Contract Law Largely Explored in One Case
Often times parties to a contract have a less than clear understanding of many of the principles of contractual law. Even if it is clear what the explicit terms of a contract are, parties may be unclear about implied or impugned terms, the interpretation of the contract or what remedies might follow when the other party breaches the contract. The recent decision of Munro v. James, 2020 BCSC 1348 (CanLII) is a case that contains many concise statements of the principles applicable to contractual law in addition to being an interesting and relatively unique dispute.
In Munro, the disputed contract concerned an agreement that the plaintiffs would pay Ms. James $100,000, take care of her farm and ponies for the remainder of Ms. James’ life and, in exchange, would be allowed to live at the Ms. James’ property, build a home on the property and be entitled to Ms. James’ estate when she passed (the “Contract”). Issues arose because Ms. James purported to terminate the Contract and she also executed a new will appointing another defendant, Ms. Brown, as her executor and sole beneficiary.
In its analysis, the Court first set out the standard for interpreting contracts in Canada, namely, “Words in a contract must be construed in their ordinary and natural sense. The intention of the parties with respect to the meaning of words in a contract must be determined objectively with reference to the surrounding circumstances at the time of signing the contract…” (para. 43). The Court went on to cite that the intention of the parties is not found by their actual state of mind, but how a party’s conduct would strike a reasonable person viewing the matter (para. 44).
Part of the defence advanced was premised on the argument that the Contract contained an implied term that it could be terminated by notice. The Court reviewed the law on implied terms and, more particularly, the principle that implied terms will only be read into a contract where such a term is necessary to give effect to the intention of the parties (para. 67). It went on to cite the following factors to be considered with respect to an alleged implied term (para. 68):
- it must be reasonable and equitable;
- it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it;
- it must be so obvious that “it goes without saying”;
- it must be capable of clear expression; and
- it must not contradict any express term of the contract.
The Court rejected that the alleged implied term existed, finding only a breach of the Contract could properly ground its termination. The Court rejected all arguments advanced as to the alleged ways in which the plaintiffs were alleged to have breached the Contract.
The Court analyzed whether Ms. James’ conduct amounted to anticipatory breach. It set out that an anticipatory breach is one where “…a party, by express language or conduct, or as a matter of implication from what he has said and done, repudiates his contractual obligation before they fall due…” and that such a breach requires the alleging party to establish that the conduct amounts to a total rejection of the obligations of a contract without justification (para. 182). The Court found Ms. James’ conduct to be such a breach without justification.
The Court went on to note that, in the face of an anticipatory breach, the plaintiffs had the option to either accept the breach, treat the Contract as ended and suing for damages or declining to accept the breach and seeking specific performance with such an election not being required until judgment (para. 186). The Court noted that specific performance does not need to be perfectly requested if the pleadings essentially plead what amounts to a request for specific performance. The plaintiffs were seeking specific performance.
Specific performance is the notion that a party will be ordered to perform a contract as agreed. As the Court noted, an order for specific performance is a discretionary remedy and the Court will substitute damages instead unless money is not an adequate remedy (para. 193). The Court noted that specific performance was historically more commonly available for contracts involving land (para. 195). The Court also noted that, while comparable properties may exist, the plaintiffs made the property in question their home and invested significant funds and energy into it.
Historically, a party seeking specific performance must perform their part of the contract (para. 221), but such a requirement, known as the doctrine of mutuality, has been more limited in application in more recent developments. The more modern approach required the Court to consider whether orders could be made for specific performance that would provide sufficient safeguards to Ms. James that the plaintiffs would perform their obligations under the Contract and, if so, specific performance could be ordered (para. 223). The Court ultimately found that the plaintiffs were entitled to specific performance, being an entitlement to receive Ms. James’ estate on her death.
Having found that the plaintiffs were entitled to the specific performance of the receipt of Ms. James’ estate on her death, the Court also found it necessary to make other orders which preserved the intention of the Contract including that the subject property could not be further encumbered or disposed of without consent of the plaintiffs or order of the Court. It also ordered its judgment and a related mortgage between the parties to be registered on title among other things.
Munro is a case worth reviewing as a refresher on many of the principles applicable in the interpretation of contracts and the remedies which might flow from a breach of a contract.
Other articles I have written which touch on some of the issues in this article include: