Understanding breach of contract and its consequences can be quite useful in business dealings.
Are you looking to learn more about breach of contract?
Wondering what type of damages you can claim in the event of a breach of contract?
In this article, we’ll give you just that!
We will present to you all you need to know about the breach of contract. What is a breach of contract, what are the consequences, what are the types of breaches, how can you prove a breach of contract, what damages can you claim and more!
We have divided this article into the following sections for your ease of navigation:
- Breach of contract meaning
- The consequences of breach of contract
- Types of breach of contract
- How to prove breach of contract damages
- What are breach of contract damage types
- Takeaway
Let’s get started…
Breach of contract meaning
We all hear the expression breach of contract.
What does that it mean exactly though?
Breach of contract is a general term used to refer to situations where a contractual party fails to respect the terms of the contract and adequately fulfill its contractual obligations.
When we refer to a breach of contract, in most cases, we have a business relationship or a contractual relationship where the parties have entered into a written agreement.
Verbal agreements can also be breached although the evidence of the actual terms breached may be more difficult to make in court.
Contractual obligations may be breached either fully or partially.
When a party exercises a recourse for contractual breach, that party considers that the contractual breach was so important justifying the court to be seized of the matter.
In business dealings, we sign contracts to be protected specifically in cases of breach or when a party does not respect its contractual obligations.
When a party does not adequately execute its obligations or fails to deliver as promised, we’ll need to refer to the contract to appreciate what obligations were breached along with the possible remedies negotiated in the contract.
It may not always be straightforward, especially in complex business relationships where the obligations of a party may depend on the proper execution of the obligation of the other party or even a third party.
So what is the meaning of breach of contract?
In technical terms, it’s a situation where one party promised to do something or committed to do something and did not do it right or on time.
When there is a breach of contract, what are the consequences?
The consequences of breach of contract
Under common law and civil laws of Quebec, a breach of contract is a civil violation as opposed to a criminal one, in most cases.
Civil consequences
A civil violation is when two private persons, entity or individual, have a legal dispute surrounding the terms of their contract.
The civil dispute will typically end in a monetary award compensating the damages suffered by one party along with any other possible damages or remedies possible.
Criminal consequences
In some cases, if there were acts of fraud behind the contractual deal, the breach of contract, or even the formation of the contract may be considered a criminal offense.
If someone threatens bodily injuries forcing another to enter into a contract, then the contract will not be recognized in law and the threatening party can be charged criminally.
Court procedures
In the event of a contractual breach, an individual or business suffering damages can submit a legal application before the courts requesting the legal enforcement of the contract or a sum of money to compensate for the damages suffered.
The consequence for the breaching party is that they’ll need to hire the services of an attorney to defend the claim filed against it.
Types of breach of contract
There are different types of breach of contract events.
Material breach
The breach of contract can be as a result of a significant default of a party where the other party suffers damages or injuries.
We refer to this as a material breach of contract.
In this case, the breaching party has acted in such a way as to significantly deviate from the terms of the contract and potentially causing damages to the non-breaching party.
Partial breach
You can also have a partial breach of contract where the default is not important enough to prevent the non-breaching party from performing its duties.
However, due to the partial breach or repeated breach of contractual terms, it appears that the non-breaching party is unable to respect the terms of the contract.
Anticipatory breach
You can also have an anticipatory breach of contract whereby as a result of the other party’s actions or omission, the party suffering damages will trigger the termination of the contract for cause.
This type of contractual breach may be more disputable in court.
The non-breaching party will take the lead and declare the contract as materially breached for cause to avoid any imminent injuries or further damages.
How to prove breach of contract damages
Under Quebec laws, to successfull have the court award damages for breach of contract, you’ll need to prove four elements:
- The existence of the contract
- The fault
- The damage
- The causation between the fault and the damager
Article 1458 of the Civil Code of Quebec states:
Where [a person] fails in [his] duty, he is liable for any bodily, moral or material injury he causes to the other contracting party and is bound to make reparation for the injury; neither he nor the other party may in such a case avoid the rules governing contractual liability by opting for rules that would be more favourable to them.
This article states that you are bound to honour your contract.
If you do not, you are bound to repair the injury caused to other be it bodily injury, moral injury or material injury.
Under common law, proving breach of contract will generally follow similar criteria.
What are breach of contract damage types
When there is a breach of contract, there are different types of remedies you can claim from the breaching party.
Let’s look at them one by one.
Compensatory damages
The first type of remedy is compensatory damages.
This is when a party will ask for compensation for all the damages suffered.
In the case of compensatory damages, a party will ask the court to condemn the other party to pay an amount sufficient enough to compensate it for any losses it suffered as a result of the contractual breach.
Under Quebec laws, compensatory damages are generally direct damages and caused immediately as a result of the contractual breach.
Article 1607 of the Civil Code of Quebec states that one party is “entitled to damages for bodily, moral or material injury which is an immediate and direct consequence of the debtor’s default”.
