Anticipatory Breach of Contract

The following two tabs change content below.
is a litigation lawyer practicing at Perley-Robertson, Hill & McDougall LLP in Ottawa, Ontario. He may be reached at 613.566.2823 or obourns@perlaw.ca.

Latest posts by Owen Bourns (see all)

As we all know, contracts are not written in stone.  For any number of reasons one party to a contract may no longer be willing or able to carry out its contractual obligations.   If the other innocent party to the contract is made aware that the non-compliance is forthcoming then the law provides certain rights and options to the innocent party.

An “anticipatory breach” of contract will be found where a party’s conduct amounts to a total rejection of the obligations under the contract and there is a lack of justification for such conduct.  This intention will be demonstrated where a reasonable person would conclude that the breaching party no longer intends to be bound by it.

The test for anticipatory breach (also known as “repudiation”) is whether the threatened breach deprives the injured party of a substantial part of the benefit to which he is entitled under the contract.  Five factors are used to determine whether conduct has deprived an innocent party from substantially benefiting from a contract.  They are:

(1) the ratio of the party’s obligations not performed to that party’s obligations as a whole;

(2) the seriousness of the breach to the innocent party;

(3) the likelihood of repetition of such breach;

(4) the seriousness of the consequences of the breach; and

(5) the relationship of the part of the obligation performed to the whole obligation.

See Spirent Communications of Ottawa Limited v. Quake Technologies (Canada) Inc., 2008 ONCA 92 (CanLII).

Where the innocent party is not willing to treat the contract at an end it has the option of either:

(a) accepting the repudiation, i.e., treating the contract as terminated and suing immediately; or

(b) waiting until the time of performance arrives and calling on the repudiating party to perform.

An innocent party’s acceptance of the repudiation may be express or implied by conduct, but must be clearly communicated to the breaching party.  Once the choice is made it is binding.  Where a party “accepts” the repudiation, it has the effect of discharging both parties from their future obligations under the agreement.  Any right of action accruing as a consequence of the breach of contract survives.

Where the innocent party chooses not to “accept” the repudiation, s/he can continue to press for performance and sue at a later time when the time of performance arises.  However, when this is done the innocent party keeps the contract alive to the detriment or benefit of both parties.  A duty to mitigate losses will be imposed.  This means that the innocent party must take steps to minimize his or her losses.

If you are party to a contract where either party is unable to fulfill the obligations under the contract in question then you should seek legal advice immediately.

___________________________________________________________________________________________

Owen Bourns is a litigation lawyer in Ottawa, Ontario.  He may be reached at 613.566.2823 or at obourns@perlaw.ca

 

 

1 comments