7 Contract Law in Canada Part III: Ending a Contract
Learning Objectives
- Understand the importance of contractual performance.
- Identify situations where both parties may agree to terminate a contract by mutual consent.
- Define frustration of a contract and recognize circumstances that may lead to it.
- Analyze the consequences of a breach of contract for both the breaching party and the non-breaching party.
- Understand the remedies available to the non-breaching party in cases of breach.
When do parties to a contract get out of that contract? When do they cross the finish line of their contractual obligations? That is a surprisingly fulsome question and the subject of this chapter.
A contract, even if enforceable, will not continue on indefinitely; the life cycle of a contract has to include its end. What can sometimes be difficult to determine though is, how exactly was the contract brought to that end?
There are a number of different ways in which contractual obligations can be ended:
- performance of the contractual obligations;
- by mutual agreement;
- as a result of a frustrating event; and
- upon the breach of the contract.
Each of these forms requires different actions by the parties or different determinations by the law to fully discharge the parties from their obligations.
A key question is not just how the contract is alleged to be ended, but whether it actually was ended. Parties can intend to bring a contract to an end or think they have brought it to an end when, in actual fact, the contract may remain in place and still be enforceable. Therefore, the parties need to be precise and accurate about how their contractual obligations were ended and when that was effective.
Contractual Performance
The most common form of terminating a contract is where the parties completely satisfy their contractual obligations. Once both of the contracting parties have fulfilled their obligations then the contract is over.
Assuming the contract has been fully performed, the contract would still have effect for purposes of resolving later controversies or disputes between the parties however, no further obligations would arise. For example, if a construction company has finished building a house for a homeowner, the contract between the parties would come to an end assuming full and final payment is made. However, the contract between the parties would still persist and still be relevant for some purposes like determining if there were deficiencies in the construction and what the homeowner can do about it.
Substantial Performance
Common law also permits arguments on the basis of substantial performance. Substantial performance refers to a situation where a party to a contract has fulfilled the majority of their obligations under the contract, but there may be minor or immaterial deviations or defects in that performance. Despite these deviations, the party’s overall performance is still considered to be sufficient and therefore, performed.
Substantial performance is often invoked when there is a minor breach of contract, meaning that the party has not fully complied with all the terms and conditions of the contract. However, the breach is not significant enough to undermine the purpose of the contract or deprive the other party of the benefits they expected to receive.
If the court finds that substantial performance has been achieved, the non-breaching party is still obligated to pay the performing party for their work. However, the non-breaching party may be entitled to damages or a reduction in payment to account for any remaining deficiencies or defects.
Mutual Agreement
Contracts are built on the notion of agreement and consensus. Whether a contract is enforceable demands that the parties reach a clear agreement. Well, if a contract can be made by agreement, should it not also be able to be ended by an agreement?
Parties to a contract may wish to mutually agree to bring their contract to an end. When a contract is successfully ended by agreement, it discharges the contract, and the parties are released from their contractual obligations. However, it is once again imperative that the parties fully satisfy the legal requirements to actually end the contract.
As an opening note, there are a myriad of ways in which a contract can be ended by mutual agreement. Sometimes this discharge requires contractual terms in the first agreement and, other times it involves the parties reaching a new agreement to discharge the first.
Contractual Terms Providing for Termination
When parties enter into a contract, they have the flexibility to include specific provisions regarding the termination of that contract. These discharge provisions outline the circumstances under which either party can end the contractual relationship. Most commonly, we see options to terminate and conditions expressed in the contract by the parties.
“A contract may contain within itself the elements of its own discharge, in the form of provisions, express or implied, for its determination in certain circumstances. These circumstances may be the non-fulfilment of a condition precedent; the occurrence of a condition subsequent; or the exercise of an option to determine the contract, reserved to one of the parties by its terms.”
Anson’s Law of Contract, 20th Ed., 310-11
1. Options to Terminate
An option to terminate allows one party or both the ability to terminate the contract by exercising the option. Provided the party wishing to exercise their option does so in complete compliance with the option language then the contract will be discharged. No further obligations will be owed.
