Sunday, December 8, 2013

Anticipatory breach of contract - when does the limitation period commence to run?

Ali v. O-Two Medical Technologies Inc., 2013 ONCA 733 raises an interesting limitations issue.  When an anticipatory breach of contract occurs and the innocent party affirms the contract when does the limitation period commence running?  Is it at anticipatory breach or when there is a subsequent failure to perform?
Ali is clear the period commences at the date of subsequent failure to perform:
[22]       An anticipatory breach of contract occurs when one party to the contract, “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. (Toronto: Carswell, 2011), at p. 585.
[23]       O-Two’s change in Ali’s commission structure on December 12, 2006 was a repudiation of its contractual obligations before it became obligated to pay his commissions in November 2007. By purporting to apply a new agreement, O‑Two could hardly have made its intention to repudiate the prior commission agreement clearer.
[24]       Once the counterparty shows its intention not to be bound by the contract, the innocent party has a choice. The innocent party may accept the breach and elect to sue immediately for damages—in which case, the innocent party must “clearly and unequivocally” accept the repudiation to terminate the contract: Brown, at para. 45. Alternatively, the innocent party may choose to treat the contract as subsisting, “continue to press for performance and bring the action only when the promised performance fails to materialize”; by choosing this option, however, the innocent party is also bound to accept performance if the repudiating party decides to carry out its obligations: S.M. Waddams, The Law of Contracts, 6th ed. (Toronto: Canada Law Book, 2010), at para. 621.
[25]       This court recently applied this principle in Brown, where Cronk J.A. confirmed, at para. 42, that an anticipatory breach “does not, in itself, terminate or discharge a contract.” Rather, Cronk J.A. noted that the innocent party may elect to treat the contract as continuing, as the Supreme Court stated in Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423, at para. 40:
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 and Furmston’s Law of Contract (12th ed. 1991), by M. P. Furmston, at p. 541.
See also Macnaughton v. Stone, [1949] O.R. 853 (H.C.), at pp. 858-59.
[26]       In this case, Ali, although he could have elected to do so, did not accept O‑Two’s repudiation of the contract and immediately sue for damages. Rather, he continued to press for payment in full. Because he did not accept the repudiation, he did not know he would suffer “damage” within the meaning of s. 5(1)(a)(i) until the payment of his commissions fell due on November 23, 2007 and O-Two did not make full payment.
[27]       In conclusion, I would reject both of O-Two’s arguments for why Ali suffered “damage” within the meaning of s. 5(1)(a)(i) more than two years prior to initiating his claim. Ali did not “discover” his claim for purposes of s. 5(1)(a) until November 23, 2007, because that is the day on which he first knew damage had occurred. Accordingly, the two-year limitation period under s. 4 of the Limitations Act for Ali’s claim would not expire until November 23, 2009. His claim issued on September 16, 2009 was in time.

1 comment:

Charles said...

Nice explanation on breach of contract limitation.