A November 2014 decision by the British Columbia Court of Appeal
serves as a stark reminder about the importance of acting quickly
when it comes to breach of contract matters. This is particularly
true for an innocent party wanting to terminate a contract. The
decision shows that failure to take swift action may result in
innocent parties not only losing their ability to get out of a
deal, but may even allow the original repudiating party to escape
its obligations and the consequences of its earlier breach.
The decision in A & G Investment Inc. v. 0915630 B.C.
Ltd.  B.C.J. No. 2701 involved the purchase and sale of
building lots to be created by way of subdivision. The contract
required the vendor to complete the steps necessary to create the
subdivision as a condition of completion. Completion was to occur
on the earlier of Dec. 18, 2012, or the 21st day after the vendor
delivered written notice that the subdivision condition had been
fulfilled. The contract also gave the vendor the option to extend
the completion date for up to 270 days, and included an ultimate
outside date of Dec. 31, 2013. However, by Dec. 18, 2012, the
subdivided lots had not yet been created and the vendor was not in
a position to complete the transaction. Instead of acknowledging
the failure to tender by Dec. 18, the purchaser continued to act as
if the contract was still in existence by continuing its marketing
activities to resell the still uncreated lots.
In January 2013, the subdivision plan was registered by the
vendor to create the lots. Then, in March and April of 2013, the
purchaser attempted to back out of the deal and requested a return
of its deposit, alleging among other things that the contract had
automatically terminated on Dec. 18, 2012 because the subdivision
condition had not been fulfilled. The vendor in turn alleged that
the contract remained in full force and effect and that the
purchaser's intention not to be bound by the contract amounted
to repudiation of the contract such that the vendor was entitled to
retain the deposit.
In its ruling, the court agreed with the vendor. It first found
that the contract could not be interpreted as automatically ending
on Dec. 18, 2012 when the condition precedent remained unfulfilled,
because this interpretation would be inconsistent with the outside
date of Dec. 31, 2013 also included in the contract.
The court further found the vendor's failure to complete on
Dec. 18, 2012 constituted a fundamental breach of contract giving
rise to the purchaser's right to either: (1) elect to affirm
the contract and hold the vendor to the performance of its
obligations; or (2) to elect to terminate the contract and obtain a
return of its deposit. However, the court found that the
purchaser's four-month delay in properly communicating its
decision meant that it had already irrevocably elected to affirm
The court held that the purchaser was not entitled to adopt a
"wait-and-see" approach to fundamental breach since the
purchaser's election simultaneously determines the position of
the repudiating party. Although the court did not discuss how
quickly an innocent party must communicate its election, the Court
of Appeal for Ontario in Brown v. Belleville (City) 
O.J. No. 1071 had previously said that an election to terminate a
contract must be clearly and unequivocally communicated to the
repudiating party "within a reasonable time." In A
& G Investment, four months was determined to be too long
a delay and beyond what could be considered reasonable.
Unfortunately for the innocent purchaser, their delayed response
had even further consequences. The court found that they had
anticipatorily breached the contract themselves by attempting to
back out of the deal and demanding the return of the deposit at the
point of time that they did. With the parties' positions
effectively reversed and the purchaser now in a fundamental breach,
the vendor properly accepted the purchaser's repudiation and
elected to treat the contract at an end, entitling the vendor to
retain the deposit.
A & G Investment highlights the
importance of innocent parties acting promptly in electing whether
to affirm a contract or to treat it as at an end. As demonstrated
in this case, the consequences for failing to do so may be far
wider-reaching than expected. Unless an election to terminate is
communicated promptly to the repudiating party within a reasonable
time, the innocent party may lose their ability to do so. Further
to that, if the innocent party fails to communicate its election to
terminate and then tries to do so after the fact, it may find
itself in anticipatory breach of the contract. The safest course of
action — as A & G Investment demonstrates, is to
make the election as soon as possible.
Previously published in The Lawyers Weekly
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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.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan 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.
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