In a recent decision[1] involving the sale of a pre-construction townhouse in Oakville, the Ontario Superior Court of Justice reaffirmed that a contract does not automatically terminate upon a default by one of the parties.
When an innocent, non-breaching party intends to terminate a contract, it must do so clearly and unequivocally – anything less will risk keeping the contract in force and may expose the party to potential claims.
Summary of the Facts
In June 2022, the defendants (the “Buyers”) agreed to purchase a townhouse from the plaintiff (the “Sellers”) under an Agreement of Purchase and Sale (the “APS”). The APS required the Buyers to make several deposits as construction progressed. After paying the first instalment, the Buyers missed subsequent payments that were due by October 28, 2022. The Sellers granted the Buyers an extension to allow payment to be made by November 10, 2022 (the “New Deadline”). When the Buyers later advised that they would still be unable to pay by the New Deadline, the Sellers sent a letter on November 8, 2022 (the “November Letter”) stating that they would take steps to terminate the APS and forfeit the Buyers’ deposits. At the same time, the November Letter also conveyed that the Sellers were willing to proceed with closing if the Buyers became able to pay on time. The Buyers ultimately did not make the payment by the New Deadline, and the Sellers took no further steps to formally terminate the APS by communicating with the Buyers. Several months later, in March 2023, the Buyers discovered that the Sellers had sold the townhouse to a different purchaser. Believing the APS had never been properly terminated, the Buyers alleged that the Sellers had now breached the APS, while the Sellers sued the Buyer to recover the shortfall resulting from the sale in March 2023.
The Court’s Ruling
The Court held that the Buyers committed an anticipatory breach when they informed the Sellers that they would be unable to pay by the New Deadline.[2] While the Court found that the Buyers’ failure to pay by the New Deadline amounted to a repudiation of the APS, it also held that such a repudiation does not by itself bring the contract to an end. Rather, the non-breaching party must decide whether to accept the repudiation and terminate, or to affirm the contract and hold the other party to its terms.[3]
In Caivan, the November Letter warned that the APS could be terminated if payment was not made by the New Deadline while simultaneously demanding performance from the Buyers. The Court found that the Sellers’ language fell short of a clear, definitive termination of the contract. Considering the Sellers’ prior extensions after the Buyers had missed earlier payments, the Court instead viewed the November Letter as affirming the APS, essentially keeping it in effect beyond the New Deadline.[4]
By not clearly terminating the APS before or after the New Deadline, the Sellers improperly sold the townhouse to another purchaser. Since the APS was still technically in effect, that subsequent sale made it impossible for the Sellers to fulfill their obligations once the Buyers sought to complete the APS months later. Ultimately, the Sellers became the breaching party despite the Buyers’ earlier payment defaults, and the Court held that the Buyers were entitled to the return of their deposits.[5]
Going Forward
Caivan is a helpful reminder of the risks of non-communication in any form of contractual dealings, irrespective of which party commits the initial breach. Clear communication becomes even more paramount when a non-breaching party has acquiesced to another party’s previous breach. Accordingly, if a party wishes to terminate an agreement, it must do so in explicit, unequivocal terms – ideally in writing – to avoid ambiguity about the status of the contract. This need for clarity requires individuals and companies to carefully consider the personal implications of terminating a contract before taking any further steps to engage with the other side.
[1] Caivan (Creekside) Limited Partnership et al. v. Logoteta et al., 2025 ONSC 1875 [“Caivan”].
[2] Ibid at para 11.
[3] Ibid at para 12.
[4] Ibid at paras 20 and 21.
[5] Ibid at paras 25, 26, and 27.