9.4 Contract Remedies, Damages & Unjust Enrichment

Once a paralegal has established that a contract exists and has been breached, the exam expects a clear grasp of the available remedies — the practical payoff of every contract file handled in Small Claims Court and beyond.

Damages — The Primary Remedy

The default remedy for breach of contract is expectation damages, also called compensatory damages: an award that puts the innocent party, so far as money can do it, in the position they would have been in had the contract been performed — not merely the position they were in before contracting. That alternative measure, used when expectation losses are too speculative to prove, is called reliance damages.

Remoteness of Contract Damages

Contract damages are limited by the rule in Hadley v. Baxendale. A defendant is liable only for losses that either:

1. arise naturally from the breach, in the ordinary course of things, or
2. were reasonably in the contemplation of both parties, as a probable result of the breach, at the time the contract was made — typically because the defendant had special knowledge of the plaintiff's unusual circumstances.

Unusual, unforeseeable consequential losses that the defendant did not know about when the deal was struck are generally not recoverable. This is a rule paralegals must apply carefully whenever a client claims a large downstream business loss flowing from what looks like a small supplier's breach.

Duty to Mitigate

An injured party cannot simply let losses accumulate. The law imposes a duty to mitigate, requiring reasonable steps to minimize loss — for example, a wrongfully terminated service provider must make reasonable efforts to find replacement work. Damages will be reduced by whatever loss could reasonably have been avoided, though the burden of proving a failure to mitigate rests on the defendant, not the plaintiff.

Liquidated Damages vs. Penalty Clauses

Contracts sometimes specify in advance what is payable on breach:

• A liquidated damages clause is a genuine pre-estimate of the loss likely to flow from a breach and is enforceable as written.
• A penalty clause is designed to punish the breaching party rather than compensate the other side, and Canadian courts will not enforce it. The innocent party is instead limited to proving actual damages in the usual way.

Equitable Remedies

Where damages are an inadequate remedy, courts may order:

• Specific performance — an order compelling the breaching party to actually perform the contract. It is available only where the subject matter is unique, such as a specific parcel of real estate or a one-of-a-kind item, so that money cannot truly replace it, and it is generally not available for contracts of personal service.
• Injunction — an order restraining a party from doing something in breach of a contract, such as enforcing a valid, reasonably drafted non-competition clause.
• Rescission — unwinding the contract entirely and returning both parties, so far as possible, to their pre-contract position. It is the usual remedy for misrepresentation and is available for breach in some circumstances, but it can be lost through delay, affirmation of the contract, or where a third party has acquired rights in the meantime.

Quasi-Contractual and Restitutionary Remedies

Quantum Meruit

Where no enforceable contract exists, or a contract has broken down without a mechanism to price partial performance, a party who conferred a benefit while reasonably expecting payment may claim quantum meruit — "as much as is deserved" — for the reasonable value of work or goods actually provided.

Unjust Enrichment

Canadian courts recognize a distinct cause of action for unjust enrichment, requiring proof of three elements, confirmed by the Supreme Court in Garland v. Consumers' Gas Co.:

1. An enrichment of the defendant.
2. A corresponding deprivation of the plaintiff.
3. The absence of a juristic reason for the enrichment — no contract, no valid gift, and no other legal basis justifying the defendant in keeping the benefit.

Where these elements are proven, a court can order the defendant to make restitution — repaying the value of the benefit received. In some property-related cases, frequently arising between unmarried cohabiting partners under Kerr v. Baranow, a court may impose a constructive trust over specific property rather than a simple monetary award, where money damages would be inadequate and the plaintiff's contribution can be directly linked to the property itself.

Frustration

A contract is frustrated when, without fault of either party, an unforeseen event makes performance impossible, illegal, or radically different from what was originally undertaken — for example, destruction of the specific subject matter, or a change in law banning the contracted activity outright. Ontario's Frustrated Contracts Act governs the financial consequences once frustration is found, generally allowing recovery of money paid in advance, subject to adjustments for expenses already incurred and partial benefits already conferred, since frustration discharges the contract going forward rather than treating it as void from the very start.

Limitation Periods

As with tort claims, a breach of contract claim in Ontario is generally subject to the two-year basic limitation period under the Limitations Act, 2002, running from the day the claim was, or reasonably ought to have been, discovered. This is a deadline every paralegal must calendar the moment a breach-of-contract file is opened, since missing it can be fatal to an otherwise strong claim.