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Part 8: Time Limits, Breach & Remedies

We start off by quoting Mr. Justice Romer in Biggs v Hoddinott, [1898] Ch. D. 313:

DUHAIME'S CONTRACT LAW: Eight chapters of pure, unadulterated contract law love.

1. Contract Law - The Introduction

2. Privity, Consent and the Reasonable Man
3. Consideration & Deeds
4. Offer & Acceptance
5. Mistake, Rectification & Misrepresentation
6. Restraint of Trade, Assignment, Novation & Frustration
7. Interpretation of Contracts
8. Time Limits, Breach & Remedies

TIME LIMITS, BREACH OF CONTRACT AND REMEDIES

Good, ol' fashioned judicial wisdom is hard come by in contract law but when it's there, you gotta use it.

"There is a great principle which I think ought to be adhered to by this court and by every court where it possibly can do so;
that is to say that a man shall abide by his contracts and that a man's contracts should be enforced as against him."

Persons are required to abide by their contracts, to "discharge" their contractual obligations.

Doing so completes the contract and frees each party from it.

In some circumstances, the same is true for those parties who want to, and attempt to discharge their obligations, but are prevented from doing so by some action
of the other party.

This interference with the contract (lawyers call it "repudiation") may free the party who is trying to perform from their contractual responsibilities.

Where the payment of a sum of money is one party's obligation, this must be done by offering legal currency. The creditor is not required to make change nor is
the creditor required to accept a cheque (although you'd get a scowl or two from a Court if this is what your case was all about).

If contractual obligations are not respected, the delinquent party is said to be in breach of contract. Breach of contract allows a party to bring the party in default
to court and to get the court to correct the situation, as best the court can.

The courts will intervene even if time for performance has not arrived where a side to a contract has given a clear indication that they do not intend on honouring
the contract. This is known as the doctrine of anticipatory breach.

Because a contract is private law, the courts will not throw the full brunt of the law against a person found to be in breach of contract. On the other hand, as
discussed below, a variety of tools are used by the courts in dealing with breach of contract and ensuring that the person who defaults on a contractual obligation
adequately compensates the person who did not receive full contractual benefit.

Time Limits on Enforcing Contracts

It would make no sense if legal claims were allowed to exist forever. Signatories die and records are eventually lost.

For this reason, any claim for breach of contract must be brought before the court within a certain period of time.

This is called a limitation period and is usually set in a statute of limitations. Every jurisdiction has its own deadlines. For example, in the case of non-real
estate contracts, the standard limitation may be six years from the date the party would have first been entitled to bring action (i.e. the date of breach).

A partial payment will set the limitation period clock back to the start.

The Statutes of Limitation protects contractors from debtors that disappear by suspending the limitation period for the time of hiding.

Contracts related to real estate have very special rules governing the time limits of legal action taken upon them and tend to vary from province to province.

Breach and Remedies

Breach of contract comes in many forms. You could have a complete breach, where one party completely refuses to deliver on any part of their undertaking. In
other situations, a person may do most of what the contract requires but omit or refuse to do a small residual portion. This latter situation is called "substantial
performance" and it has the effect of binding the other party to performance, at least in an equivalent portion.

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The first thing a lawyer will look for when faced with a possible breach of contract situation is a clause in the contract that has already decided what happens if
there is a breach (see comments on "liquidated damages" and "exclusion clauses" on previous page). These clauses are perfectly legal and will bind the parties.

Another important factor is that each party has a responsibility to mitigate their losses. That means that even if your contractual partner is not keeping their end
of the bargain, you should try to keep your losses at a minimum.

For example, if you are fired in breach of your employment contract, you would be expected to try to find another job as soon as reasonable, to minimize your
losses due to the breach. Or, if you sign a contract to deliver apples to another person, and that other person refuses to take delivery (in so doing, is in breach of
contract), you would be well advised to try to sell the fruit elsewhere to minimize any damages that you suffer by the breach.

The law does not require a party to do cartwheels to minimize losses; just what can be reasonably done without incurring substantial costs. The English case,
Yetton v. Eastwoods Froy Ltd. [1967] 1 W.L.R. 104 stated the general rule by saying that:

"If (the plaintiff in a breach of contract case) can minimize his loss by a reasonable course of conduct, he should do so, though
the onus is on the defaulting defendant to show that it could be, or could have been, done and is not being, and has not been
done."

Some of the cases below deal with mitigation of damages.