Options to terminate future prominently in many types of contracts such as professional sports contracts, real estate purchases, employment contracts, and tenancy agreements.
For example, imagine a tenant and landlord enter into a lease agreement for a commercial property with a term of three years. However, the lease includes an option to terminate allowing the tenant to bring the lease to an end after the first year if the tenant’s business is not meeting certain profitability thresholds.
The precise language of that option could be:
If the Tenant’s sales revenue fails to reach or exceed $500,000 within the first [12] months of the lease term, the Tenant shall have the right to terminate this lease agreement by providing written notice to the Landlord within [30] days of the end of such period. The notice shall specify the date on which the termination will take effect, which shall not be earlier than [30] days nor later than [60] days from the date of the notice.
After the first year of the lease, the tenant’s business is struggling, and they decide to exercise the option to terminate the lease. What the tenant has done is successfully exercise the contractual option to terminate. There is no breach of the lease, it was ended by the exercise of the option.
It is important to remember that options allow the contractual party the choice to end the contract and, in so doing, will avoid claims that they have not performed their contractual obligations. A party objecting to the discharge of the contract will have limited legal arguments as they had initially agreed to the option to terminate when the contract was first accepted.
II. Condition Subsequent Clauses
Condition subsequent clauses are less about the choice of the contracting parties and more about the occurrence of an event. A condition subsequent is a type of term that states the contract will be discharged if certain conditions are met. As such, the parties are only relieved of their contractual obligations if the events stated in the condition subsequent actually occur.
An example of a condition subsequent in a commercial lease would be the following:
This lease shall terminate automatically and immediately upon the revocation or forfeiture of any necessary license, permit, or governmental approval required to operate the business conducted by the tenant on the premises.
In this example, the lease is discharged not because of a choice by either party but, rather because an event has occurred: the revocation of the necessary licenses or permits.
Given their impacts on the contract, condition subsequent clauses must be clearly stated in the contract in order to be enforceable.
III. Condition Precedent Clauses
Much like condition subsequent clauses, condition precedent clauses rely on events occurring to shape the existence of the contract. However, unlike condition subsequents, condition precedents actually result in the performance of the contract (and not its termination) upon the occurrence of the event.
A condition precedent is an event or action that must occur or be fulfilled before a contract becomes effective or before a party is required to perform their obligations. Often the condition precedent are referred to as “subject to” clauses as the contractual performance is subject to the satisfaction of the event.
If a condition precedent clause is expressed in the contract and the condition precedent event does not occur, the contract is immediately terminated.
For example, imagine the sale of a piece of property. The sale contract might state that it is subject to the buyer receiving satisfactory financing. In this case, the buyer receiving financing is a condition precedent to the performance of the contract. If the buyer is unable to obtain financing then the parties’ contractual obligations are discharged.
Ultimately, even a condition precedent can result in the termination of the contract though, it is because the condition precedent event did not occur.
Reaching a New Agreement to Discharge the Original Contract
While options to terminate and conditions are expressed in the contract between the parties, separate considerations emerge when the parties wish to reach a new agreement to discharge their first agreement. In such a case, the parties are attempting to use contract law principles to affect, modify, or terminate their initial contract.
It turns out that, using a new agreement to change the first, can be a legally complex endeavour. Firstly, it requires the parties to comply with all the requirements for forming a contract: offer, acceptance, consideration, capacity, legality, etc. Should any of those elements not exist then the new or changed agreement will not be valid. Secondly, each of the various ways in which the parties would change or override their initial contract come with different consequences and different names. These names include rescission, accord, variation, novation, release, and waiver.
I. Rescission
Rescission allows the parties to a contract to agree to cancel their contract. It is used when both parties agree that the contract is no longer desirable or necessary and they want to bring the previously enforceable obligations to an end.
