Breach of Contract and Repudiation: Affirm or Accept the Repudiation, Not Both
One of the more difficult issues in contractual disputes is sorting out what rights and obligations continue to exist when a party to a contract breaches the terms of the contract.
Broadly speaking, the party that is in breach of a contract is refusing to perform duties or obligations under that contract and, as a result, is “repudiating” the contract. Repudiation can be established both at the time of refusal to perform obligations and can also be anticipatory in nature when a party clearly indicates by its words or actions that it intends to not perform its contractual obligations.
In the recent case of Reddy v Bhullar, 2018 BCSC 1935 (CanLII) the plaintiff entered into five contracts to purchase different properties. The contracts required two deposits of $165,000 and $327,000 respectively. An agreement was reached for the contracts to be assigned to Mr. Bhullar and for Mr. Bhullar to pay the two deposits. A part of the deal was that the plaintiff and Mr. Bhullar would market the contracts for further assignment and share in the profits from doing so.
Mr. Bhullar paid the first deposit and negotiations took place to further assign the contracts to a third party, Mr. Biniaz. The negotiations for the further assignment collapsed, resulting in the parties facing a situation where Mr. Bhullar was going to be unable to pay the second deposit of $327,000.
The plaintiff wrote to Mr. Bhullar advising of his intention to pay the second deposit and alleging that, as a result, Mr. Bhullar would have no right to share in the profit from the properties. The plaintiff also wrote to Mr. Bhullar advising that he was attempting to pay the second deposit and suggesting that Mr. Bhullar had repudiated the contract which assigned the purchase contracts to Mr. Bhullar.
The effect of the Plaintiff’s communications became the central issue as Mr. Bhullar was able to enter an agreement to assign the contracts to a Mr. Biniaz at a lower price and in exchange for the Mr. Biniaz repaying the $165,000 deposit. There was also a third assignment by Mr. Biniaz to his own numbered company which triggered a $50,000 payment which was to be shared with the plaintiff.
The plaintiff, unhappy with the deal with Mr. Biniaz and presumably the modest profit he would enjoy as a result, sought to undo the assignments to Mr. Biniaz and his company on the basis that the Plaintiff had accepted Mr. Bhullar’s repudiation of the first assignment. If this position was accepted, Mr. Bhullar would have had no ability to further assign the purchase contracts as a result of the repudiation of the assignment contract between Mr. Bhullar and the Plaintiff.
The court held that the plaintiff’s communications affirmed assignment contract to Mr. Bhullar rather than having communicated an acceptance of Mr. Bhullar’s repudiation. The court found that there was not a clear and unequivocal statement by the plaintiff to Mr. Bhullar that Mr. Bhullar had repudiated the assignment contract and the plaintiff accepted such repudiation; rather, there were negotiations to attempt to salvage the contractual relations between the parties and to not lose the first, $165,000 deposit.
The plaintiff attempted to keep all options open to himself by asserting that Mr. Bhullar’s was required to perform his contractual obligations and by also attempting to assert that the plaintiff had accepted Mr. Bhullar’s repudiation of the assignment contract. In doing so, the plaintiff took an equivocal position contrary to the legal maxim that requires accepting repudiation of a contract to be by an unequivocal act or words of acceptance.
Reddy v Bhullar is illustrative of the need to be clear as to what rights a non-breaching party to a contract is asserting in the face of another party breaching the contract. The non-breaching party must make a decision as to whether it is going to require performance of the contract a accept repudiation of the contract and bring the contract to an end a as a result. Different rights and remedies flow from a decision to accept or reject a repudiation of a contract and it is crucial to appreciate the consequences of decisions, communications and actions which occur in the face of another party breaching a contract.