Fundamental Breach

Caselaw.Ninja, Riverview Group Publishing 2021 ©
Date Retrieved:	2024-11-24
CLNP Page ID:	848
Page Categories:	[Contract Law]
Citation:	Fundamental Breach, CLNP 848, <>, retrieved on 2024-11-24
Editor:	Sharvey
Last Updated:	2022/08/30

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772067 Ontario Limited v Victoria Strong Manufacturing, 2017 ONSC 2719 (CanLII)

[60] In order to determine whether the parties reached an agreement to reinstate the lease, the governing test is whether:

they have formed a mutual intention to enter into a bargain with each other and, further are in agreement as to the terms of the bargain…The communications of the parties must have created an “offer” that sets out the offeror’s willingness to enter into an agreement on certain terms; this is then matched with a corresponding…“acceptance”…[t]he acceptance must precisely match the terms of the offer:

John D. McCamus, The Law of Contracts, 2nd ed. (Toronto: Irwin Law, 2012), at 31.

[61] I find that the plaintiff’s email stating “if you pay the full rent to Freya, she can have you back in operation immediately” constitutes the initial offer. The defendant then makes a counteroffer to pay the requisite sum in trust. The plaintiff rejects this offer and requires payment of the full rent as well as an additional cheque for the costs of re-entry. The defendant subsequently provides the cheque for the outstanding rent. The issue is whether the defendant’s failure to pay the costs of re-entry at this stage undermines the “mirror image rule”- that the acceptance directly match the offer (The Law of Contracts, at 31).

[70] The defendant argues that the plaintiff’s refusal to allow the defendant to regain possession following the reinstated agreement amounts to a “fundamental breach of contract”. A fundamental breach of contract is a breach that substantially deprives the innocent party of the benefit of the agreement. The parties agree that it is necessary to address the following five factors to determine whether a fundamental breach has occurred:

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.

Spirent Communications of Ottawa Ltd. v. Quake Technologies (Canada) Inc, 2008 ONCA 92, 2008 CarswellOnt 590, at para. 36.

[71] “[T]he effect of an acceptance by the innocent party of a fundamental breach is that it brings the contractual relationship to an end, or terminates the contract prospectively and frees the innocent party from any future obligation under the contract” (Karimi v. Gu, 2016 BCSC 1060, 2016 CarswellBC 1593, at para. 196). Obligations and rights already accrued are not affected (Guarantee Co. of North America v. Gordon Corp, 1999 CanLII 664 (SCC), [1999] 3 S.C.R. 423, at para. 40). Acceptance of the repudiation may be inferred from the party’s actions, including their non-performance of subsequent obligations (Harvey Kalles Real Estate Ltd. v. Haji-Seyed-Abolghasem-Tehrani, 2015 ONSC 4073, 2015 CarswellOnt 9633).