to accept goods from his duty
to pay for them and stress the fact that s. 11 of the Sale of Goods Act regards
both duties of delivery and acceptance as open matters of construction. Thus,
there would be no conflict between ss 11 and 27 and the courts would be free
to rationalize the relationship between the duties of delivery and acceptance.
It makes sense to distinguish the buyer’s duty of acceptance from his duty to
pay because the two are frequently separated in practice. 7 If a buyer is
allowed to take delivery before payment, this effectuates the parties’ intention
that the buyer is to receive credit. In such a case, it may be quite proper to
regard his failure to make timely payment as not being the breach of a term
that is of the essence of the contract: the seller has already surrendered his lien
and the difference between, for example, an agreed thirty days’ credit and the
thirty-five days taken by the buyer may not be substantial. If, however, the
terms of the contract require cash on delivery, the laying of emphasis on the
buyer’s failure to accept the goods in the manner prescribed by the contract,
namely accompanied by payment, brings out the critical factor that it is the
intention of the parties that the buyer shall not receive credit. One drawback
with this approach, however, is that nowhere in s. 27 is there any reference to
the buyer’s duty of acceptance.
The fourth solution to the problem of ss 11 and 27 and, it is submitted,
the best solution, is to do as suggested in an earlier part of this paper 288 and to
separate the question of order of performance (s. 27) from the question of
discharge for breach (s. 11). Consequently, a buyer who fails to pay may not
compel the seller to deliver and the seller may continue to refuse delivery,
citing his own refusal to deliver on the due date as excused by the buyer’s
failure to pay. This would be tantamount to a right of suspension of his
obligations on the seller’s part. When the buyer’s failure to pay eventually
produces a failure of consideration or amounts to a repudiation of the contract,
the seller is free to terminate the contract. This solution accommodates the
dependent promises and failure of consideration principles and serves ulti-
mately to reconcile decisions as apparently diverse as Hongkong Fir and
Bunge. Furthermore, this solution was countenanced by the draft Sale of
Goods Bill,289 published with the Report on Sale of Goods of the Ontario Law
Reform Commission, which retained the order of performance rule in draft
2’This possibility would also need to be supported by (unavailable) statistical data to justify
the reversal, not merely the displacement, of the presumption.
17 See Ontario Law Reform Commission, supra, note 15, 350.
nSee supra, text accompanying note 191.
‘ Ontario Law Reform Commission, supra, note 15, Appendix I.
REVUE DE DROIT DE McGILL
ss 7.62 9 and 7. 10 291 but proposed in s. 8.1 292 that a general and flexible
substantial breach rule be applied in all cases of discharge. The Ontario
proposal establishes that there is nothing logically wrong with this fourth
solution. Moreover, it is difficult to see it as inconsistent with the premises of
existing law.
One need not be regarded as an unfair critic of statutes in the common
law tradition if one points to the unfortunate tendency of a codifying Act to
divorce the practical solutions it enacts from their intellectual base. If the Act
in question truly is compehensive or is sufficiently open-textured in its
drafting, this tendency may not constitute a pressing problem to a judiciary
that is able to adapt the structure and solutions of the Act to ever-changing
conditions. But it seems that a tightly-drafted statute which purports to be a
code and yet renders necessary resort to a developing common law, a law
which may have changed greatly from that body of operative law in place at
the date the statute was first passed, presents the courts with an unfortunate
compromise between pure common law and pure code. It may not be entirely
accurate to take issue with the Sale of Goods Act on this count: an examination
of the common law of contract in the area of discharge for breach reveals the
lack of a coherent intellectual tradition and explains why courts, and lawyers
generally, have such difficulty coping with the subject of breach of contract.
The law has not clearly resolved the conflict between the principle of depen-
accept and pay for the goods.”
to tender and complete any delivery.”
29’ Draft Sales Bill, subs. 7.10(1): “Tender of payment is a condition to [sic] the seller’s duty
mDraft Sales Bill, subs. 7.6(1): “Tender of delivery is a condition of the buyer’s duty to
9 Draft Sales Bill, s. 8.1: “[I]f the goods or the tender of delivery are non-conforming and
the non-conformity amounts to a substantial breach of the contract, the buyer may,
(a) reject the whole;
(b) accept the whole; or
(c) accept one or more commercial units and reject the rest.”
Substantial breach was defined in subs. 1. 1(1)24 as “a breach of contract that the party in
breach foresaw or ought reasonably to have foreseen as likely to impair substantially the value
of the contract to the other party”.
The Committee appointed by the Uniform Law Conference of Canada to consider the
Ontario Bill as possible uniform legislation disagreed with the need for a substantial breach
rule, given the existence of a very broad cure principle in s. 7.7 of the Ontario Bill.
Consequently, it proposed amendments to ss 7.7 and 8.1, the effect of which were to expunge
substantial breach and replace it with a strict tender rule. See Uniform Law Conference of
Canada, supra, note 15, Appendix S, for the text of the Uniform Sale of Goods Act and the
Committee’s Report.
DISCHARGE FOR BREACH
dent promises, which on one view of Kingston v. Preston 293 would seem to
have dictated a near-universal requirement that a party bringing a breach of
contract action had to be able to aver readiness and willingness to perform at
all material times, and the principle of failure of consideration, with its assault
on the averment of readiness and willingness. The decisions in Hongkong Fir
and Bunge are no more than Boone v. Eyre 2 91 and Kingston v. Preston in
modem dress. Perhaps these examples of legal atavism should remind us that
the conflict in the law between certainty and reasonableness fluctuates
according to the spirit and conditions of the age. They also throw light on the
recent upsurge of equitable principles, revealed in cases such as United
Scientific Holdings Ltd, for this decision can be seen, in the company of cases
such as Hongkong Fir and Cehave, as an expression of the importance of
reasonableness in contractual dealings. Bunge, however, reasserts the value
of certainty. It may be that the best of all possible regimes for dealing with the
subject of breach of contract is one that embodies reasonableness and certain-
ty in a state of uneasy but creative tension, responsive to changing needs and
the particular exigencies of different sectors of the contract economy. It may
be that, despite its unnecessary obscurity, this is the regime we already
possess.
193Supra, note 26.
2Supra, note 27.