What Should I Know About Suing for Breach of Contract in Small Claims Court?
Avoid Taking Lightly a Legal Case Involving Breach of Contract within the Small Claims Court. Even the Most Straightforward Appearing Lawsuits May Have Many Twists and Turns that Deserve Careful Review. Obtain Quality Legal Advice and Move Forward with Informed Caution.
Understanding How to Sue For Breach of Contract Within a Small Claims Court Lawsuit
When a person or a business negotiates and then comes to agreement and forms a contract with another person or business, it is expected that all involved will honour the agreement. Accordingly, a person (including business) fails to honour the agreement, the other person may sue for breach of contract; however, it is necessary that the person who decides to sue for breach of contract keeps an open mind and avoids subjective perceptions or subjective interpretations when reviewing and deeming whether the contract was indeed breached. Accordingly, prior to suing, especially as the loser in a lawsuit may be required to pay significant costs penalties, an objective assessment of the likelihood for success should be completed before the lawsuit is started.
What is a Breach of Contract?
When attempting to determine if a contract was legally breached, the first step is to determine whether a binding contract even existed. Of course, there may be a situation where people negotiated, seemed to agree to various terms, shook hands, signed a document, among other things; however, what legally constitutes as a binding and enforceable contract involves much more than just outward appearances. To determine whether a legally binding and enforceable contract actually existed and thereafter determine if the contract was improperly breached a thorough review is required. When conducting the review, carefully consider whether:
- The discussions had, and agreements made, meet the legal elements necessary for the formation of a binding contract;
- The formation of the contract can be reasonably proven with clear evidence of the express terms as well as any implied terms which constitute the ultimate agreement;
- The laws that may limit or restrict application or interpretation of the contract are reviewed including concerns such as;
- The parol evidence rule and whether what is subjectively perceived as the ultimate agreement will hold up in a court;
- The possibility of ambiguous terms that may initiate the contra proferentem doctrine;
- The potential for concerns regarding undisclosed onerous term clauses that may be struck by a court;
- The statutes that may void or alter or otherwise supercede contract terms; and
- The many other concerns applicable to contract law disputes.
Once it is well understood that a legally enforceable contract existed, within binding terms, and that evidence and circumstances will show that a party failed to fulfill the terms of the agreement, the next step is to consider:
- What parties, meaning who, should the allegations be aimed at;
- What factual allegations should be made, meaning what details of the situation are relevant to tell the necessary story;
- What legal allegations should be made, meaning that reasons for suing beyond just breach of contract may apply such as negligence, among other legal issues;
- What legal remedies should be claimed, meaning what type of compensation and what amount of compensation should be sought;
- What is the best timing for commencing the lawsuit;
- What further risks should be considered such as, among other things;
- The risk of a counterclaim (known in Small Claims Court as a Defendant's Claim);
- The risk of difficulty in obtaining evidence, or witnesses, to prove the allegations; and
- The risk of failing to succeed in the case and being ordered to pay costs.
What Are the Legal Remedies Available in Small Claims Court?
The jurisdiction in the Small Claims Court, meaning power of the court, which also means power of the Judge to issue an Order, is limited by section 23(1) of the Courts of Justice Act, R.S.O. 1990, c. 43 so to provide only the power to order compensation in the form of money or to order the return of property. In a breach of contract case, often a party bringing a claim will want the Judge to order the breaching party to perform the contract in accordance to the agreement. This is called "specific performance" and is a remedy unavailable from the Small Claims Court. Instead, the Small Claims Court may order that the breaching party pay a sum of money that is necessary to compensate for losses arising from the failure to perform by the breaching party. This sum may be, and often is, the cost to hire a substitute party to complete what the breaching party failed to perform.
As an example, and an example common to the Small Claims Court system, a homeowner may sue a contractor for failure to complete a renovation project. The homeowner would be unable to receive an Order from the Small Claims Court instructing the breaching contractor to complete the renovation project; however, the homeowner may be able to receive an Order from the Small Claims Court instructing the breaching contractor to pay the sum of money necessary to compensate the homeowner for the costs incurred in hiring a substitute contractor to complete the renovation project.
Other remedies concerns involve whether to make claims for just actual losses (actual damages), meaning claims that seek to recoup money out-of-pocket due to the breach as well as the possibility of stress claims (general damages), and potentially punitive damages as a deterent if the breach of contract was done in a highly malicious or egregious manner that would offend the court so significantly that a punishment is appropriate.
What Should a Breach of Contract Victim Do?
As outlined in brief above, a breach of contract case may be much more complicated than first appears. Prior to starting a lawsuit, it is wise to review the situation carefully and obtain legal advice based on the merits of the case and likelihood of success. Preparing a strategic gameplan is also imperative as advantages, or disadvantages, may arise as a case moves forward, especially as there are almost always unexpected surprises during the course of litigation.
A breach of contract case brought in Small Claims Court is often misperceived as a relatively simple matter; however, the law, even in Small Claims Court, may be much more complex that what appears at first glance. Before starting a breach of contract case in Small Claims Court it is wise to thoroughly review and understand the law regarding contractual formation, contractual interpretation, available remedies, among other things. Most significantly, it is wise to obtain legal advice such as an informed opinion from Paladin LLP regarding the potential pitfalls, challenges, and likelihood of success. Most importantly, avoid taking Small Claims Court matters lightly. With a limit of $35,000 per Plaintiff, the Small Claims Court now involves matters that are rarely small to most people.
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