Specific Performance
There are several options available to the court in cases of breach of contract. The preferred remedy is damages (see below). Specific performance is
exceptional and ordered only when an award of damages would be "inadequate." With land contracts, however, the courts have far greater direct authority and
specific performance is the preferred remedy for breach of land contracts. The court would then order the delinquent party to perform his or her end of the
bargain, if feasible, given the nature of the contracts and the irreplaceable character of the goods or services covered, and the ability of the court to enforce such
an order.

This type of remedy has been called "coercive" and is obviously directed at getting the faulty party to fulfill their obligation. It is also a creation of equity which
means it is very much a discretionary power of the court and it is subject to the tenets of equity, especially that which says that "he who comes to equity must
come with clean hands."

If specific performance requires court supervision, the court will be reluctant to order it. A court will not order a singer to perform against his or her will even if
not doing so is a breach of contract. Nor will a court order specific performance for non-specific goods such as "grain" or "petroleum", since they can be
replaced, albeit perhaps at a higher price (provincial Sale of Goods laws provide similar statutory guidelines on specific performance).

Mennonite Land Sales Co. Ltd. v. In this case, specific performance was requested of a court where the defendant had breached a contract for the sale of crop. The court declined
Friesen (1921) since the goods were not "of so unique or special a character that money compensation is not adequate."

Injunctions
An injunction is another coercive legal remedy which can be used in some breach of contract cases where a direct order is required to stop a party from
continuing an ongoing breach, such as misuse of leased premises.

One of the features of coercive remedies such as specific performance and injunctions, is that the failure of the defendant to comply, results in a form of
contempt of a court order and gives the plaintiff access to public enforcement weapons such as fine or imprisonment.

Warner Brothers Pictures v. Nelson (aka Bette Davis) suddenly walked away from an exclusive acting contract. The plaintiff sued and asked for an
Nelson, [1937] 1 KB 209 injunction preventing her from further breach. The court issued an injunction preventing the actress from acting for other
companies. This did not force her to act for the plaintiff so it was thought to respect...

"...the principle that specific performance of a contract of personal service will never be
ordered.... (Nor will the court) grant an injunction in the case of such a contract to enforce
negative covenants if the effect of so doing would be to drive the defendant either into starvation
or to specific performance of the positive covenants."

Geometrics & Geometrics An interlocutory injunction (restraining until trial) was sought. The court said:
Services (Can.) Ltd. v. Smith, 65
DLR (3d) 62 (1975) "... the basic issues ... are balance of convenience, the irreparability of the damages and the question
whether a prima facie case has been established."

The request was denied because the injury to the person sought to be restrained "could well be beyond compensation in
damages" and there was no evidence of irreparable damage which could not be repaired, if proven, by damages.

Damages
Compensatory remedy is synonymous to the claim for damages. Instead of asking the court to require the faulty party to fulfill their obligation, the plaintiff asks
the court to compensate him for out-of-pocket expenses caused by the breach. An order for damages is enforced privately by the judgment creditor. In some
cases, the seizure of assets may be possible.

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When it comes to damages, we enter a murky world of the law, a world which is still muddied by the influence of two distinct sets of criteria for assessing and
ordering damages for breach of contract. The first set of rules comes from common law. The second set comes from a corollary body of law which developed in
England in centuries past as a check on the cut-and-dry approach of the common law: equity. For example, where common law would bind a person to any
contract given a signature apposed without duress, equity might weigh the relative positions and assess the "equitable" nature of the contract. The contract
defence of undue influence and of unconscionability are equity-based, as is specific performance, and are good examples of remedies which rely on basic
fairness rather than the strict rule of the law.

Damages are an attempt by the court to compensate the innocent party to the contract, the party that suffers the breach. The purpose is compensation not
punishment so only real, actual damages can be ordered by the court. However, it seems that Canadian courts are no longer deaf to pleas for punitive damages in
breach of contract cases. In wrongful dismissal cases based on breach of an employment contract, punitive damages are not uncommon.

Generally, there are two main methods of calculating damages:

The difference between what was contracted for and what was received. This is known as the diminution of value test. Provincial legislation makes it the prima facie rule in sale of
goods contracts (eg. B.C.: "Where there is an available market for the goods in question, the measure of damages is to be ascertained, in the absence of evidence to the contrary, by the
difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted, or if no time was fixed for acceptance, then at the
time of the refusal to accept"). The diminution of value method is applied in sale of goods cases because the plaintiff is required to mitigate his or her damages. If mitigation is not
possible or reasonable, the alternate "cost of performance test" can be applied (for example, a defective product can be fixed at a reasonable price). To illustrate the diminution of value
method: if I contract that you will sell me apples for $1,000 on July 1. The goods are delivered on July 4 forcing me, on July 1, to buy apples elsewhere for $1,300. Damages are $300.

