Christine Grad - v. -, 2017 SKPC 023

IN THE PROVINCIAL COURT OF SASKATCHEWAN CIVIL DIVISION Date: February 28, 2017 Citation: 2017 SKPC 023 File: SC 378/16 Location: Regina _____________________________________________________________________________ Between: Christine Grad - and - Alexandra Kortje Self Represented For the Plaintiff Self Represented For the Defendant JUDGMENT P. DEMONG, J Introduction [ 1 ] Ms. Grad runs a daycare out of her home. Ms. Kortje has two children and both of them were enrolled in the daycare.

In February of 2016, in order to ensure that the nature of the arrangement for the provision of daycare services was clear and unequivocal, Ms. Grad prepared a written contract which she had each of the parents utilizing the daycare execute. Ms. Kortje executed the contract on February 4th, 2016. The contract specified that if Ms. Kortje wished to terminate the contract with Ms. Grad, she was to provide one month written notice of her intention to do so. Ms. Grad claims that she is entitled to recovery of the sum of $3,100.00 from Ms.

Kortje because she failed to give notice of her intent to terminate the contract in the form that was required under the contract.

Evidence, Law and Analysis [ 2 ] The contract is not particularly comprehensive but it does include several provisions which give rise to the present lawsuit. It evidences that in exchange for payment in the sum of $800.00 per month, Ms. Grad will provide daycare services for Ms. Kortje’s two children. It stipulates that payment shall be payable ‘by the last business day of each month in advance’. It further stipulates that ‘Non- payment of fees may be cause for immediate termination without notice’. It also stipulates that any late or outstanding fees are ‘subject to a $10.00 per day late fee charge until the fees are paid’. The only other provision of note is

Article 10 which states that ‘The parent and the child care service agree that this agreement may be terminated upon one calendar months written notice by either the parent or the child care service. Notice shall be received by the first day of the month. The fee may be paid in lieu of notice’. [Emphasis added is mine]. [ 3 ] In late May of 2016 Ms. Grad was upset because Ms. Kortje had failed to pick up her children by 5:30 p.m. as was required by the contract. Ms. Kortje attended shortly thereafter and a heated exchange took place between the parties. Ms. Kortje then told Ms.

Grad that she was formally giving notice of termination of the agreement. It is clear to the court that this oral notice was given to Ms. Grad on or before June 1st of 2016. In reply, Ms. Grad sent an e-mail which stated in part: ‘So since you gave notice I have to follow the contract.’ It went on to explain that if the balance of the money that was due for the month of June was not paid as required by the time lines set forth in the contract, Ms. Kortje’s children would not be able to return. [ 4 ] The outstanding amounts for the month of June were paid and that is not in dispute. Ms.

Grad, however, says that shortly thereafter, Ms. Kortje’s partner attended at the day care and explained that Ms. Kortje had been having a bad day when she gave notice and that they would try to work things out. Ms. Grad says that she reminded him that if Ms. Kortje intended to terminate the agreement, she was required to give written notice by 5 p.m. on June 1 st . It is clear that Ms. Kortje never did give written notice of her intention to terminate the agreement. The evidence makes it clear that as the month of June went by, the relationship between Ms. Grad and Ms.

Kortje could best be described as ‘frosty’. [ 5 ] Ms. Grad says that on either June 30 th or July 1 st , she again sent an email indicating that payment of the month of July was due and owing. In response, Ms. Kortje replied indicating that she had given notice and they would not be utilizing the daycare for the month of July or any time thereafter. [ 6 ] The communications then broke down and Ms. Grad brought this action. She argues that Ms.

Kortje was in breach of the contract because she failed to give written notice as was required under the contract and that the oral notice, at best, and when considered in light of Ms. Kortje’s partner’s equivocations the day following the oral notice, left her uncertain as to Ms. Kortje’s intent. Ms. Grad says that the whole purpose of preparing the contract in February was to bring a degree of certainty into the arrangement, and to avoid the very problem that brought her to Court. She says that had Ms.

Kortje simply sent a one line written notice of termination, she would then have had clear and unequivocal and reliable evidence of Ms. Kortje’s position and she could then reasonably have attempted to look for replacement children to fill up those vacant July spots. [ 7 ] Ms. Kortje concedes that she was obligated under the contract to give written notice but takes the view that oral notice, once given, and then confirmed by Ms. Grad by written text, is substantial compliance [my words, not hers] with the notice requirement.

She argues that since notice was given and never formally withdrawn, she has met the requirements of the contract and she is not therefore liable to pay the July payment or any other late fee. [ 8 ] I have a great deal of sympathy for Ms. Grad’s position. She runs a small business and she wanted certainty in her dealings with her customers. She prepared a simple contract with a clear and unambiguous notice requirement that Ms. Kortje signed.

She did so precisely because she did not want to have to run a risk that the intentions of the parties may later be subject to qualification or misunderstanding and arguably litigation. She was concerned, as I find happened in this case, that a client may later equivocate and arguably renounce the oral notice. There is evidence of that equivocation in this case. Ms. Grad has testified that Ms. Kortje’s partner suggested that the issue could somehow be resolved. He was at the trial in this matter. He could have given evidence to challenge that assertion but he did not.