Both parties must agree to cancel the contract and provide each other valuable consideration as part of the bargain. When canceling, the consideration used is that each party gives up their rights that existed under the first contract. For example, suppose that a homeowner hires a contractor to renovate their kitchen for $50,000. After the contract is signed, the homeowner discovers that they cannot afford the renovations and the contractor realizes that they could make more money on a different project. Both the homeowner and the contractor can use rescission to cancel the contract and, if agreed to, the consideration would be that each party is giving up the promises from the initial contract (renovations and money).
Overall, rescission can be an effective way for both parties to cancel a contract provided that neither party has received any benefit under the first deal.
II. Accord and Satisfaction
Like rescission, an accord and satisfaction refers to a method of discharging a contract by agreement of the parties.
Unlike rescission, accord and satisfaction involves one party accepting something different from what was originally agreed upon in the first contract. To be valid, an accord and satisfaction must be agreed to by both parties and must be supported by consideration.
The accord is the agreement to discharge the existing obligation, and the satisfaction is the consideration required to support it.
Gregov v. Canocean Resources Ltd., [1987] B.C.J. No. 2014
For example, imagine if party “A” agreed to build a fence for $5,000 dollars paid by party “B”. Unfortunately, due to lumber shortages, there is insufficient materials for the fence. Rather than cancel the contract, party “A” offers to instead do comprehensive landscaping in exchange for the same $5,000 that was originally offered for the fence. Party B agrees. In this case, the parties are exercising the legal right of accord and satisfaction which will replace the first agreement. The old contract for the fence is discharged and the new agreement ($5,000 for landscaping) becomes valid and binding.
Accord and satisfaction can be a useful way to amend a contract when one party has performed their obligation but, the original contract no longer makes sense for the parties.
III. Variation
Assuming the parties wish to make changes to the initial deal, they may use variation or novation. While variation and novation are similar in effect, changing the first agreement, they differ in that novation may result in the substitution of the initial contract.
Variation refers to a change or modification to an existing contract that does not create a new contractual relationship between the parties. In a variation, the original contract remains in force, but the parties agree to amend its terms or conditions. For example, if A and B have a contract for the sale of goods, but the delivery date needs to be changed, they may agree to vary the contract by changing the delivery date without creating a new contractual relationship.
IV. Novation
On the other hand, novation, refers to the substitution of a new contract for an existing one. When using novation, the parties agree to replace the original contract with a new one — this extinguishes the original contract and creates a new contractual relationship between the parties.
Typically, novation involves the substitution of one party to the contract with another, such that the new party assumes the obligations and liabilities of the original party. For example, if A contracts with B to build a fence, but B is unable to perform the service, A may agree to novate the contract by replacing B with C, who will now build the fence and assume B’s obligations and liabilities under the contract.
V. Release
When there has been a legal dispute between parties, one of the most common documents which is requested is a release. A release is a legal document that acts as a form of settlement in which one party (the releasor) agrees to give up their right to make a claim against another party (the releasee) in exchange for some form of consideration. The consideration can be in the form of money, goods, or services. The release typically specifies the claims being released, the parties involved, and any other relevant conditions.
Releases are often used to avoid the expense and uncertainty of litigation. They can be used to settle a wide range of legal disputes, including personal injury claims, breach of contract claims, employment disputes, and inheritance disputes.
Example — Accord and Satisfaction
Imagine that someone passes away and there are disputes by the children about various entitlements to that estate. Once a settlement agreement is reached between the children, a release can be executed by all of them to give up their present or future legal claims.
Consider the following release language from Male v. McKay, 1996 CanLII 8546 (BCSC):
“8. Each of the parties hereto hereby releases all claims … he or she might have to the estate of the other …
9. Each of the parties hereto acknowledges to the following:
(a) this agreement is intended to be a full and final settlement as to property matters and maintenance and each hereby releases the other from all claims which he or she might have against the other …
(b) each party has read this agreement carefully and knows well what he or she is signing”
In this case the release has the effect of giving up any legal rights (including contractual ones) that the parties may have had.
