Both individuals and businesses rely on contracts in performing their everyday operations. Contracts are binding agreements with clients, employees, partners, and vendors that define the responsibilities of both parties.
Very often, however, one of the parties fails to act under its stipulated responsibilities. In such a case, a breach of contract occurs.
A breach of contract can result from failure to pay on time, deliver the goods or services, or substitute inferior goods or services. Depending on the impact on the contract, there are two types of breaches.
A minor (non-material) breach of contract occurs when non-compliance with the contractual provisions is not critical enough to question its integrity. It gives the complying party the right to sue for actual damages incurred and compel the performance. On the other hand, a material breach of contract has a decisive impact on its integrity. The contract is irreparable. In case of a material breach, the other party has the right to collect the damages or obtain other legal remedies.
Although the contracts are legally binding, the only way to enforce them (when the dispute arises) is by filing a breach of contract lawsuit.
Most contract breaches occur because of different interpretations of contractual provisions. The parties often assign different meanings to the words, giving rise to a contract breach dispute. When the differing interpretations lead to disagreement, the courts work to find objective meaning by looking at the plain wording and the circumstances of the contract. The so-called factual matrix refers to the facts surrounding the contract when the parties signed it. The court determines the true intentions of each party by analyzing the wording and the factual circumstances. In interpreting the agreement, judges cannot change the provisions or help the parties save the deal. Their goal is to promote certainty and avoid arbitrariness. However, sometimes interpreting the contract by observing the plain wording and the factual matrix cannot clear the ambiguity. In that cases, the courts interpret the text against the drafter.
Contracts have specific elements that differentiate them from informal, non-binding agreements. Understanding the fundamental elements is helpful when a breach of contract occurs.
The typical contract consists of various terms, conditions, and warranties. Knowing the difference between them is vital.
The terms are the clauses defining the rights and responsibilities of each party. The terms drafters put explicitly into the contract are called express terms. Apart from express terms, the agreements often contain the so-called implied terms. These clauses are part of the agreement, even though the parties did not write them. For example, buying a kitchen appliance means you obtain the title, and no third person can claim ownership over the item you purchased.
Conditions and warranties are the subcategories of the contractual terms. Knowing the difference between them is crucial should a contract dispute arise. Conditions are the fundamental terms determining the essence of the agreement. If you sign a contract buying a new computer, the condition is that the device is unused. Otherwise, there is a clear violation of the fundamental contractual condition, giving rise to a dispute. The non-complying party can pay damages without performing its contractual obligation. Unlike conditions, warranties are terms obliging the contractual parties to perform specific actions, regardless of the damages. For example, when selling a car, the seller gives a warranty guaranteeing the vehicle is in good repair. The breach of warranty means the seller must cover the repair costs, while the buyer cannot return the car and seek damages.
The duty of good faith is one of the basic principles of contractual law. The parties entering the agreement must act honestly in performing the contractual obligations. Acting in good faith is an implied term of every contract under the laws of Canada. Behaving the opposite of that duty gives rise to a contract dispute.
Breach of contract gives the complying party right to legal remedies. The standard breach of contract remedies are damages, specific performance, and injunction.
Damages allow the plaintiff to compensate for losses resulting from the breach of contract. Compensatory damages typically refer to the loss of profits and related expenses. Apart from compensatory damages, the court can award damages for mental distress, loss of enjoyment, and peace of mind. The third type is punitive damages that aim at punishing the non-complying party in case of severe breaches.
The plaintiff has the burden of proving the losses they suffered, meaning they must show the other party could reasonably foresee (at the time they signed the contract) damages resulting from breach of contract.
When a breach of contract occurs, the complying party has to mitigate the damages resulting from non-compliance. That means the plaintiff must work actively to reduce the losses. The damage they claim is the difference between total and reduced losses.
Sometimes awarding damages is not enough to compensate the plaintiff adequately. In that situation, the court can order specific performance under the contract. The plaintiff can seek an order for specific performance (instead of damages or in addition to awarding damages), facing an individual to comply with their duties.
An injunction is a legal instrument the plaintiff can obtain from the court to stop the non-complying party from an ongoing breach of contract. The court issues an injunction order compelling the breaching party to stop acting contrary to the agreement. If they do not comply with the order, the court can fine them.
A breach of contract as a cause of civil action must meet specific requirements to give the non-breaching party the right to a legal remedy. First, the contract must be a valid and binding agreement between the parties. In addition, one party must fail to meet its obligations under the agreed terms. Finally, resulting from the breach of contract, one party has to suffer monetary damages.
When a breach of contract dispute occurs, the first step everyone involved should take is to seek help from experienced contract dispute lawyers such as Jack Haller. Business contracts often involve complex (and hidden) clauses that define mutual rights and obligations. Therefore, consulting a contract dispute lawyer to help you find cost-effective and practical solutions, including mediation and arbitration, is crucial.
A well-versed contract dispute lawyer will advise their client on the most practical methods of contract dispute resolution. In some cases, it is vital to maintain a business relationship between the disputing parties and keep business information confidential. Such situations require engaging in some of the alternative dispute resolution methods. A contract dispute lawyer will help the client successfully navigate through each step of these procedures, ensuring their rights are in safe hands during negotiations.
On the other hand, the complex nature of court litigation procedures requires a constant presence of an experienced contract dispute lawyer. To prove a breach of contract allegations in the Court of King’s Bench of New Brunswick, the party must undergo an exhausting process of disclosures, discovery, witness examination, and closing arguments. It is practically impossible to succeed in litigation and recover the damages without the help and representation of an experienced contract dispute lawyer.
Therefore, an experienced contract dispute lawyer plays a central role in protecting personal and business interests and ensuring the favorable financial outcome of each contract dispute.
Jack Haller is a distinguished civil attorney practicing in New Brunswick, Moncton.
With over 18 years of experience dealing with the most contested contract disputes, Mr. Haller can help you draft all types of contracts, avoiding the possibility of misinterpretation.
When the dispute arises, Mr. Haller will provide you with top-notch representation, always having your best interest in mind.
Please reach out today to schedule your free consultation.