A breach of contract can disrupt business operations. A contract is a legally binding agreement between two or more parties that establishes the terms and conditions of a business relationship.
If a breach of contract occurs, the party that has been harmed may be able to seek remedies through the court system, such as damages or specific performance. It is important to consult with a lawyer experienced in contract law to understand your rights and options if you believe a breach of contract has occurred.
This blog explains what a breach of contract means for businesses in Ontario. It also outlines the legal steps companies can take. You will learn how to handle business contract disputes and the remedies available.
What Is a Breach of Contract?
A breach of contract happens when one party fails to meet their promises under a valid and enforceable contract. This could be due to non-performance, delays, or doing something that goes against the terms of the agreement.
There are different kinds of breaches.
- A minor breach is small and may not affect the main purpose of the deal.
- A material breach is more serious and goes to the heart of the contract.
- A fundamental breach makes it hard or impossible to carry out the agreement.
- An anticipatory breach happens when one party tells the other in advance that they will not perform their part.
Legal Remedies for Breach of Contract
Ontario law offers many legal remedies for breach of contract. These depend on the facts of the case and the type of breach.
One common remedy is damages. This means money paid to cover the loss caused by the breach. There are different types:
- Compensatory damages cover the actual loss.
- Consequential damages cover indirect losses due to the breach.
- Liquidated damages are amounts stated in the contract in case of a breach.
In some cases, the court may order specific performance. This means the party must carry out their promise, instead of paying damages. Specific performance in Ontario is more likely when the subject of the contract is unique, like land or rare goods.
Another option is rescission. This means canceling the contract and returning both parties to their original positions. It’s used when the breach is serious.
Steps in Contract Dispute Resolution
When a contract dispute arises, it is important to act quickly. Start by reviewing the agreement. Look at the obligations of each party, deadlines, and how the contract deals with breaches. It is also helpful to determine whether the issue is a minor breach or a more serious breach that affects the heart of the agreement.
The next step is to attempt informal resolution. This may involve a phone call, an email, or a meeting. Many business disputes are resolved at this stage without the need for legal action.
If informal efforts don’t work, consider alternative dispute resolution (ADR). The two most common ADR methods are mediation and arbitration:
- Mediation is a voluntary process. A neutral third party helps both sides reach a mutual agreement. It is non-binding and focuses on compromise.
- Arbitration is more formal. A neutral arbitrator hears both sides and makes a binding decision. Arbitration is often faster and more private than going to court.
If mediation or arbitration is not successful, or not required by the contract, you may need to take legal action.
In Ontario, you can file a claim in:
- Small Claims Court for disputes involving $35,000 or less (not including interest and costs).
- Superior Court of Justice for higher-value or more complex contract disputes.
Did You Know?
In the 2022/2023 fiscal year, Ontario’s civil courts managed approximately 516,099 active general civil cases, according to Statistics Canada. While breach of contract figures are not reported separately, contract disputes, including unpaid invoices, service failures, and business disagreements, make up a significant portion of civil litigation in the province.
Termination and Mitigation
In some cases, a breach gives the non-breaching party the right to end the contract. This is called contract termination. Not every breach allows this. Usually, only a material or fundamental breach gives this right.
Once a breach happens, the non-breaching party must try to reduce their losses. This is known as the mitigation of damages. You can’t just sit back and let losses grow. Courts expect reasonable steps to limit the harm.
Time Limits and Legal Action
Ontario law has a statute of limitations. You must start a claim within two years of discovering the breach. If you wait too long, the court may not hear your case.
This is why it’s important to act fast. Get legal advice as soon as you think there’s a breach. A breach of contract lawyer in Ontario can help assess the situation and recommend the right steps.
Contract Tips for Businesses
To avoid problems, make sure your contracts are clear. Use simple language. Define terms like delivery dates, payment terms, and duties of each party. Include terms about dispute resolution, damages, and how to end the contract.
Review contracts with a lawyer before signing. A contract dispute lawyer can help spot risks and protect your interests.
If a breach happens, don’t ignore it. Document what went wrong. Save emails, texts, and other records. This can help if the matter goes to court.
Commercial Litigation in Ontario
If a case can’t be settled, you may need to start a commercial litigation case in Ontario. This is a formal court process. It can be long and costly, but sometimes it’s the only option.
A civil litigation lawyer can file the case, handle the paperwork, and present your case in court. They also try to negotiate a settlement before trial.
Litigation is often the last resort. Most businesses prefer to settle early to save time and money.
Conclusion
A breach of contract can hurt your business. But Ontario law gives clear steps and legal remedies. You can seek damages, ask for specific performance, or end the contract if the breach is serious.
Start by reviewing your contract. Try to resolve the dispute informally. If needed, use mediation or arbitration. If that fails, go to court within the time limit.
Always seek legal advice.
Understanding your legal options can help you deal with breaches quickly and effectively. It also helps you protect your business in the future.
Quick FAQs
Yes, you can sue if you can prove there was a valid contract, you upheld your end, and the other party failed to perform. Legal action can be taken in Small Claims Court or the Superior Court of Justice, depending on the amount and complexity of the claim.
You generally have two years from the date you became aware of the breach to file a claim. This is called the basic limitation period. In some cases, an ultimate limitation period of 15 years may also apply, depending on the circumstances.
Start by reviewing the contract and gathering evidence of the breach. Try to resolve the issue through communication or mediation. If that fails, you can begin legal proceedings in the appropriate court. A lawyer can help you choose the right approach based on the contract and nature of the breach.
A material breach is serious and goes to the core of the agreement. It may allow the other party to terminate the contract and seek damages. A minor breach is less significant and usually does not excuse the other party from performing their side, though compensation may still be owed.
Specific performance is granted when money damages are not enough, such as in cases involving the sale of land or unique items. The court orders the breaching party to carry out their part of the contract. It is only available in limited situations.
First, review the contract terms and identify the breach. Keep detailed records of communications and any losses. Attempt to resolve the issue through negotiation or mediation. If that does not work, speak to a lawyer to explore legal action or other remedies available under Ontario law.
Yes, verbal agreements can be legally binding in Ontario if they meet the basic elements of a contract. However, some agreements, such as those related to land or guarantees, must be in writing. Proving the terms of a verbal agreement can be more difficult, so documentation is always helpful.
Mediation involves a neutral third party who helps both sides find a mutually acceptable resolution. It is informal and non-binding. Arbitration is more formal. An arbitrator hears both sides and makes a decision that is usually binding. Both are private alternatives to the court and are often faster.
A breach occurs when one party fails to meet their contractual obligations without a valid legal excuse. This can include failing to deliver goods or services, missing deadlines, or clearly indicating they will not fulfill their duties under the contract.
The main remedies include damages to compensate for losses, specific performance where the court orders the party to fulfill their promise, rescission to cancel the contract, and injunctions to prevent a party from doing something. The remedy depends on the type and seriousness of the breach.
Disclaimer: The information provided in this blog is for general informational purposes only. It is not legal advice and should not be relied on as such.
