Contract Law in Canada

The following is a general description of contract law in Canada, except Quebec, and the remedies for breach.

General

A contract is a promise or set of promises, the breach of which gives a remedy or the performance of which creates a legally recognized obligation. Contract law in Canada is, for the most part, governed by the common law of the provinces and territories or, in the case of Quebec, by the civil law as set out in the Civil Code of Quebec. Originating in, and adopted from, 19th century England, the common law affecting contracts has continued to develop over the years through decisions of the Canadian courts. Certain types of contracts will be impacted by statute, and the enforcement of all contracts will be subject to statutory limitation periods.

Formalities

Except for certain contracts that must be in writing or signed under seal, Canadian law recognizes the enforceability of promises, oral or written, provided there is “consideration” flowing from the promisee to the promisor or a mutuality of promises. Courts look to the parties’ bargain to determine an objective or manifest intent of the parties to be bound. Courts will also determine whether there has been an “offer” and “acceptance” based upon the type and transmission of communication between the parties.

Overview of Remedies

The law provides a multitude of remedies against those who breach their contracts. In addition to self-help remedies such as rights of set-off or termination for anticipatory repudiation, contracting parties have access to the courts for enforcement or obtaining redress in respect of agreements that are not being honoured. However, with the exception of certain types of equitable remedies (such as specific performance, injunctions or an accounting for profits), the most common and usual remedy for breach of contract will be an award of damages.

Damages

The general rule for recoverable loss in breach of contract cases is that the courts will award damages to place the aggrieved parties in the same position they would have been in had the contract been performed. Damages for mental distress or hurt feelings are not typically awarded, although Canadian courts have shown a willingness to award punitive damages in recent years for certain types of breached contracts (for example, employment and insurance). Owing in part to a reluctance of courts to award punitive damages for the breach of private agreements and the fact that most breach of contract cases will be heard by a judge and not a jury, the vast majority of broken contracts will result in damages governed by the general rule mentioned above.

Equitable Remedies

As a general principle, Canadian courts will not compel the performance of a contract. However, where it can be established that damages will be an inadequate remedy, Canadian courts have the power to order specific performance of a contract or to issue injunctions preventing the temporary or permanent breach of an agreement. In addition to, or in lieu of, this type of equitable relief, courts may also award damages but these are not awarded on the same principles as those governing common law damages. For example, damages might be awarded instead of an injunction where the injury that will result from a future unlawful action (such as a threatened trespass on land) can be adequately compensated for in damages. The breach of certain types of contracts (for example, distribution of licensed goods) may also entitle the aggrieved party to elect an accounting of the breaching party’s profits.

Liquidated Damages

In some contracts, the parties may choose to specify a liquidated sum of damages in the event of breach. The caveat here is that the specification of liquidated damages cannot be a penalty. If the liquidated damage clause is enforceable, it will avoid the need for the aggrieved party to prove their actual damages. In the absence of a liquidated damages clause, the aggrieved party will be entitled to damages directly resulting from the breach and consequential damages in the minds (or which ought to have been in the minds) of the parties at the time of contract.

Excuses for Non-Performance

Excuses for non-performance can include mistake (with or without rectification), misrepresentation, unconscionability, fraud, illegality or rendering the contract void for reasons of public policy. As mentioned above, certain contracts such as consumer agreements can be set aside for statutorily prescribed reasons. In some cases, performance of the contract may not be possible because events which neither party had anticipated have rendered the agreement radically different from what was undertaken by the contract.

Other Restrictions

Statutory limitation periods will impact upon enforceability depending upon when the breach occurred. The ability to enforce may also be affected by waiver or estoppel although most commercially written contracts will contain express provisions dealing with such matters. The assertion of collateral contracts affecting the primary contract may also affect enforcement.

If a contract to which you a party has been breached or if you are concerned that it will be breached contact Rabideau Law to better understand and protect your legal rights.

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