C. Exercising the Right to Disaffirm

• Author: John D. McCamus
• Profession: Professor of Law. Osgoode Hall Law School, York University
• Pages: 658-665

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When confronted by an anticipatory repudiation, then, the innocent party has the right to elect to terminate the agreement or, as is sometimes misleadingly said, to "accept" the repudiation as discharging the agreement.²⁹The effect of exercising the right to disaffirm the agree-

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ment is to relieve the innocent party of any further obligation to perform the agreement and, as we have seen, to enable the innocent party to pursue immediately remedies available for the breach of contract constituted by the anticipatory repudiation. A number of legal issues relate to the manner in which the right to disaffirm in response to an anticipatory repudiation is to be exercised. The right need not be exercised immediately after the innocent party becomes aware of the anticipatory repudiation, but the right to elect may be lost if the passage of time before election results in prejudice to the repudiating party or is of sufficient length to constitute evidence of affirmation of the agreement.³⁰Further, the mere fact that the innocent party has encouraged retraction of the repudiation or has attempted to negotiate a compromise will not preclude timely exercise of the right to disaffirm.³¹If, however, during the period of time prior to the innocent party’s exercise of that right, the repudiating party retracts the repudiation and resumes performance of the agreement, the innocent party’s option to disaffirm will have vanished.³²An innocent party who wishes to disaffirm must engage in conduct that amounts to an exercise of the election to disaffirm the contract.³³

Although the most obvious manner of exercising the right would be to explicitly communicate a decision to disaffirm to the repudiating party, it is not required that such communication must take place. A decision to terminate can be communicated by conduct. Thus, for example, the issuance of a writ claiming damages for breach of contract has been held to be an exercise of the election to disaffirm.³⁴The question of whether the election needs to be explicitly communicated to

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the repudiating party was considered inconclusively by the Supreme Court of Canada in American National Red Cross v. Geddes Bros.³⁵ In this case, a seller indicated to the buyer, prior to the date for delivery, that he would not be able to perform the contract. The buyer marked the contract "cancelled" in its files but did not explicitly communicate its election to disaffirm the contract to the seller. Subsequently, the seller purported to exercise the contractual right to deliver. Upon the buyer’s refusal to accept the goods, the seller sued for the price. The Supreme Court of Canada dismissed the claim but divided on the question of whether the election to disaffirm must be communicated to the other party. Sir Louis Davies C.J. opined that "an actual notice of acceptance is not necessary"³⁶and went on to explain as follows: "a letter to the renouncing party, though a prudent and businesslike course, is not an essential necessary to complete the adoption in cases where facts proved allow of a fair inference of acceptance of renunciation being drawn."³⁷Davies C.J. was of the view that in light of proven facts of this case, including the "unequivocal and absolute"³⁸nature of the seller’s repudiation, the seller would have reasonably inferred that the buyer had disaffirmed the agreement.

In a concurring opinion, Anglin J. was able to agree as to result on different grounds but indicated that, in his view, the plea of anticipatory repudiation failed because of a failure to communicate the election to disaffirm. In dissent, Mignault J. expressed similar views. Duff and Idington JJ. agreed with the result favoured by the Chief Justice but did not find it necessary to deal with the communication point. It may be that the preferable analysis of a fact situation of this kind would be to simply apply an estoppel analysis. If the failure to clearly communicate the decision to disaffirm induces detrimental reliance on the part of the repudiating party, the innocent party could be estopped from exercising the right to disaffirm. No such prejudice seems likely on the facts of the Geddes Bros. case. Although subsequent cases appear to establish the proposition that the election to terminate the agreement must be communicated,³⁹the Supreme Court of Canada seems to have accepted, in a later decision,⁴⁰the proposition advanced by Davies C.J.

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to the effect that even in the absence of communication of the election, disaffirmation will be effective if it can be reasonably inferred from the conduct of the innocent party in the particular circumstances of the case that the repudiation has been accepted as a discharge of the agreement. Where such an inference cannot be reasonably drawn, the innocent party who fails to explicitly communicate an election to disaffirm evidently runs the risk that the failure to communicate will be taken as a basis for inferring that the contract has been affirmed by the innocent party. Once the election to disaffirm has been effectively made, the election is said to be irrevocable in the sense that the innocent party cannot later reaffirm the agreement and insist on performance by the repudiating party.⁴¹The consequences for the parties of an election to disaffirm for an anticipatory repudiation are parallel to those of disaffirmation for repudiatory breach.⁴²As in the context of repudiatory breach, use of the term "rescission" may mislead in the present context.⁴³An election by the innocent party to disaffirm for anticipatory repudiation does not rescind the contract in the sense of avoiding the contract ab initio and requiring the parties to be restored to the status quo ante. Rather, the contract is discharged by the breach. Thus, although the repudiating party is not obliged to continue performing, that party nonetheless remains responsible for past and future non-performance in the sense of being exposed to the innocent party’s entitlement to pursue remedies for breach of contract.⁴⁴The innocent party is fully excused of further performance...