Breach of Contract: Requires Proper Documents and Knowledge of Applicable Contract Law Principles

Question: What should I consider before pursuing a breach of contract lawsuit?

Answer:   It is crucial to carefully assess the likelihood of success and gather all relevant evidence before initiating a lawsuit for a breach of contract.  Consulting with Cross Legal Services can help you understand your legal rights and navigate the complexities of the law, ensuring you are adequately prepared for the potential challenges ahead.

What to Know About a Breach of Contract Case

When a person or a business negotiates and then comes to agreement and forms a contract with another person or business, it is expected that all involved will honour the agreement.  When there is a failure to honour the agreement, a breach of contract lawsuit may arise; however, a party to a contract may be blinded by a subjective perception or subjective interpretation that a contract was breached; and accordingly, before starting a lawsuit, especially where significant costs penalties may be awarded against you for failing to win lawsuit, you, or any other party to a contract, should carefully assess the likelihood of success before commencing legal action.

What Is a Breach of Contract?

To determine whether a contract was breached, it is first necessary to determine whether a contract, legally, exists.  While the parties may perceive that a contractual relationship exists, based on anything from verbal agreements to a 100 page document with signatures, the law as to what actually constitutes a truly enforceable contract can be much more complicated.  To determine whether a contract legally existed and whether the contract was breached careful review is necessary. When conducting the review, carefully consider whether:

1. The discussions had, and agreements made, meet the legal elements necessary for the formation of a binding contract;
2. The formation of the contract can be reasonably proven with clear evidence of the express terms as well as any implied terms which constitute the ultimate agreement;
3. The laws that may limit or restrict application or interpretation of the contract are reviewed including concerns such as;

• The parol evidence rule and whether what is subjectively perceived as the ultimate agreement will hold up in a court;
• The possibility of ambiguous terms that may initiate the contra proferentem doctrine;
• The potential for concerns regarding undisclosed onerous term clauses that may be struck by a court;
• The statutes that may void or alter or otherwise supercede contract terms; and
• The many other concerns applicable to contract law disputes.

Once it is well understood that a legally enforceable contract existed, within binding terms, and that evidence and circumstances will show that a party failed to fulfill the terms of the agreement, the next step is to consider:

1. What parties, meaning who, should the allegations be aimed at;
2. What factual allegations should be made, meaning what details of the situation are relevant to tell the necessary story;
3. What legal allegations should be made, meaning that reasons for suing beyond just breach of contract may apply such as negligence, among other legal issues;
4. What legal remedies should be claimed, meaning what type of compensation and what amount of compensation should be sought;
5. What is the best timing for commencing the lawsuit;
6. What further risks should be considered such as, among other things;

• The risk of a counterclaim (known in Small Claims Court as a Defendant's Claim);
• The risk of difficulty in obtaining evidence, or witnesses, to prove the allegations; and
• The risk of failing to succeed in the case and being ordered to pay costs.

What Are the Legal Remedies Available in Small Claims Court?

The jurisdiction in the Small Claims Court, meaning power of the court, which also means power of the Judge to issue an Order, is limited by section 23(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43, so to provide only the power to order compensation in the form of money or to order the return of property.  In a breach of contract case, often a party bringing a claim will want the Judge to order the breaching party to perform the contract in accordance to the agreement.  This is called "specific performance" and is a remedy unavailable from the Small Claims Court.  Instead, the Small Claims Court may order that the breaching party pay a sum of money that is necessary to compensate for losses arising from the failure to perform by the breaching party.  This sum may be, and often is, the cost to hire a substitute party to complete what the breaching party failed to perform.

As an example, and an example common to the Small Claims Court system, a homeowner may sue a contractor for failure to complete a renovation project.  The homeowner would be unable to receive an Order from the Small Claims Court instructing the breaching contractor to complete the renovation project; however, the homeowner may be able to receive an Order from the Small Claims Court instructing the breaching contractor to pay the sum of money necessary to compensate the homeowner for the costs incurred in hiring a substitute contractor to complete the renovation project.

Other remedies concerns involve whether to make claims for just actual losses (actual damages), meaning claims that seek to recoup money out-of-pocket due to the breach as well as the possibility of stress claims (general damages), and potentially punitive damages as a deterent if the breach of contract was done in a highly malicious or egregious manner that would offend the court so significantly that a punishment is appropriate.

What Should a Breach of Contract Victim Do?

As outlined in brief above, a breach of contract case may be much more complicated than first appears.  Prior to starting a lawsuit, it is wise to review the situation carefully and obtain legal advice based on the merits of the case and likelihood of success.  Preparing a strategic gameplan is also imperative as advantages, or disadvantages, may arise as a case moves forward, especially as there are almost always unexpected surprises during the course of litigation.

Conclusion

A breach of contract case brought in Small Claims Court is often misperceived as a relatively simple matter; however, the law, even in Small Claims Court, may be much more complex that what appears at first glance.  Before starting a breach of contract case in Small Claims Court it is wise to thoroughly review and understand the law regarding contractual formation, contractual interpretation, available remedies, among other things.  Most significantly, it is wise to obtain legal advice regarding the potential pitfalls, challenges, and likelihood of success.  Most importantly, avoid taking Small Claims Court matters lightly.  With a limit of $35,000 per Plaintiff, the Small Claims Court involves matters that are rarely small to most people.