I can readily understand that if the tables had been reversed, and had Ms. Grad accepted the oral notice, and then later found out that the party giving notice didn’t expect to be bound by that notice - because it was not in strict reliance on the contract - Ms. Grad could easily find herself in a situation where her contract could be used against her in subsequent litigation with the other party arguing that their day care spots should not have been given up because the oral notice should not have been binding on them. Whether

or not that would be a successful action is speculative, but it certainly speaks to the very reason why Ms. Grad was so adamant that Ms. Kortje comply technically with the contract. [ 9 ] The contract was freely entered into between two adults and the notice provision was unequivocal. I am satisfied that Ms. Kortje’s failure to provide written notice resulted in the contract continuing to be in force, thereby requiring Ms. Kortje to be bound by the contract until she provided written notice of termination. Ms.

Kortje’s failure to remit payment for the month of July was a breach of the contract, and it is a rather trite statement of law to note that as a result of a breach of a contract by a third party, the offended party is entitled to a measure of damages that would place her the position she would have been in had the breach not occurred. Her loss would be the amount of money naturally flowing from the breach, less her obligation to take reasonable steps to mitigate her loss. [ 10 ] In the instant circumstances, Ms. Grad seeks only the July payment of $800.00, together with the late fees that have accumulated.

I will speak to each in turn. [ 11 ] Ms. Grad inclines to the view that the $800.00 for July is payable because the contract identified what in law would be described as a liquidated damages clause which constitutes a genuine pre-estimate of the damages naturally flowing from the breach. She relies on this provision: ... Notice shall be received by the first day of the month. The fee may be paid in lieu of notice. [ 12 ] In my view this provision cannot be interpreted as a liquidated damages provision imposing an obligation to pay the sum of $800.00 in the event of breach. The clause is permissive.

It uses the word ‘may’. It entitles Ms. Kortje to the right to pay that amount if she so chooses, but it does not, in my view, obligate her to do so. She could, if she chose, decide not to pay that amount. In that event, the normal law of damages for breach of contract would govern, entitling Ms. Grad to sue for her prospective loss of money, less her obligation to mitigate. Ms. Kortje could have rolled the dice in the hope that upon breach, Ms. Grad could have found replacement clients the very next day, in which event Ms.

Kortje would derive the benefit of those mitigation efforts. [ 13 ] If the parties intended to ensure that the provision in question could be interpreted in the manner in which Ms. Grad seeks it should have clearly indicated that payment of the sum of $800.00 is, as between the parties, specifically agreed to as liquidated damages, and as a fair and genuine pre-estimate of the damages that will be suffered by reason of the breach. [ 14 ] It is clear, however, that Ms. Grad is only seeking the principal amount of $800.00, or the equivalent of one month’s lost payment. The amount sought is reasonable.

It may have been higher. It is arguable that Ms. Grad, who only found replacement clients in October of 2016, could have sued for more, since the losses she could have claimed could conceivably have continued until such time as Ms. Kortje actually gave written notice. In the result, I award Ms. Grad the sum of $800.00. [ 15 ] I am not prepared to consider Ms. Grad’s claim for a late fee of $10.00 per day for so long as the amount remained unpaid, which, by Ms. Grad’s calculations equated to $2,300.00 as at the date of trial. At trial, Ms.

Grad freely acknowledged and described this fee as a ‘penalty fee’, something which has been inserted into the contract to compel payment of the monthly charge for services rendered. There is a distinction in law between liquidated damages, which I have briefly referred to above, and which are genuine pre- estimates of those losses that will be caused by one party if the contract is breached - and a penalty.

A penalty is an amount in the nature of a threat, something which MacKenzie J. in Sign-O-lite v Henry , [1993] DJ No 1138 (Gen Div) described as: ... something held over the other party in terrorem ...The purpose of a penalty is to act as security to the promisee that the contract will be performed.

Penalties had historically been subject to equitable relief as the courts of equity have taken the view that the promisee is sufficiently compensated by being indexed for his actual loss. [ 16 ] It is, as noted by McKenzie J. at para 18-21, ‘a question of construction whether the sum in question is in the nature of liquidated damages or a penalty [which] must be decided upon the terms and inherent circumstances of each particular contract, judged at the time of the making of the contract, not as at the time of the breach’.

The plaintiff has led no evidence to support any suggestion that this fee bears any relationship to a fair and reasonable pre-estimate of the loss that she would suffer if the contract was breached and, on a reasonable construction of the contract, I cannot see how it could be. Read in context, it exposes a person in breach to a potential

annualized fee equivalent to 456% of the amount of the monthly payment which must be made under the contract. It is, as the plaintiff has freely contended, a penalty that she seeks to impose to enforce compliance with the contract. In the circumstances, I conclude that this provision of the contract is unfair, unreasonable, and unduly oppressive. Were, I to allow its enforcement, it would result in a windfall for the plaintiff at the defendant’s expense.

It is properly characterized as a penalty clause and I find the provision to be unenforceable. [ 17 ] In the result, I find in favour of the plaintiff for the most part and award her damages in the sum of $800.00 together with prejudgment interest which calculated from July 1 st , 2016, amounts to $2.58. I award her costs incurred by her for issuance of the summons in the sum of $20.00. [ 18 ] The plaintiff is entitled to judgment in the sum of $822.58. P. Demong, J