In order for a release to be effective, it must be executed by both parties and be supported by adequate consideration (something of value given in exchange for the release). The release must also be clear and unambiguous, and must not be obtained through fraud, duress, or undue influence.
VI. Waiver
A final way in which the contracting parties can end their original agreement is where one of the parties voluntarily and intentionally gives up their legal right. This sacrifice of the contractual rights or claims is referred to as a waiver — the party is waiving their rights. In effect, waiver allows a contracting to give up a legal right that they would otherwise been able to enforce. For a waiver to be legally valid, the party waiving 1) must have had full knowledge of their rights, and 2) had an unequivocal and conscious intention to abandon those rights. The waiver does not need to be in writing to be enforceable.
An example of a waiver could be a landlord waiving their right to charge a late fee for a tenant who has paid their rent a few days late. If the waiver is successfully proven, the landlord’s right to collect the late fee would no longer be legally permitted as they have waived that right.
Frustrating Events
What happens if parties enter into a binding contract but, unfortunately, circumstances outside their control make it impossible to move forward with the deal?
For example, imagine a buyer and a seller enter into a contract where the seller agrees to sell a cottage to the buyer for $500,000. The contract specifies that the cottage will be transferred to the buyer’s possession by a specific date, and the payment will be made upon the transfer. Both parties want and expect the transfer and payment to take place.
However, just a few days before the scheduled transfer date, an unexpected wildfire breaks out in the vicinity of the property, engulfing the cottage, and destroying it. There is now no possibility of transferring it to the buyer.
How should the law treat the contract? Is the seller still entitled to payment? Should they receive half a payment? Does the buyer just get the land? Or, is the contract over because of this unexpected event. All of these questions are the purview of frustration.
Common Law Doctrine of Frustration
The doctrine of frustration relieves parties from their contractual obligations when an unforeseen event occurs that makes the performance of the contract impossible or radically different from what was originally agreed. At the heart of frustration is the idea of fairness — parties should not be penalized when events beyond their control arise and undermine the contract.
“The doctrine of frustration is a legal mechanism which recognizes that where it is not reasonable to place the risk of a particular event on either party to a contract, that contract and the responsibilities thereunder should be discharged.”
Folia v. Trelinski, 1997 CanLII 469 (BCSC) at para. 17
Not every event will result in legal frustration of the contract, the necessary legal test must be met.
Legal Test for Common Law Frustration
Common law frustration requires three key elements:
- the alleged frustrating event must have occurred after the formation of the contract and cannot be self-induced.
- the contract must, as a result, be totally different from what the parties had intended.
- the act or event that brought about such radical change must not have been foreseeable.
Folia v. Trelinski, 1997 CanLII 469 (BC SC) at para. 18
If all three elements are present, the contract will be automatically frustrated, and the parties will be released from their obligations without being held liable for breach.
When we speak about unforeseen events, one of the most impactful in modern history was the COVID-19 pandemic which occurred in March 2020 and extended for years. As a result of the pandemic, all levels of governments enacted rules compelling social distancing and, in many cases, resulting in the closure of businesses and venues. It’s easy to see how such a pandemic and the resulting governmental responses could trigger claims of contractual frustration.
For example, imagine a couple signs a contract with a wedding venue in Toronto in January 2019, with plans to hold their wedding on June 15, 2020. However, in March 2020, as a result of the COVID-19 pandemic, the government imposes a lock-down that prohibits all public gatherings. Despite the venue and the couple’s efforts to reschedule the wedding, the lock-down continues for months, making it impossible to hold the wedding as planned.
In such an example, the wedding venue contract would be frustrated. There was unforeseeable event (the pandemic) that made the performance of the contract impossible. As a result, the contract may be discharged, and the couple would not be in breach of the agreement for walking away.
Foundational Law — Verigen v. Ensemble Travel Ltd., 2021 BCSC 1934
Verigen was employed as a business development director for Ensemble Travel Ltd. (ETL) from early 2019. In March 2020, in response to the economic impacts of the pandemic on the travel industry, ETL temporarily laid off Verigen and half of its workforce in Canada and the United States.