Whatever it costs to put the plaintiff in the position he would have been in had the defendant fully performed his contractual obligations. This is known as the cost of performance
method. The defendant is ordered to pay the cost of fixing the defect, of completing the contract. This is the prima facie method for assessing damages in breach of contracts involving
buildings. The court will not order damages based on the cost of rectification if those costs are unreasonable when compared to the diminution of value of the building caused by the
breach.

Hadley v. Baxendale, 156 THE most cited case of all time when it comes to damages. A broken shaft was given to a carrier to bring to a repair shop. The
ER 145 (1854) carrier was not told that the absence of the shaft meant complete work stoppage for the owner. The carrier was in breach of
contract by being several days late in delivery. Admitting to damages, the defendant nevertheless argued that the loss of profit
• rule of remoteness and special
damages were too remote. The court said that damages should be restricted to what...
circumstances

"... may fairly and reasonably be considered either arising naturally, i.e., according to the usual
course of things, from such breach of contract itself, or such as may reasonably be supposed to have been
in the contemplation of both parties, at the time they made the contract, as the probably result of the
breach of it. Now, if the special circumstances under which the contract was actually made were
communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting
from the breach of such a contract, which they would reasonably contemplate, would be the amount of
injury which would ordinarily from a breach of contract under these special circumstances so known and
communicated."

Victoria Laundry (Windsor) A boiler was sold, broken upon leaving the premises of the vendor and then never delivered. The court issued six
Ltd. v. Newman Industries Ltd.,
[1949] 2 KB 528
• reasonably foreseeable
"propositions:"
1. The rule that damages try to put the aggrieved party in the same position as if his contractual rights had of been observed, can be too harsh
at times, because some damages are too unpredictable or improbable.
2. Only damages which are "reasonably foreseeable" from the breach are recoverable.
3. What was "reasonable" depends on the knowledge of the party that commits the breach.
4. Knowledge can be imputed ("ordinary course of things") or of "special circumstances outside the ordinary course of things of such a kind
that a breach ... would be liable for more loss."
5. It is not necessary to prove that the wrongdoer contemplated the loss. "Parties at the time of contracting contemplate not the breach of the
contract, but its performance. It suffices that, if he had considered the question, he would as a reasonable man have concluded that the loss
in question was liable to result."
6. It is not necessary to foresee "that a breach must necessarily result in that loss. It is enough if he could foresee it was likely so to result. It is
indeed enough ... if the loss ... is a serious possibility" ... "real danger" or "in the cards."

Kuofos v. C. Czarikow Ltd. A ship, the Heron II, was nine days late with a cargo of sugar. During those nine days, the market price of sugar fell and the
(The Heron II), [1969] 1 AC 350 plaintiff asked for damages based on the price they could have obtained if the sugar had been delivered on time. The court
could not agree saying that:
• degree of risk

"... the crucial question is whether, on the information available to the defendant when the contract was
made, he should, or the reasonable man in his position would, have realized that such loss was
sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed
naturally from the breach or that loss of that kind should have been within his contemplation."

The court then allowed the damages but took the opportunity to reject part of the Victoria Laundry decision (see above) saying
that while damages that are "likely" are recoverable, "serious possibility, real danger or in the cards" possibilities are not.

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Bowlay Logging Ltd. v. Bowlay was hired by Domtar to log 10,000 cunit of timber. But Domtar was unable to provide enough trucks so Bowlay sued
Domtar Ltd., 87 DLR (3d) 325 for breach and damages. But there was no evidence of loss. The claim was based merely on the total expenditures of Bowlay
(1982, BCCA) minus what it had already been paid by Domtar.

• no real loss ... then nominal But Domtar argued that the loss was not a result of the breach. Bowlay, Domtar argued, ran a highly inefficient business and
damages would have lost much more had Domtar not have pulled its trucks.

The court agreed. The plaintiff having elected to claim for expenses, was rebutted by the defendant showing that the plaintiff
would have incurred a loss had it completed the contract (i.e. the defendant did the plaintiff a favour). Nominal damages of
$250 were awarded Bowlay.

McRae v. In this case, defendant had sold an nonexistent tanker to plaintiff. Defendant had relied on anecdotal evidence to assert that a
Commonwealth Disposals marooned oil tanker could be found in a certain area. After an exhaustive search, the plaintiff sued for breach and damages.
Commission , [1951] HCA 79
First, the court said that "the mere difficulty in estimating damages did not relieve a tribunal from the responsibility of
• wasted expenses recoverable assessing them as best it could."

