When a Party to a Contract Breaches the Contract Terms, Is the Other Party to the Contract Released From the Contract?

Where a Party to An Agreement Breached Terms of the Agreement or Shows An Intention to Breach the Agreement, Such a Breach or Anticipatory Breach Is Deemed a Repudiation of the Agreement. When a Party Repudiates the Agreement, Other Parties to the...


Understanding Contract Repudiation Principles Involving Expressions of Intent to Fail to Abide By An Agreement

Repudiation of Agreement Involves Release of Obligations Via Failure to Comply By Other Party In the situation where a party to a contract breaches the contract or clearly shows an intention to breach the contract, such conduct is known as a repudiation. Upon a repudiation, the other party, or parties, to the contract may elect to sue for harm resulting from the breach, if any, or choose acceptance of the repudiation and discharge of all remaining obligations.

The Law

In Potter v. New Brunswick Legal Aid Services Commission, [2015] 1 S.C.R. 500, as well as Brown v. Belleville (City), 2013 ONCA 148, the principles of repudiation of contract were explained whereas it was said:


[145]  There is a wealth of learning about the types of breach that constitute repudiation. Without getting into the details, we may say in brief that a breach is a repudiation of the contract if it is a breach of a contractual condition or of some other sufficiently important term of the contract so that there is a substantial failure of performance:  S. M. Waddams, The Law of Contracts (6th ed. 2010), at ¶590; McCamus, at pp. 676-77.

[146]  I pause here to deal with three problems of terminology that can cause confusion.

[147]  The first relates to the word “repudiation”; it is used in at least two different senses. Sometimes it refers to the conduct of the breaching party in committing a breach that is sufficiently serious to give the non-breaching party the right to treat the contract as over. At other times the term is used to refer to the choice of the non-breaching party, faced with this sort of serious breach, to treat the contract as over. I will use the word “repudiation” to refer to the acts of the party alleged to be in breach. I will refer to the choice of the non-breaching party to treat the contract as over as “acceptance” of the repudiation.

[148]  The second terminological clarification deals with the term “fundamental breach”. The types of breach that are sufficiently serious to constitute repudiation are often referred to as “fundamental” breaches. However, use of the term “fundamental breach” can cause confusion because it is also used in the distinct context of deciding whether a contractual provision excluding or limiting liability is effective in the face of a radical departure from the contractual obligations: see, e.g., Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at paras. 104-23. To avoid that confusion, I prefer to refer to breaches of this nature as breaches of “sufficiently important terms” or “repudiatory” breaches: see, e.g., McCamus, at p. 651.

[149]  The final point of terminology is concerned with “anticipatory” breach. An anticipatory breach “occurs when one party manifests, through words or conduct, an intention not to perform or not to be bound by provisions of the agreement that require performance in the future”: McCamus, at p. 689; see also A. Swan, with the assistance of J. Adamski, Canadian Contract Law (2nd ed. 2009), at §7.89.  When the anticipated future non-observance relates to important terms of the contract or shows an intention not to be bound in the future, the anticipatory breach gives rise to anticipatory repudiation. The focus in such cases is on what the party’s words and/or conduct say about future performance of the contract.  For example, there will be an anticipatory repudiation if the words and conduct evince an intention to breach a term of the contract which, if actually breached, would constitute repudiation of the contract.


[42]  A repudiatory breach or an anticipatory repudiation of contract does not, in itself, terminate or discharge a contract.  In Guarantee Co. of North America v. Gordon Capital Corp., 1999 CanLII 664 (SCC), [1999] 3 S.C.R. 423, at para. 40, the Supreme Court explained:

Contrary to rescission, which allows the rescinding party to treat the contract as if it were void ab initio, the effect of a repudiation depends on the election made by the non-repudiating party.  If that party treats the contract as still being in full force and effect, the contract “remains in being for the future on both sides.  Each [party] has a right to sue for damages for past or future breaches” (emphasis in original): Cheshire, Fifoot & Furmston’s Law of Contract (12th ed. 1991), by M.P. Furmston at p. 541.  If, however, the non-repudiating party accepts the repudiation, the contract is terminated, and the parties are discharged from future obligations.  Rights and obligations that have already matured are not extinguished.  Furmston, supra, at pp. 543-44.

See also Canada Egg Products, Ltd. v. Canadian Doughnut Co. Ltd., 1955 CanLII 90 (SCC), [1955] S.C.R. 398, at pp. 406-7; Place Concorde East Limited Partnership v. Shelter Corp. of Canada Ltd., 2006 CanLII 16346 (ON CA), [2006] O.J. No. 1964 (C.A.), 270 D.L.R. (4th) 181, at para. 49.

