the committing of a fundamental breach (leading to termination
of the agreement if the breach is acted upon by the innocent
the triggering of an express termination provision; and
the acceptance by the innocent party of a repudiation (thereby
causing the agreement to be rescinded).
The case also usefully reminds us that a party confronted
by a fundamental breach must act quickly if it
wishes to use that breach to justify terminating the
The case involved an agreement to purchase real
property, with the deal to close on December 18,
2012. The vendor was required to take certain steps
(including the obtaining of subdivision approval) as a precondition
The contract specified that "time was of the
essence." The inclusion of such a
provision indicates that a failure of timely performance
will be considered a fundamental breach of the contract,
permitting termination by the innocent party. This power must
be expressly exercised by the innocent party, however. A
failure by the innocent party to act on the fundamental breach may
be treated as an election to affirm the contract's continuing
existence. Such an affirmation limits the innocent
party's remedies to a claim for damages.
Despite reasonable efforts, the vendor was not able to
satisfy the necessary preconditions by December 18,
2012. As such, the deal did not close. Rather than
acting immediately on this failure by the vendor, the purchaser
allowed the deadline to go by without taking any steps.
Indeed, for several more months, both parties continued to act as
if the contract remained in full force.
The innocent purchaser waited until April 23, 2013 to send a
letter stating that it was treating the contract as
terminated, and demanding the return of its deposit.
The BCCA ruled that — because of the innocent
party's four-month delay in acting — it had
effectively affirmed the contract, despite the fundamental breach,
and had thereby lost its right to terminate. As the
election between inconsistent rights must...be made promptly and
communicated to the other side. Parties cannot adopt a
"wait-and-see" approach to fundamental breach, as their
election simultaneously determines the position of the counterparty
to the contract. Either the contract is not repudiated and
the rights and obligations under it still exist, or the contract is
rescinded because of an accepted repudiation and then very
different rights come into being in respect of a cause of action.
In either case, parties must have prompt notice of their position.
 April 23, 2013 was much too
late to put the Contract to an end for a failure to complete on
December 18, 2012. An election must be made promptly. In this case
it was not. By April 23, 2013 the Purchaser could no longer
rely on the Seller's December 18, 2012 breach as a fundamental
breach of contract.
Making matters worse for the innocent purchaser, its April
letter purporting to terminate the contract — at a
time when it had no such right to terminate, owing to its own
delay — itself constituted an anticipatory breach of the
contract. More specifically, by stating that it no longer
intended to be bound by the contract, the purchaser's April 23,
2013 letter constituted a repudiation of the agreement.
Ironically, the vendor — the original breaching party
— was thereby able to "seize the high
ground." It accepted the purchaser's repudiation,
and rescinded the agreement. Because the termination was the
fault of the (previously innocent) purchaser, the vendor was able
to retain the purchaser's deposit.
(The agreement of purchase and sale also included a
provision causing the agreement to terminate automatically in
certain circumstances. However, the Court concluded that that
provision had not been triggered on the facts of the
The moral of the story is clear — a party confronted by a
fundamental breach (or a repudiation) must act in a timely manner
if they wish to take advantage of the other side's action by
terminating the agreement. Delay may well be treated as an
affirmation of the agreement, thereby causing the right to
terminate (or rescind) to disappear.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
While most are well aware that the sale of a business is generally a complex process, even sophisticated business owners are surprised by just how much cost and effort is required to complete the sale.
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