Category Archives: Contracts

Legal comment, news and articles relating to recent important developments and Canadian court decisions relating to Contract Law.

Termination of Commercial Real Estate Contract on Basis of Alleged Breach of Environmental Warranties; Return of Deposit

Representing plaintiff purchaser who terminated an agreement of purchase and sale for a commercial property which, according to environmental reports, could not be developed on a cost-effective basis.  The purchaser demanded return of his deposit.  The vendor refused.  The purchaser sued the vendor and the agent–who acted on both sides of the deal and who refused to return the substantial deposit without the consent of the vendor — for breach of contract against the vendor and for negligence and breach of fiduciary duty against the dual agent.  This strategy resulted in return of the deposit before any defence was delivered.

Good Faith in Contracts

The Supreme Court of Canada has recently rendered a decision – Bhasin v Hrynew – of importance to all clients engaged in business activity. The issue of “good faith” in regard to contacts and negotiations has been the subject of much litigation over the years. In Bhasin, the court decided that a party to a contract has an obligation to act in good faith when it comes to the performance of its contractual obligations. The court held that there is a broad “organizing principle” of good faith that requires “honest, candid, forthright or reasonable contractual performance”. Parties cannot contract out of this duty.

The degree to which this case conflicts with the economic theory of “efficient breach” is yet to be determined, as are the additional damages to which a party may be exposed for breach of the additional contractual obligation, i.e., the damage from a breach in “bad faith” may be no greater than an innocent breach. Much depends on the particular circumstances of the breach. One thing is predictable for all business clients: the case will give rise to an increase in standardized allegations of “bad faith breach” by litigation lawyers as the details of the “new” doctrine are worked out in future cases.