[43]  In his leading textbook, The Law of Contracts (Toronto: Irwin Law Inc., 2005), John D. McCamus refers to the election right of the innocent party on repudiation as an option to disaffirm or affirm the contract.  Disaffirmation of the contract, in this sense, constitutes an election to terminate the contract in the face of the non-innocent party’s repudiation of the contract.  In the applicable authorities, it is frequently said that an election to disaffirm the contract is an ‘acceptance’[1] or ‘adoption’ of the repudiation.  On this view, an election to affirm the repudiated contract constitutes rejection or denial of the repudiation and a decision to treat the contract as subsisting and on-going.

[44]  Professor McCamus puts it this way, at p. 654:

[I]n the context of a repudiatory breach of an agreement, the victim of the breach is entitled either to affirm or disaffirm the agreement and, in either event, pursue remedies for breach of contract.  Similarly, in the context of anticipatory repudiation, the effect of the repudiation is to confer an option upon the innocent party either to disaffirm or affirm the contract.  Thus, although the innocent party is entitled to disaffirm the agreement immediately and sue, that party may prefer to affirm the agreement and encourage or insist upon performance by the repudiating party or, more passively, simply wait and see whether the repudiating party does in fact eventually refuse to perform his or her contractual obligations when they fall due.  [Citations omitted.]

[45]  It appears to be settled law in Canada that where the innocent party to a repudiatory breach or an anticipatory repudiation wishes to be discharged from the contract, the election to disaffirm the contract must be clearly and unequivocally communicated to the repudiating party within a reasonable time.  Communication of the election to disaffirm or terminate the contract may be accomplished directly, by either oral or written words, or may be inferred from the conduct of the innocent party in the particular circumstances of the case: McCamus, at pp. 659-61.

[46]  In American National Red Cross v. Geddes Bros. (1920), 1920 CanLII 6 (SCC), 61 S.C.R. 143, rev’g 47 O.L.R. 163 (S.C. (A.D.)), the Supreme Court of Canada addressed the means by which the adoption of a repudiation may be effectively communicated.  Sir Louis Davies said, at p. 145:

The question then, it seems to me, in every such case must be whether under the proved facts adoption of one party to a contract of its repudiation by the other party may be inferred from the proved facts, or whether an actual notice of acceptance or adoption must be given by the party receiving notice of the repudiation to the party repudiating.

It seems to me from reading the authorities that such an actual notice of acceptance or adoption is not necessary but that adoption may be reasonably inferred from all the circumstances as proved.

[47]  In American National, Davies C.J. concluded, at p. 147, that a direct communication to the repudiating party of the election to disaffirm the repudiated contract is not essential “where facts proved allow of a fair inference of acceptance of renunciation [repudiation in this context] being drawn”.  This view was endorsed by a majority of the Supreme Court in Kamlee Construction Ltd. v. Town of Oakville (1960), 1960 CanLII 431 (SCC), 26 D.L.R. (2d) 166, at 182.

[48]  More recently, in White v. E.B.F. Manufacturing Ltd., 2005 NSCA 167, 239 N.S.R. (2d) 270, at para. 91, Saunders J.A. of the Nova Scotia Court of Appeal accepted the following description of what constitutes ‘acceptance’ of repudiation, set out in Chitty on Contracts, 28th ed. (London: Sweet & Maxwell, 1999), Vol. I, at p. 25-012:

Where there is an anticipatory breach, or the breach of an executory contract, and the innocent party wishes to treat himself as discharged, he must “accept the repudiation.”  It is usually done by communicating the decision to terminate [to] the party in default although it may be sufficient to lead evidence of an “unequivocal overt act which is inconsistent with the subsistence of the contract ... without any concurrent manifestation of intent directed to the other party” ... Acceptance of a repudiation must be clear and unequivocal and mere inactivity or acquiescence will generally not be regarded as acceptance for this purpose.  But there may be circumstances in which a continuing failure to perform will be sufficiently unequivocal to constitute acceptance of a repudiation. It all depends on “the particular contractual relationship and the particular circumstances of the case.”  [Emphasis added.]

Intention Explained

The expression of intention to forgo being bound to a contract may occur verbally through spoken or written words or by behaviour through actions as conduct.  Such is stated in many cases including Barresi v. Jones Lang Lasalle Real Estate Services Inc., 2019 ONCA 884, where it was said:


[5]  The trial judge correctly noted that contractual repudiation occurs “by words or conduct evincing an intention not to be bound by the contract”: Guarantee Co. of North America v. Gordon Capital, 1999 CanLII 664 (SCC), [1999] 3 S.C.R. 423, at para. 40. A contractual breach “is a repudiation of the contract if it is a breach of a contractual condition or of some other sufficiently important term of the contract so that there is a substantial failure of performance”: Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10, [2015] 1 S.C.R. 500, at para. 145.

