A breach of contract is defined as a situation where one party fails to perform an obligation of the contract, causing damages to the non-defaulting party and entitling them to sue. Obligations that are necessary to the validity of a contract are labelled “conditions”, while non-essential portions are termed “warranties”. While the party not at fault may pursue legal action if warranties are broken, the contract may only be discharged (terminated) if conditions vital to the contract are breached. Determining whether a breach of contract is sufficient enough to discharge the contract is a complicated task. Often, it is left to courts to decide if the non-defaulting party has the right to terminate the contract. Depending on the nature of the breach, several different outcomes may occur. If one party states that they have no intention of following through with the contract, they are said to have repudiated. The non-offending party may ignore the repudiation or assume discharge has occurred. The non-defaulting party as a plaintiff must be careful in this situation because of their duty to mitigate losses. In cases where terms of payment were not well defined, or a contract has been deemed discharged, payment of works done will be determined by the court based on “what is reasonably deserved” or quantum meruit. There are several other principles covering the types of contract breaches settled in court, such as substantial compliance, specific performance, and injunction.
The issue of fundamental breach usually occurs when an exemption clause is incorporated into a contract. Historically, in Canada, if the exemption clause waives certain rights that the court feels are essential to the contract, the contract can be terminated and the wronged party can receive compensation. The courts changed their thoughts on exemption clauses after the case of Hunter Engineering; now, only in cases where the exemption clause was ambiguous, or were there was unequal bargaining power, should the courts interfere with the agreement. The current position of the courts of Canada on the validity of exemption clauses was set fourth in the court case of Tercon Contractor Ltd. v. British Columbia. From this case there are three requirements that determine the enforceability of exemption clauses. First, the clause must be relevant to the current situation. Second, the clause must have been reasonable when it was drafted. Third, after the validity of the exemption clause is verified, does it breach any public policies? The history of fundamental breach in Canada is such that so long as the parties agreed to a reasonable exemption clause it will be enforced, even if it breaches the fundamentals of the contract.
Specific Performance is a court ordered equitable remedy to a breach of contract. It is an alternative to awarding damages to the party that had breached the contract. Specific Performance requires the party to perform a specific act to make up for the previously breached agreement. It can be deemed by the judge any type of forced action, but it is usually the previously established agreements of the first contract. This fact makes a Specific Performance order one of the best remedies to protect the interest of the victim of the breached contract. Most commonly, it is used in transaction regarding land transactions where no other legal remedy is suitable.
Beswick v. Beswick(1962) is an important English contact case law on Specific Performance and Privity of a Contract. Old and sickly Peter Beswick made a contract with his nephew, John Beswick, to give him his coal business on consideration that John pay him for the rest of his life. Additionally, the contract required John to pay a weekly annuity to Mrs. Beswick after Peter had deceased. Since Mrs. Beswick was not party to the contract, the nephew did not believe it was enforceable and did not pay the annuity. It was determined that the law allowed third parties of a contract to enforce benefits to themselves as deemed in the contract. Mrs. Beswick was awarded a Specific Performance on the contract and the nephew was required to pay the required weekly amounts specified in the original contract.