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What are the legal implications of a breach of contract?

On Behalf of | Sep 1, 2021 | Business Law

A business contract forms the foundation upon which business owners rely when running operations. Ensuring that the contract is enforceable and has the key elements that are relevant to the functioning of the business helps to protect the business in the event of a dispute.

When there are events that cause delays, or financing or performance issues that disrupt operations, disputes can arise that result in a breach of contract lawsuit. A breach of contract happens when there is a failure of one party to perform obligations in accordance with the terms of the contract.

What are the two types of breach?

A breach of contract can either be material or immaterial, and the appropriate legal action will differ depending on the circumstances. A material breach is a failure to perform under contract that is serious enough to render the contract null and void. With this type, also called a total breach, the plaintiff may end the agreement and file a claim for damages. An immaterial or minor breach, however, is only a partial breach in which the injured party may sue for damages but cannot be absolved of their responsibilities under the contract.

The courts will consider certain factors in determining how serious the breach has been. This serves to provide a framework for determining an award of damages and possible excuse from performing under contract in the future. Such considerations include:

  • Whether the breach was intentional
  • The extent to which the breaching party has performed
  • Whether the breaching party will continue performing under the contract
  • Any benefit the non-breaching party may have gained in spite of the breach
  • The extent to which the injured party may receive compensation
  • The burden to the breaching party if the court rules that it was a material breach and therefore that the injured party may end performance

What are the remedies for a breach of contract?

The main remedies for a breach of contract can include:

  • Punitive or liquidated compensation for damages
  • Specific performance under contract by the breaching party
  • Cancellation and restitution of the contract by the injured party

In Ontario, the limitation period for initiating a lawsuit for breach of contract is typically two years.

As a business owner, it is essential to have trusted and experienced legal counsel who will represent your business needs and offer support when legal concerns arise.