Repudiating Contract Accidentally

Interesting, the intent to forgo being bound to a contract, despite the word "intent", may occur accidentally where a party to the contract mistakenly believes in a right to refrain from performing an obligation under the contract.  This was said in Remedy Drug Store Co. Inc. v. Farnham, 2015 ONCA 576, where it was stated:


[47]  A party can repudiate a contract without subjectively intending to do so. As the Supreme Court wrote in Guarantee Company, at para. 40:

Repudiation, by contrast, occurs "by words or conduct evincing an intention not to be bound by the contract. It was held by the Privy Council in Clausen v. Canada Timber & Lands, Ltd. [1923 CanLII 430 (UK JCPC), [1923] 4 D.L.R. 751], that such an intention may be evinced by a refusal to perform, even though the party mistakenly thinks that he is exercising a contractual right" (S.M. Waddams, The Law of Contracts (4th ed. 1999), at para. 620).42 [Emphasis added.] 

Undermining Contract Foundation

It should also be understood that repudiation of contract is a complete proposition whereas partial repudiation of contract is inherently a contradiction whereas for a repudiation to occur the innocent party must substantial fail to receive the whole benefit of the contract.  The lack of repudiation principles to concerns involving only partial breach or minor breach were explained within, among other cases, Leeder Automotive Inc. v. Warwick, 2023 ONCA 726, Spirent Communications of Ottawa Limited v. Quake Technologies (Canada) Inc., 2008 ONCA 92, Place Concorde East Limited Partnership v. Shelter Corporation of Canada, 2006 CanLII 16346, wherein each it was said:


[43]  The parties agree that the law does not recognize the concept of partial repudiation of a contract. Repudiation occurs when the entire foundation of a contract has been undermined; where the very thing bargained for has not been provided. It allows the non-repudiating party to elect to treat the contract as at an end, and relieves the parties from further performance of the contract: see Remedy Drug Store Co. Inc. v. Farnham, 2015 ONCA 576, 389 D.L.R. (4th) 671; Spirent, at para. 35; Place Concorde at para. 51; Hongkong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd., [1962] 1 All E.R. 474 (C.A.), at 485; and Angela Swan, Jakub Adamski & Annie Na, Canadian Contract Law, 4th ed. (Toronto: LexisNexis Canada, 2018), at §7.89.

[44]  Partial repudiation of a contract would be antithetical to a finding that the entire foundation of a contract has been undermined. ...


[35] As the trial judge correctly stated: (1) only a fundamental breach by Spirent would have given Quake the right to treat the Agreement as at an end; and, (2) a fundamental breach is one which deprives the innocent party of substantially [page727] the whole benefit of the contract. See, among other cases, Place Concorde East Limited Partnership v. Shelter Corp. of Canada Ltd., 2006 CanLII 16346 (ON CA), [2006] O.J. No. 1964, 211 O.A.C. 141 (C.A.).

[36] As the trial judge also correctly noted, this court has repeatedly stated that there are five factors that can be considered when determining whether conduct has deprived the innocent party of substantially the whole benefit of the contract. The five factors are: (1) the ratio of the party's obligations not performed to that party's obligations as a whole; (2) the seriousness of the breach to the innocent party; (3) the likelihood of repetition of such breach; (4) the seriousness of the consequences of the breach; and (5) the relationship of the part of the obligation performed to the whole obligation. See Place Concordesupra.


[51]  Repudiation occurs in circumstances where the breach deprives the innocent party of substantially the whole benefit that it was intended he or she should have obtained from the contract: Hunter Engineering Co. v. Syncrude Canada Ltd., 1989 CanLII 129 (SCC), [1989] 1 S.C.R. 426 at 499-500.  A breach that allows the non-repudiating party to elect to put an end to all unperformed obligations of the parties is an exceptional remedy that is available only in circumstances where the entire foundation of the contract has been undermined, that is, where the very thing bargained for has not been provided: see Hunter Engineering, supra; see also Gordon Capital, supra, at para. 50.

[52]  Various expressions have been used to define the sort of term that, if broken by one party, will excuse the other from future performance.  Behind all of these expressions lies the notion of “substantial failure of performance”: see S.M. Waddams, The Law of Contracts, 5th ed. (Toronto:  Canada Law Book Inc., 2005), at para. 587.  Thus, a breach of contract that rises to the level of a substantial failure of performance can operate as a repudiation of the contract.

[53]  Weiler J.A. in 968703 Ontario Ltd. v. Vernon  (2002), 2002 CanLII 35158 (ON CA), 58 O.R. (3d) 215 (C.A.) at para. 16 outlines five factors that provide guidance for the court’s determination of whether or not a breach is a substantial breach such as would justify future non-performance of the innocent party’s obligations.  These factors are as follows:

  • the ratio of the party’s obligation not performed to the obligation as a whole;
  • the seriousness of the breach to the innocent party;
  • the likelihood of repetition of the breach;
  • the seriousness of the consequences of the breach; and
  • the relationship of the part of the obligation performed to the whole obligation.

Summary Comment

A party to a contract may commit a repudiatory breach or anticipatory repudiation, and the other party may choose to pursue legal action for the breach or accept the repudiation and terminate the contract, freeing both parties from any further obligations.

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