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 Vernons 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.

(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 partys 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 couldnt 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. 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 wont 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.