Breach of contract- what happens when you walk away from your contract?

Breach of Contract consequences

Breach of Contract consequences

Breach of Contract

We have all entered into a contract at one point or another in our lives.  Whether it be for a cell phone package, or to buy a new house.  Well over 99.99% of these contracts are respected and life runs fairly smoothly for all involved.  But what happens when someone doesn’t respect their agreement?  What happens when someone walks away from his or her obligations?

When a breach of contract occurs, the aggrieved party must make a decision. They can either take legal action or they can chalk it up to a life lesson and move on. If you choose the former, you must sue, or at least threaten to sue. If the “damage” is under $10,000.00, you can pursue them in small claims court.  In the event it is over, then you must go to “real” court.  In Manitoba, that court is the court of Queen’s Bench.

Small Claims Court

While the limit for contract breach you can pursue in small claims court is $10,000.00, you are not precluded from filing in that court if your damages exceed $10,000.00.  The court simply cannot issue an order for more than the limit.  So, for example, if your damages amount to $12,500.00 or even $15,000.00, you may still decide to file in small claims. You would be further ahead than if you had paid a lawyer to pursue the larger amount in Queen’s Bench. Small claims is meant to accommodate self-represented parties. The rules of evidence are flexible. This level of court is designed to provide “quick” justice.

Court of Queen’s Bench

Conversely, parties in the Court of Queen’s Bench should retain a lawyer.  The process can be long and the formalities of the court can be unforgiving.  If you don’t file the appropriate documents or misunderstand a finer point of law, you may be left without a remedy, even if the court would otherwise find the breaching party liable. The costs of litigation start at $5,000.00 and can easily top the $50,000.00 mark (in some complicated cases, legal fees can reach into the hundreds of thousands).

Remedies

Most of the time, courts will try to determine the value of the breach of contract and award “damages”.  Damages are quantifiable and if the other party looses, he or she will be liable to pay you that amount. In some unique cases, the court may order “specific performance”.  This type of remedy is rarely used.  However, at times, this is the only just remedy.  Courts usually reserve this remedy for cases where one party contracts to purchase or acquire a unique item. For example, if you contracted to purchase an original Picasso and the vendor decided at the last minute to pull out of the deal, you could sue and ask a judge to grant you the remedy of specific performance.  The judge, if she agrees, would order the vendor to go through with the sale and issue an order accordingly.

For good reason, judges rarely order specific performance because, in practical terms, it’s difficult to force a party to do something it does not want to do. So normally, courts try and quantify damages and compensate accordingly.

Damages calculation

How does a court determine damages? Let’s use real estate as an example.  In one case in Vancouver,  a purchaser entered into a contract to purchase a home just as the government introduced its foreign buyer tax of 15%.  The agreed upon purchase price was $1,260,000.00.  Prior to possession, the purchaser changed his mind and walked away from the deal (presumably because the market slowed down, and price began to drop).  In the end, another buyer purchased the property for $910,000.00  The vendor sued. Ultimately, the court found that the purchaser breached his obligations under the contract, and found him liable for the difference in price.  The court ordered him to pay more than $360,000.00 in damages and costs.  The CBC news article can be found here.

While suing someone for breach of contract is a big decision, the process is meant to discourage people from making contracts and not respecting their agreement.  This is all part of the rule of law.  Our economy relies on these rules to function properly.  The threat of legal action keeps everything on track. It gives us confidence that parties will respect their agreements.

Disclaimer – Legalese

I appreciate the irony of this disclaimer, but while I am critical of the rules, I must still play by them, so here goes….This article is presented for informational purposes only. The content does not constitute legal advice or solicitation and does not create a solicitor client relationship (this means that I am not your lawyer until we both agree that I am). If you are seeking advice on specific matters, please contact Philippe Richer at richerp@tlrlaw.ca, or 204.925.1900. We cannot consider any unsolicited information sent to the author as solicitor-client privileged (this means confidential).



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