• Vincent Maranda

Breaking up is easy for many service contracts


Q. I have a written contract with a local computer firm in force until 2018 to service computers in my business. Our representative is incompetent. How can I get out of this contract?

A. If your contract qualifies, you can send a termination notice right now. You don’t even have to talk about incompetence. Generally speaking one can unilaterally terminate a service contract (subject to the important conditions below) based on Section 2125 of the civil code:

“The client may unilaterally resiliate the contract even though the work or provision of service is already in progress.”

Subject to certain conditions that are often easy to meet, as hard as it is to believe, you can actually terminate, at will, service contracts even if the contract states a fixed term. You don’t even have to give a reason.

Before terminating your contract you have to understand the following points.

This right of termination is limited by Section 2129 where you must pay at least for the work performed to date.

“… in proportion to the agreed price, the actual costs and expenses, the value of the work performed before the end of the contract... each party is liable for any other injury that the other party may have suffered.”

These are the major tenets to consider before terminating your contract. Since the effects can be drastic, service providers have fought in court over the interpretation to give to these two sections.

In general, the courts have decided that:

One can avoid, as a service provider, the application of s. 2125, if one writes in the contract, (it’s important to be very clear and write it), that the parties exclude the application of s. 2125. This has been confirmed in court, time after time.

The word injury in s. 2129 does not include loss of profits. Courts are consistent on this too.

It is possible for a service provider to include penalty clauses in the contract that could apply in the case of premature termination but if they are abusive, their amounts will be reduced by the courts.

You also have to make sure Quebec law applies. No problem if the contract was signed by both parties in Quebec and the contract does not state that the laws of Ontario or somewhere else apply.

Your right to terminate must not be abusive. Don’t terminate a contract in bad faith seeking to just cause harm – you could be exposed to punitive damages.

Here is an illustration of how the Quebec Court of Appeal recently dealt with this subject. Bell would not accept that people who sign 2-3 year contracts could terminate their service contract anytime and not have to pay the amounts of contractual penalty clauses for early termination. The court however decided that Bell had not expressly excluded s. 2125 and the termination was valid. Just because the contract had a penalty or provided for a fixed term does not amount to taking away the right to terminate under s. 2125. Bell also argued unsuccessfully that the word injury in s. 2129 meant being compensated for anticipated profits. The court found that anticipated profits are not included in the word injury. The Bell penalty clauses could have been valid but in the Bell case the penalty was judged abusive and reduced, not reflecting an accurate measure of the true damages for Bell.

Each case must be evaluated in light of particular facts and any signed contract with your service provider. These general rules are nice to know but it is better to obtain legal advice to make sure all bases are covered before terminating service contracts.

Please send your legal questions to editor@yourlocaljournal.ca

Website of law firm: vmaranda.com

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