For the damage to be qualified as direct damage, there must be a direct correlation between the contractual breach of one party and the damages suffered.
Typically, the compensatory damages can be claimed for foreseeable damages at the time the contract was signed.
However, if a contracting party’s actions or omissions are deemed to be of gross negligence or intentional fault, then the direct damages can also include unforeseeable damages.
Indirect damages
Under Quebec laws, indirect damages are not recoverable.
The Civil Code allows for the recovery of “direct and immediate” damages resulting from the breach of the contract only.
Excluding indirect damages in a contract will not have any legal effects.
Special damages
Special damages under common law are losses caused to a party resulting from special circumstances to the extent the breaching party was made aware of the special circumstances that could justify special damages.
Special damage is a way to compensate a damage due to a contractual breach along with other damages suffered indirectly as a consequence of the breach.
Special damages may include a broad range of losses such as loss of profit or damage to reputation.
Special damages are not recognized under Quebec law.
Under Quebec laws, the damages that can be recovered must be direct damages.
If there are damages caused as a consequence of the breach, if there is an important and direct causal link between the damage suffered and the fault, the court will award the damage as ‘direct’ damages.
Excluding special damages in a contract under Quebec law will have no legal effect.
Incidental damages
Incidental damages are recognized under common law and not under Quebec’s civil law.
Incidental damages are damages caused directly as a result of the contractual breach such as a cost you incurred to fix the problem yourself or return the product purchased.
Under civil law, if you can prove a causal link between the fault and the damage, then the courts will award the damages.
Under Quebec laws, the exclusion of incidental damages does not have any legal effects.
Consequential damages
Consequential damages are similar to special damages with the difference that there was no communication of special circumstances by one party to the other to justify special damages.
These are damages under common law directly resulting from the failure of one party to meet its contractual obligations.
Consequential damages go beyond the actual damages of the contract and include other damages caused in the general context of the breach.
Consequential damages could be loss of revenue, loss of profits or loss of product that was reasonably foreseeable at the moment the contract was signed.
Under Quebec laws, consequential damages are not specifically recognized as such.
If damage is considered to be an immediate consequence of the contractual breach, then it’s recoverable under Quebec’s civil system as direct damages.
If not, the damage may be too indirect for the courts to award consequential damages.
Punitive damages
Punitive damages are possible under Quebec laws only when the law expressly provides for such damages.
In the absence of a statutory basis, a court is not authorized to award punitive damages in Quebec even if the contractual breach was severe enough to justify a punitive damage in equity.
Under Quebec contract law, an exclusion for punitive damages may be effective although the courts may not enforce it if the renunciation in advance can violate the public order.
Liquidated damages
Liquidated damages are damages the parties have specifically agreed upon in the contract, in advance.
In the event of a breach of contract, the non-breaching party can either claim compensatory damages or other damages in law or the liquidated damages.
In common law, generally the liquidated damages will not be enforceable if its scope is to punish a party rather than to compensate for a loss.
Liquidated damages can be claimed under Quebec law to the extent that the parties have duly negotiated the contract and is not abusive.
Under Quebec contract law, if there is a liquidated damages clause, the parties can claim liquidated damages without having to prove the actual damages provided the liquidated damages represent a fair assessment of the damages and are not considered to be a penalty.
Specific performance
Under Quebec laws, the non-breaching party may demand the specific performance of the contractual obligations of the other.
In this type of situation, the non-breaching party may perform the obligation or have another party perform the obligation at the expense of the breaching party.
To demand specific performance, the non-breaching party must notify the other in writing before executing having someone else perform the obligation.
The damages suffered as a result of the specific performance are recoverable as direct damages under civil law and consequential damages under common law.
Restitutory damages or disgorgement damages
Under common law, restitutory or disgorgement damages are available when the breaching party has collected undue profits as a result of their contractual breach.
In this case, the breaching party must restitute any gains illegally collected at the expense of the non-breaching party.
Legal fees
Under Quebec’s civil law, attorney fees or legal costs are generally not possible to be claimed unless it’s been specifically agreed to in a contract or there is an abuse of legal process.
Under common law, a party is also generally not entitled to attorney’s fees unless agreed to in a contract, is authorized under law or has suffered undue hardship during the legal process.
Takeaway
There you have it folks, breach of contract and its consequences.
A breach of contract is when one party does not honour and respect to terms of a contract.
In the event of a breach of contract, the non-breaching party may suffer damages and therefore claim the compensation for the damages suffered in court.
If the breach of contract is successfully proven, the court will award compensatory damages or other types of damages in accordance with the law.
Damages are awarded differently under common law and civil law but they both end up achieving the same result.
We hope you enjoyed this article.
Should you need any legal advice or assistance with respect to a situation where there is a breach of contract, or you’ve suffered damages, our Montreal lawyers are here to support you with that.
Our lawyers are experienced and understand the intricate details of contract law and how courts will award damages depending on the specific nature of the breach you are invoking.
Contact us anytime for further support.
Good luck!
