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
1
contract may entitle the aggrieved party to sue for damages
but does not entitle to party to abandon its obligations under
the contract. He would do so at his peril.
See p. 266 Yates Sail Labrador v. Navimar Corp.
[1999] S.C.R. 265. Lease with option to purchase. Monthly
chques. One failed due to bank error. Sail said option no
longer available due to breach. Held only minor breach. Sail
himself in breach. See doctrine of substantial performance.
When is breach enough to discharge contract?
Vernon case p.268.Auctioneer agreed to sell equipment at his
gravel pit. Proceeds to be deposited in a joint bank account
and to be distributed in agreed proportions.
Auctioneer refused to deposit first $100,000 even after order to
do so by a court.
This amounted to breach of a condition. Auctioneer got
nothing from the $100,000 sale and not entitled to sell other
equipment.
See MDS Health Group v. King St. Medical Arts Centre
Difference between conditions and warranties. Major breach
and minor breach.
Compare the following cases.
(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
2
delivery and arranges for 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 a
lot. Bob and Save a Lot sue one another. What outcome would
you expect?
(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. Contrary to an express term of the
contract 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 accepted late delivery but paid only half
the agreed price to Bob?
Repudiation
If occurs before due date it is anticipatory breach.
Victim can sue and not perform. Or can ignore breach,
demand performance and continue to perform himself.
3
Must be a major breach in the repudiation. If not victim can
sue but must perform.
See Vanderwal v. Anderson p 272.
See also Avery v. Bowden p. 273
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
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
misdelivered 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.
See also case where item was delivered late. EC contained in contract
but item was never delivered. Contra proferentem.
4
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.
5