Verigen’s employment contract and ETL’s employee handbook did not authorize temporary layoffs. However, Verigen accepted the layoff and subsequently agreed to two extensions of the layoff. ETL ultimately terminated Verigen’s employment on August 24, 2020. Verigen brought an action against ETL alleging that she was wrongfully dismissed and sought damages.
ETL argued that the employment contract was frustrated by the pandemic, such that no severance or payment was due and owing to Verigen. Specifically, ETL relied on the global collapse in demand for travel and the loss of market value for the work Verigen was hired to do. Additionally, Verigen’s job description called for her to spend up to 50% of her time traveling, which she was precluded from doing at times due to public health orders.
The Court concluded that the collapse of the travel market, which impacted ETL’s ability to fulfill the employment contract, did not constitute a permanent event. It was a temporary situation that affected ETL’s performance rather than fundamentally changing the nature of the contractual obligation.
Further, ETL’s ability to retain some staff and their recent hiring of a new employee demonstrated that the effects of the market collapse were temporary in nature. As such, the pandemic was not a permanent or insurmountable obstacle for ETL.
Finally, the Court noted that ETL’s decision to terminate Verigen (and other employees) as a means to navigate the financial challenges caused by the pandemic indicated that the contract was not frustrated by the pandemic. The termination was a strategic response to weather the financial impact of the pandemic rather than a result of the contract becoming impossible to perform.
Overall, considering the temporary nature of the travel market collapse, ETL’s retention of some staff, and their recent hiring, the Court determined that the employment contract was not frustrated by the pandemic.
Force Majeure Clauses
A force majeure clause is a contractual provision that addresses unforeseen circumstances which make the contract impossible to perform. While force majeure clauses and the doctrine of frustration overlap, they are distinct legal concepts because the clauses are contractual rights while frustration is rooted in the common law.
The purpose of a force majeure clause is to allocate the risk of unexpected events between the parties to the contract. Typically, the clause will excuse the affected party from performance of its obligations under the contract for the duration of the force majeure event. This means that the party will not be liable for any damages or other consequences that arise as a result of its failure to perform. The clause may also specify certain procedures or requirements that the parties must follow in order to invoke the clause.
Example – Force Majeure in a Commercial Lease
The following is an example of force majeure wording found in a commercial lease:
Force Majeure. In the event that either party hereto shall be delayed or hindered in or prevented from the performance of any act required hereunder by reason of strikes, lock-outs, labour troubles, inability to procure materials, failure of power, restrictive governmental laws or regulations, riots, insurrection, war, military or usurped power, sabotage, unusually severe weather, fire or other casualty or other reason (but excluding inadequacy of insurance proceeds, financial inability or the lack of suitable financing not attributable to any of the foregoing) of a like nature beyond the reasonable control of the party delayed in performing work or doing acts required under the terms of this Lease (herein called “force majeure”), the performance of such act shall be excused for the period of the delay and the period for the performance of any such act shall be extended for a period equivalent to the period of the delay. The provisions of the preceding sentence however shall not excuse Tenant from the prompt and timely payment of the Rent as and when the same is due under this Lease except when (i) the Commencement Date of the term is delayed by reason of force majeure, or (ii) such payment is excused pursuant to other provisions of this Lease.
While we do not need to concern ourselves about the tenancy specific issues, note how detailed the clause is about the unforeseen events contemplated by the parties.
British Columbia Frustrated Contract Act
In British Columbia, the province has enacted a statute, the Frustrated Contract Act, R.S.B.C. 1996, c. 166 (FCA), to provide clarity on how to treat frustrated contracts. All provinces have a similar statute with the exception of Nova Scotia.
The statute aims to provide a fair and balanced approach to dealing with frustrated contracts. It attempts, as best possible, to avoid placing an unfair burden on only one party, with the hope that losses can be fairly apportion.
