Understanding Anticipatory Breach

Parties to a contract, such an agreement of purchase and sale, may breach the contract in many ways. For example, a purchaser may refuse to pay the purchase price on closing or the seller may refuse to provide vacant possession. These are clear examples of breaches of the basic terms of the contract. However, the parties may also breach a contract prior to the completion of the agreement, which is known as an anticipatory breach of contract.

An anticipatory breach of contract occurs before the end of a contract and occurs when a party evinces an intention to no longer be bound by the terms of the contract. This intention can be shown by conduct or express language. In an agreement of purchase and sale, this can take the form of a purchaser or seller stating that they will not close or acting in such a way that indicates that they will not close, for example, by refusing access to the property or ignoring correspondence.

Parties who breach a contract by an anticipatory breach are liable in the same way as if they had breached the agreement by refusing to close.

The Ontario Superior Court reviewed the doctrine of anticipatory breach in a recent case called Sheik v Lebovik Enterprises Limited. In that case, the purchaser of a pre-construction home, Sheik, expressed dissatisfaction with the builder and even threatened to start a lawsuit as a result of the decision of the builder to not place a door between the house and the garage. The builder failed to provide an adequate explanation for not being able to do so. In response to Sheik’s threat, the builder, Lebovik Enterprises Limited, was no longer interested in selling the house r corresponding with Sheik. Lebovik Enterprises Limited’s real estate lawyer even stated that he no longer represented the builder which appeared to be untrue. The builder transferred the house to a third-party and refused to engage in correspondence with Sheik. Sheik sued the builder for damages. The builder argued that, among other things, Sheik’s threat to start a lawsuit constituted an anticipatory breach of the agreement of purchase and sale. The Court disagreed and found that at all times, Sheik indicated a clear intention to continue with the purchase and sale of the home.

This case makes it clear that in a contract dispute, disagreements between the parties about whether a party is holding up their end of the bargain, does not constitute a fundamental breach of the contract if the party continues to show that they intend to complete the contract.

An interesting issue in the case is the quantum of Sheik’s damages. Generally, damages in a contract dispute or in civil litigation generally is the amount of money or value that the party did not obtain due to the other party’s breach of the contract. For example, in an agreement of purchase and sale, if the seller agrees to sell a property for $300,000 and on closing it is worth $400,000, the buyer would lose $100,000 of value if the seller refused to sell. This would be the buyer’s damages.

The court decided as a general rule, a party’s damages are measured from the date of the breach of the contract, that is, the date of the closing of the agreement of purchase and sale. This was a critical finding as Sheik wanted damages to be measured from the date of trial since the property increased in value between the date of closing and the date of the date of trial. The court determined that the general rule should not be altered and Sheik’s damages are the difference between the purchase price in the agreement of purchase and sale and the value of the property at the time of closing, which was approximately $90,000.

If you are looking for a real estate litigation lawyer or a lawyer for contract dispute, Walker Law can assist you. Contact us today!

Please note that this article is intended for information purposes only. It is not intended to provide legal advice. If you have any specific questions, please contact a lawyer.

Tag: Residential Real Estate Disputes

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