Even though the Commission did not promise that a tanker could be salvaged, they did promise that one would be where they
said it would be. The court made an analogy with a contract for the sale of sheep: if there are no sheep at the point of delivery,
the buyer will be able to recover his expenses incurred and wasted in sending a truck to take delivery. But not all the heads of
damages were accepted by the court.

For example, capital assets such as equipment bought before the date of the contract was not admissible, as was the case with
ordinary shipping supplies. Reconditioning of the search vessel, some of which was done way before the contract, was also
disallowed.

McRae tried, too, to press a claim for the equivalent value of a tanker found with oil aboard. The court rejected this claim as
the defendant had not promised that a salvageable tanker would be found nor that it would have retained its oil cargo.
Damages were awarded based on money the search vessel might have made if it had not been engaged in the futile search for
the nonexistent tanker. {Note: this case is also discussed in page 5.}

Keneric Tractor Sales "The general rule for the assessment of damages for breach of contract is that the award should put the plaintiff in the position
Ltd. v. Langille , [1987] 2 he would have been in had the defendant fully performed his contractual obligations."
SCR 440
The defendant rented farming equipment from Keneric. Keneric assigned the lease to the manufacturer as security on the
• equipment lease breached purchase of the equipment. Langille stopped paying midway through the lease. The court decided that "a lessor who terminates
a chattel lease by virtue of a provision in the lease allowing him to do so, is limited in his remedies to the rent due at the time
of the termination.... When one party repudiates the contract and the other party accepts the repudiation, the contract is at this
point terminated or brought to an end."

The court also stated that whether the contract was repudiated by the lessee or terminated by the lessor because of breach,
"makes no difference to the assessment of damages." Keneric had, in their contract with the manufacturers, a penalty clause,
which they paid, and which they sought to recover from Langille. Langille was aware that their lease with Keneric had been
used as security and so the compensation for these payments was not remote enough to be excluded.

Sunshine Vacation Villas Hudson's Bay reneged on a deal to allow the plaintiff to become the exclusive travel agency in several of its western Canada
Ltd. v. Hudson's Bay Company, stores. In this case, the court stated that a plaintiff may choose between a claim for "expenses rendered futile by the breach" or
13 DLR (4th) 93 (BCCA, 1984) the normal measure of damages (i.e. put the plaintiff in the position he would have been in had the defendant fully performed
his contractual obligations).
• allowable expenses
Since, as had been done in Bowlay, the plaintiff had elected to proceed on the basis of "incurred and wasted expenses ... the
onus of establishing ... that the amount of the expenditure to the date of breach was less than the net loss which would have
been incurred had the contract been completed." The court accepted the amounts submitted as lost capital including the
$80,000 initial investment by the investors and the line of credit balance of $115,000

Chaplin v. Hicks, [1911] 2 A contestant in a beauty contest complained that although she was one of fifty finalists, the final selection appointment was
KB 786 given on such short notice that she did not receive the letter on time to make the appointment. In defence, the argument was
that the chances of the contestant to win, in any case, were impossible to assess.
• loss of chance
But the court said that the "fact that damages cannot be assessed with certainty does not relieve the wrong-doer of the
necessity of paying damages for his breach of contract."

Giles v. Edwards, 7 TR This old and short English case involved a man who, one-sixth of the way through the job, reneged on an agreement to cut firewood. The plaintiff
181; also at 101 ER 920 (1797) sued to recover the advance payment. The court said yes, that the plaintiff "had a right to put an end to the whole contract and recover back the
money that they had paid under it. They were not bound to take a part of the wood only." This has become known as "restitution."
Hunt v. Silk, 5 East 449; Another old, short but important English contract law case involving a 19-year lease signed on the condition that certain
also at 102 ER 1142 (1804) repairs be done. The tenant moved in and then moved right out again when it became apparent that the repairs would not be
forthcoming. He asked the court for the return of his down payment of £10.

The court denied restitution because the plaintiff had begun to receive the benefit of the contract: a few days occupation, "a
part execution of the agreement."

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DUHAIME'S CONTRACT LAW: Eight chapters of pure, unadulterated contract law love.

1. Contract Law - The Introduction

2. Privity, Consent and the Reasonable Man
3. Consideration & Deeds
4. Offer & Acceptance
5. Mistake, Rectification & Misrepresentation
6. Restraint of Trade, Assignment, Novation & Frustration
7. Interpretation of Contracts
8. Time Limits, Breach & Remedies

Published: Monday, May 7, 2007

Last updated: Wednesday, January 18, 2012
By: Lloyd Duhaime
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