An anticipatory breach occurs when a party declares an intention to repudiate their contractual obligations before they fall due. This declaration only becomes a wrongful act if the innocent party elects to treat the declaration as a repudiation of the contract. Until the party accepts the repudiation, the contract continues in full force and effect.

In the recent decision of, Sexsmith et al. v. Juby et al., the Ontario Superior Court of Justice found that the defendant in a purchase and sale agreement for a business had committed an anticipatory breach by attempting to renegotiate the terms of a valid agreement and failing to close.

Agreement of Purchase and Sale signed by both Parties

The company in question, Chimera, sold and distributed fasteners. Chimera’s business had been listed for sale through a real estate brokerage. Chimera was owned by the Sexsmiths. The defendant, Juby, desired to buy and operate the business. He was the principal, officer and director of the corporation Eacott Group Inc. which was proposed to hold the assets of the company’s business upon purchase.

An agreement of purchase and sale dated December 7, 2010 was signed by both Mr. Juby and Mr. Sexsmith by January 19, 2010. The closing date of January 31, 2011, was later extended to February 4, 2011. The transaction, however, did not close as Juby did not make payment nor meet any other terms required by the agreement on the basis that

• a misrepresentation of sales by the plaintiffs had occurred;
• the agreement was void since there had never been a determination of what was being purchased; and
• the plaintiffs failed to close on the closing date.

The Sexsmiths asserted that Juby refused to close and wanted to renegotiate to reduce the purchase price of the agreement. As such, the Sexsmiths sought damages for breach of contract.

No Vague or Ambiguous Terms in the Asset Purchase Agreement

The defendant submitted that the agreement of purchase and sale that was signed by the parties did not actually specify what assets were being purchased and this was a material provision that remained uncertain; therefore, the agreement was void for uncertainty. In reviewing the terms of the agreement of purchase and sale, however, the court found material provisions existed in the agreement of purchase and sale as executed by all parties by January 19, 2011 and there were no vague nor ambiguous material provisions that would call into question the enforceability of the agreement of purchase and sale.

Defendant Claims Proper Tender was not Provided

The parties through their respective lawyers had agreed on February 1, 2011, to extend the closing date to February 4, 2011. The court accepted the testimony of the Sexsmith’s lawyer that until February 3, 2011, she expected the parties to be working toward closing, addressing any objections or issues to complete the transaction.

The defendant argued that his counsel submitted a list of requisitions of usual documents in addition to the discharge of a lien with a credit union and that these were not addressed by the vendors or their lawyers.

On February 4, 2011, the Sexsmith’s counsel sent a fax letter purporting to tender; however, it was later discovered that the fax had had not, in fact, gone through to Juby’s lawyer. Juby, therefore, took issue with various documents provided by the vendor’s counsel and submitted that these did not amount to a proper tender as required by the agreement.

Despite Juby’s assertion, the court found that he was nevertheless still required to deliver a promissory note and payment on the extended closing date. Mr. Juby did not tender nor did he take steps to communicate that he was ready, willing, and able to complete the contract by delivering an executed promissory note.

Defendant Avoids Closing to Renegotiate the Price or Terminate the Deal

Juby’s lawyer testified that on February 3, 2011, Mr. Juby had already instructed him not to close since he wanted to renegotiate the price or terminate the transaction. Mr. Juby testified at trial that he had no intention to walk away from the deal. The court, however, did not accept Juby’s testimony in this regard.

Juby’s lawyer, in view of what his client was telling him and his instructions from his client, did not communicate any objections or issues with the draft closing documentation that had been delivered to him for his review. He did not want to suggest any changes to what he had already received or had not received that would prevent Juby from relying on what was in the purchase agreement as a ground to terminate the transaction as Juby’s counsel knew the circumstances from his client.

Defendant Committed an Anticipatory Breach

The court found that Juby wanted to renegotiate the purchase price of the agreement based on his changing perception and desires in the situation. Juby was not entitled to insist on renegotiating the agreement based on such discrepancies in this case. As the court stated: “the discrepancies, even if they existed, simply did not amount to misrepresentations at law as this court has found.

The court therefore concluded that Juby committed an anticipatory breach of the agreement. Given this anticipatory breach, the Sexsmiths were entitled to be put in the position they would have been in had the contract been performed. In cases of an anticipatory breach, said the court, the appropriate method to calculate damages is based on the expectancy principle that places the person in the position as if the contract had been performed.

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