BREACH OF CONTRACT
Breach of contract occurs in different ways and with different
consequences.
A party can breach a contract by:
(a) expressly repudiating its liabilities;
(b) acting in a way that makes its promise impossible to
perform;
(c) either failing to perform at all or rendering an actual
performance that falls short of its promise.
Breach may discharge a contract, that is, bring the contract to
an end. However, not every breach automatically discharges a
contract.
Further, even if the breach is of a nature that could discharge
the contract, the party suffering the breach has the option to
either discharge the contract or to treat the contract as still in
existence.
While discharge of the contract frees the innocent party from
performance of its obligations under the contract, it may be
convenient not to discharge the contract but to keep it alive. In
such case the innocent party must perform its contractual
obligations. Of course, it is open to the injured party to sue for
breach whether or not the contract is discharged.
An aggrieved party cannot treat every breach as giving rise to
discharge. To do so, the breach must be of either the whole
contract or an essential term of the contract, so that the
purpose of the agreement is defeated and performance by the
aggrieved party becomes pointless. Breach of a minor term of a
contract may entitle the aggrieved party to sue for damages
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but does not entitle to party to abandon its obligations under
the contract. He would do so at his peril.
See p. 270 Yates, Sail Labrador v. Navimar Corp. [1999] 1
S.C.R. 265. Lease with option to purchase. Monthly cheques.
One failed due to bank error. Sail said option no longer
available due to breach of contract. The Court held the breach
of contract to be only a minor breach. Sail himself in breach
for not allowing the option. See doctrine of substantial
performance. A minor breach of contract is often referred to
as a breach of warranty.
When is breach enough to discharge contract?
Vernon case (2002) 58 O.R. (3d) 215 (C.A.) see Yates p.272.
Vernon agreed with an auctioneer that the latter would sell
equipment currently at Vernon’s gravel pit. Parties agreed
proceeds to be deposited in a joint bank account and to be
distributed between the parties in agreed proportions.
The auctioneer refused to deposit the first $100,000 even after
ordered to do so by a court. This amounted to breach of a
condition of the contract. Auctioneer got nothing from the
$100,000 sale and was not entitled to sell the rest of the
equipment when it was available.
See MDS Health Group v. King St. Medical Arts Centre Yates p.
275. Willful falsification of delivery documents not just
negligent. The court found an implied term of good faith.
Difference between conditions and warranties. Major breach
and minor breach.
Compare the following cases.
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(A) A potato farmer Bob agrees to sell 10,000 bags of potatoes
and deliver them to “Save-a-Lot Supermarkets in yellow bags
with green labels. When the potatoes arrive they have red
labels, which the store considers will reduce the attractiveness
of the display and reduce sales. The produce manager rejects
delivery and arranges another supplier, Sally's Spuds, to
supply potatoes in yellow bags with green labels. Due to the
short notice, Save-a-Lot has to pay 5 cents a bag more to Sally
than it had agreed to pay to Bob. Bob is able to sell the
potatoes to an out of town buyer but at a profit that is $1000
less than what he would have made from the deal with Save-aLot. Bob and Save-a-Lot sue each other for breach of contract.
What outcome would you expect? Explain why.
(B) Farmer Bob agrees to sell 10,000 yellow bags of potatoes
with yellow labels to Save a Lot Supermarkets for a Thanksgiving Weekend special promotion in its various stores in
Southern Alberta. An express term of the contract is that the
potatoes must be delivered by Wednesday noon. Farmer Bob
delivers the potatoes on Friday afternoon. Save-a-Lot refuses
delivery, having already bought potatoes from Sally's Spuds at
a higher price than that negotiated with Bob. As the Weekend
Special had already been advertised, Save-a-Lot made 5 cents a
bag less profit and incurred higher labour costs due to the need
to bring pay overtime to labour to bag the potatoes on Friday
evening. Bob sues Save a Lot for breach of contract arguing
that it should have informed him in advance that it did not
want delivery. Save a Lot counter-sues Bob. What is the likely
outcome? What would be the likely outcome if Save-a-Lot had
accepted late delivery but paid only half the agreed price to
Bob?
Repudiation
Repudiation of the contract by a party occurring before the
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due date of performance of the contract is anticipatory breach.
The non-breaching party can sue and in some cases not
perform her duty under the contract. She can also ignore the
breach, demand performance and continue to perform her
duty under the contract.
See Trio Roofing Systems v. Atlas Corp. [2004] O.J. No.
707(S.C.J.) and Yates p. 277. The court held the breach to be
major. Repudiation arising from anticipatory breach requires
a major breach by the other party. If breach is minor, the
victim can sue but must perform own obligations.
See Vanderwal v. Anderson pp. 277-8 of Yates.
See also Avery v. Bowden p. 278 Yates. If do not discharge
contract, non-breaching party must perform own obligations.
EXEMPTION CLAUSES
Exemption clauses (EC) seek to limit a party’s liability under contract.
Examples include so-called “warranties” from automobile sellers that
limit liability in the event of defective cars. See also signs in parking lots,
coat checks, dry cleaners limiting liability for damage caused in the
delivery of service. These are lawful and legally effective if notice is
given at the time the contract is created.
Contra proferentem Strictly interpreted against the party relying on the
EC
Meditek Lab Services v. Purolator Courier Ltd. (1995) 125 DLR (4th) 738.
(Yates p. 270).
EC protected against negligence or gross negligence. But package was
mis-delivered and documents falsified. It couldn’t be found. Plaintiff
ordered a new machine, then the other turned up. Pl. successful as act
was willful not negligent.
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See also case where item was delivered late. EC contained in contract
but item was never delivered. Contra proferentem.
But see Securicor v. Photocell Productions, Hi-tech Business Systems
Ltd. v. Purolator Courier Ltd. (1996) 194 A.R. 247 (Provincial Court).
Also Hunter Engineering v. Syncrude Canada [1989] 1 S.C.R. 426 where
SCC confirmed that properly worded exemption clause would be
upheld no matter how one-sided.
Notice must be given for EC to override implied terms of contract
regarding competence and damages etc. Failure to read such a clause is
no excuse but if EC is hidden in long document and is an unusual or
unexpected clause, it must be expressly brought to notice of the other
party to be effective if it is challenged by the other party.
Ontario Court of Appeal won’t enforce exemption clauses
where in the event of a fundamental breach it would be unfair,
unconscionable or unreasonable to do so. Fraser Jewellers v.
Dominion Electric Protection (1997) 148 D.L.R. (4th) 496.
In Fraser court held no fundamental breach even though the
alarm went off and there was a slow response. Plaintiff had
obtained benefit from the contract. Plaintiff had not read the
exemption clause.
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