BUSINESS CONTRACT LAWYER

Breach of Contract

Breach of contract involves the failure of the breaching party to perform his or her contractual obligations, such that the non-breaching party is necessitated to take remedial action so as to address the breach.

Conditions and Warranties

Terms essential to the substantial performance of a contract are referred to as conditions. Terms which are insignificant or peripheral to the central obligations of the contract are called warranties. The failure to perform a condition of the contract generally permits the other party to treat his or her obligation as at an end and sue for breach of contract. But the improper performance of a warranty does not relieve the other party of the obligation to fulfill his or her side of the agreement. The victim of such a failure to perform has a right to sue the other party for whatever it cost to overcome the deficiency in performance.

 Although the breach of a condition will normally allow the victim of the breach to treat the contract as discharged, there is an obligation to perform if the breach is accepted. Acceptance of a breach means the party has accepted some benefit under the agreement, knowing that the agreement has been breached. A breach of condition in a contract that has been accepted by the other party is treated as a breach of warranty. Meanwhile, terms that might normally be considered insubstantial or unimportant can be upgraded to the stature of conditions by the parties so declaring in their agreement.

Exemption Clauses

A warranty card included with the purchased document summarizes the seller's obligations under the contract and states of these obligations are merely warranties. Even when these limited obligations are not honored, victims can not return the goods or withhold payment for them if there has been a breach. The Sale of Goods Act states that in transactions governed by the Act, the court has the option of treating a term specified as a warranty as a condition.

The term warranty use in this way is often refer to as either an exemption, an exclusion or exculpatory clause. It is an attempt by the sellers of goods or services to significantly limit or eliminate their liability under an agreement. The courts will generally enforce exemption clauses because the object of contract law is to carry out whatever the parties freely bargain to do. But they do so reluctantly. If there is any ambiguity in the terms of the exemption clause, the narrower restrictive meaning will be used.

Exemption clauses are intricate and involved because the people who draft them try to cover all possible eventualities knowing that the courts will take a very restrictive approach in their interpretation. Consumer protection legislation that significant limits the scope of exemption clauses is becoming much more common.

Exemption causes usually form part of the written document, but the term could be included in a sign or notice. In any case, the terms must be brought to the attention in the customer. If the clause is on the back of a ticket or receipt, there must be referenced on the front directing the holder to read the back. The key thing to remember when dealing with exemption clauses is that one party cannot unilaterally impose a restriction of liability on the other. It must be agreed to as a part of the contract by both parties.

Fundamental Breach

Suppliers of goods or services attempt to limit the liability as much as possible. But the courts have shown a considerable reluctance to allow suppliers to limit their liability entirely. It is in these circumstances that the concept of fundamental breach has developed. Fundamental breach means some types of failure to perform are so basic to the contract that they destroy any semblance of the contract at all. In the face of such a breach, an exemption clause will not protect the breaching party from liability for damages.

The courts have refused to give effect exemption clauses in cases of fundamental breach. They have allowed the victim of the breach to return the goods and demand compensation. The justification for this is based on two different lines of reasoning and there was, until recently, considerable debate over this apparent interference with the freedom of contracting parties to agree to whatever they want. When the doctrine was developed it was thought to be a rule of contract law that parties cannot contract out of all liability. If the breach was so basic that it changed nature the agreement, the exception clause would simply be overruled. The accepted view today is the judge will imply from the terms of the exception clause the parties never intended it to go so far as to cover this fundamental breach. Although it is feasible to draft an exemption clause that excludes all liability, the courts will still, if they can, interpreted in such a way it has to give it less effect when a fundamental or basic obligation of the contract is breached. This is refer to as the construction approach and has been firmly adopted by the Supreme Court of Canada.

Repudiation

Repudiation occurs when one of the parties to a contract indicates to the other, an intimation or intention to abandon and altogether to refuse performance of the contract. If this refusal occurs before performance is due, it is refer to as anticipatory breach. In such circumstances, it makes little sense to insist that innocent parties continue to perform their part of the agreement. The courts, therefore, allow the victim to treat the contract as breached, sue and refuse to go through with any further performance. Alternatively, the victim of the repudiation can insist the contract be performed by performing his or her side of the agreement and waiting until the performance date to see if the other party carries true with the threat of non-performance. If the repudiating party fails to perform, the innocent party can then sue for breach of contract and the party repudiating will be held responsible for damages incurred after the repudiation. Once the choice is made to either ignore the repudiation and insist on performance or accepted and treat the contractual obligations as ended, that choice is binding. This can have serious consequences on the victim's legal position. If the innocent party insists on performance of the repudiate contract and is then unable to perform for any reason, the victim will be subject to a breach of contract action.

Repudiation can also be implied from the conduct of the parties. Repudiation is implied if the subject matter of an agreement is sold to a third party before the date of delivery or if an effort has been made to sell the goods. It is clear that the owner does not intend to honor the original agreement. Repudiation may also be implied by an actual breach of the terms of the agreement. Failure to perform one part of an ongoing contract, such as an important instalment, may be taken as repudiation of the rest of contract. The failure to perform must be a condition and serious enough for the victim to assume the rest of the agreement will be performed.

Please note that our legal practice is limited in the amount of enforcement legal work that we do undertake, with our primary role being focused upon the negotiating, drafting and  reviewing of business contracts, together with limitations imposed by legal jurisdictions that we practices in and our decision to not engage in this area of legal practice. For clarification thereon, contact contract lawyer Christopher Neufeld at 416-887-9702/ 403-400-4092 or via email at Chris@LawyerContract.ca.