Specifically, the FCA provides that any money paid or property transferred under the contract before the frustrating event occurred may be returned to the party who paid or transferred it. This means that if one party has paid money or transferred property to the other party under the contract, but the contract is frustrated before the performance is completed, the paying party may be entitled to get their money or property back.
In addition, the FCA provides that any expenses incurred by the parties in the performance of the contract before it became frustrated can be recovered from the other party as a debt. For example, imagine two companies entered into a contract to develop a new software product. However, due to a sudden change in government regulations, the project becomes impossible. The FCA allows the company that incurred expenses in the initial stages of the project to recover those costs from the other party.
Finally, the FCA provides that any losses resulting from the frustration of the contract are to be shared equally between the parties. This means that neither party is responsible for all of the losses that result from the contract’s frustration. Instead, the losses are split evenly between the parties.
Breach of Contract
When parties go through the steps of entering into a valid contract, we might assume that they will perform. However, what happens if a contracting party fails to live up to their end of the bargain?
When a party fails to fulfill their obligations under a contract it referred to as breach of contract and the non-breaching party can sue and seek a legal remedy. The burden of proving the contract and its breach falls on the party bringing the legal claim. If a breaching party has a valid excuse for their non-performance (such as some of the previous concepts like frustration, waiver, etc.) then a breach of contract claim may not be successful.
Methods of Breach
Not all breaches of a contract occur in the same way. There is a difference in whether a party breaches through poor performance of their obligations versus those parties who anticipate a future breach of contract.
1. Anticipatory Breach
An anticipatory breach is a statement or action by one of the contracting parties that they do not intend to fulfill their obligations. In such a case, the breaching party is giving advance warning that they will be breaching the contract; this advance notice can be in the form of a verbal or written statement or can be an action that makes it clear they will not fulfill their obligations.
Assuming that a breaching party has provided the advance notice of an intended breach, the non-breaching party does not need to wait for the breach to actually occur. Following notice of the anticipatory breach, the non-breaching party can elect to treat the contract as immediately breached and pursue their legal action.
“Anticipatory breach occurs when a party, by express language or conduct, or as a matter of implication from what he has said or done, repudiates his contractual obligations before they fall due.”
G.H.L. Fridman, The Law of Contract in Canada,
6th ed. at pg. 585
For example, imagine Company A agrees to purchase 1,000 widgets from Company B for $10,000 with payment due upon delivery. One week before the scheduled delivery date, Company A sends an email to Company B stating that they will not be able to pay for the widgets and that they want to cancel the order. This would be an anticipatory breach because Company A has made it clear that they will not fulfill their obligation to pay for the widgets upon delivery. In response, Company B could terminate the contract and seek damages for any losses suffered as a result of the breach.
Ultimately, the ability to terminate the contract for an anticipated breach makes good commercial sense as a party should not have to wait until an actual breach occurs when they have already received clear notice one will happen.
II. Defective Performance
Sometimes contracting parties do not give notice of an intended breach, but rather have inadequate contractual performance — this is called defective performance. Defective performance occurs when a contracting party fails to meet the obligations or standards set out in the contract. This can occur when one party to the contract fails to deliver goods or services as agreed upon or if the goods or services delivered do not meet the required specifications.
For example, imagine a contractor is hired to build a house using Italian marble counter-tops throughout. However, rather than marble, the contractor tries to save costs being using laminate counter-tops. Here the contractor’s performance is defective and they have breached the contract.
Types of Contractual Terms that have Been Breached
I. Conditions
Conditions are serious or fundamental terms that go to the very root of the contract. If a condition is breached, it means that the contract has been undermined in a significant way. After breaching a condition, the non-breaching party has the right to terminate the contract and claim damages or can continue with the contract and claim damages.
For example, if a contract for the sale of goods specifies that the goods must be delivered by a certain date, this would be a condition of the contract. If the seller fails to deliver the goods by that date, the buyer can terminate the contract and claim damages for any losses suffered. Alternatively, the buyer may wish to continue with the contract (by accepting the late delivery) and attempt to sue for whatever damages are available. The choice to affirm or discharge is given to the non-breaching party.
II. Warranties
Warranties, on the other hand, are less important terms that do not go to the root of the contract. In essence, warranties are collateral or minor terms which do not substantially undermine the contract if breached. If a warranty is breached, the other party can only claim damages but cannot terminate the contract.
For example, imagine a purchaser places an order for eight Japanese maples trees that are each 8-feet in height. When the eight Japanese maple trees arrive, they are each 7.75-feet in height. Arguably, there is a breach, but the breach does not deprive the purchaser of the reason they entered in the deal — the trees. Because only a warranty was breached, the purchaser must stay in the contract and sue for any damages.
III. Innominate Terms
The third form of contractual term, innominate terms, do not clearly fall into the category of condition or warranty (they are something in-between). The impact of an innominate term depends on the seriousness of the breach. If the breach is minor, it will be treated as a breach of warranty and the innocent party will not have the right to terminate the contract. However, if the breach is more serious, it may be treated as a breach of a condition, giving the innocent party the right to terminate the contract and claim damages.
For example, imagine the case of a buyer purchasing a new vehicle. An innominate term could be a promise made by the seller that the car will be a certain shade of red. If the ultimate colour of the car is different from that which was promised, the impact would need to be determined. What if the shade of red was meant to match the purchaser’s business or favourite sports team — the colour term would have a greater impact (condition). However, if the shade of red had no impact at all then it would be more aligned with a warranty.
Determining the Type of Contractual Term
Given that the legal rights of the innocent party are drastically different depending on whether a term is a condition, warranty, or innominate term, a clear question emerges: how do we know the classification?
Much academic and judicial ink has been spilled in understanding the role of conditions, warranties, and innominate terms. One such author, Fridman, concisely sets the stage for this issue:
Building off of Fridman’s quote, the law generally states a few ways in which we can get a clear determination of if a clause is a condition:
- A statute can set a certain provision as a condition. If the government has passed a law making a certain provision a condition then we can treat it as such.
- If a court decision (precedent) has determined that specific clauses are conditions rather then warranties then the precedent can be relied upon for support.
- The parties contract may expressly state that a certain type of clause is a condition. In such a case, the parties know the impact of the clause in advance and have certainty of the effects if breached.
- It may be necessary to determine if a clause is a condition by implication. This means looking at the nature of the contract, the subject-matter of the contract, or the circumstances of the contract to determine if the clause is a major one and thus is a condition.
Foundational Law — Marks v. TM Tilemart Ltd., 2020 BCCRT 70
A simple example of breach of contract is the British Columbia Civil Resolution Tribunal case of Marks v. TM Tilemart Ltd., 2020 BCCRT 70.
Terrance Marks and Jacinda Marks filed a case against TM Tilemart Ltd. for breach of contract arising out of unsatisfactory tiling work carried out in their primary bathroom.
Marks had hired TM to do the tile work in their primary bathroom. However, on June 18, 2019 , they contacted TM expressing their concerns about the poor quality of the work. The company sent a worker to remove the installed tiles and attempt a second install. Despite the second attempt at tile installation, the Marks found this work to be unsatisfactory as well. The company sent a representative to inspect the second install and offered to redo parts again. The Marks’ rejected this offer having already allowed a second install which was sub-standard. On July 31, 2019, the Marks demanded TM to cease work and asked for a full refund.
The Civil Resolution Tribunal found that TM was in breach. Both attempts at tile installation were unsatisfactory, causing functional and visual defects that rendered the master bathroom unusable. This breach was of a condition because the Marks were being substantially deprived of the reason they entered the agreement. Given that TM had breached a condition of the contract, the Marks were permitted to discharge the contract and were not obligated to give TM a third opportunity to fix the deficiencies.
The Marks had the right to terminate the contract and were awarded a full refund amounting to $4,353.67.
