C. Remedies upon Breach: The Guilty Party

Author:John D. McCamus
Profession:Professor of Law. Osgoode Hall Law School, York University

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1) Introduction

For the party in breach, the possibility of restitutionary recovery holds out the only prospect for relief. A party that has conferred value, through performance of the agreement, on the other party but that has become incapable or unwilling to perform the remainder of the contract may have committed a repudiatory breach of contract.72In

such circumstances, the innocent party is entitled to treat the contract as discharged by the breach and terminate or sever the relationship between the parties. If the innocent party has suffered loss, a claim can be brought for damages for breach of contract.73The guilty party has no such claim, of course - the innocent party is not in breach of contract - but may wish to pursue a claim for the value of benefits conferred on the innocent party. Such benefits were conferred at the defendant’s request. Compensation for them from the innocent party would have been received if the contract had been fully performed. It is not obvious that the innocent party ought to be able to acquire the benefits for free, simply because the contract has been breached. Thus, for example, if the guilty party has paid a large down payment under a contract for the purchase and sale of goods only to subsequently cancel the order, the defaulting purchaser will wish to seek recovery of that down payment on the theory that the seller, who has accepted the repudiatory breach as the termination of the contract, has provided no consideration in return for the amount and that the retention by

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the seller, therefore, constitutes an unjust enrichment. To the extent that the seller has actually suffered a loss as a result of the breach, the purchaser will argue, the seller is fully protected by the claim for damages for breach of contract. Restitutionary relief for the guilty party is indeed allowed, on this basis, in certain circumstances. The precise rules permitting recovery in such cases, however, differ between cases in which the defaulting party seeks recovery of monies paid to the innocent party and cases where the defaulting party seeks to recover the value of goods and services provided to the innocent party.

2) Money Paid

As a matter of general principle, monies paid by the guilty party to the innocent party are recoverable in a restitutionary claim unless the agreement between the parties has stipulated that the monies paid are to be forfeited in the event of breach. An arrangement of this kind is normally inferred when the payment is described by the parties as a "deposit." In the leading case, Howe v. Smith,74an initial payment of five hundred pounds on a contract for the purchase and sale of land was described as "a deposit and in part payment of the purchase-money."75

The payment was described as a part payment, presumably, in order to make it clear that the monies paid would be credited toward the purchase price. Use of the term "deposit," however, clearly indicated, in the court’s view, that the payment was not merely a part payment. It is "also an earnest to bind the bargain so entered into, and creates by the fear of its forfeiture a motive in the payer to perform the rest of the contract."76Use of the term "deposit" is not necessarily dispositive, however, and in a recent case, it has been held that where the so-called deposit is an unreasonably large amount, the payment may not constitute a true deposit and may be recoverable, subject to the innocent party’s counterclaim for losses suffered as a result of the breach.77

As a general rule, then, monies paid as a part payment rather than a deposit are recoverable. In the leading case, Dies v. British International Mining & Finance Corp. Ltd.,78a purchaser had paid a down payment of two hundred and seventy thousand pounds on a contract for the sup-

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ply of a large quantity of rifles and ammunition. The purchaser failed to take delivery and the seller disaffirmed the contract. The defaulting purchaser was allowed to recover the monies paid subject to the seller’s counterclaim for losses suffered as a result of the breach. Similar recovery has been granted in Canadian cases.79It has been suggested80that because the plaintiff’s claim is for money had and received, it is necessary to establish that the plaintiff has suffered a total failure of consideration. This view has the unattractive consequence that if the purchaser had taken delivery of a first few rifles in the Dies case, restitutionary recovery would be denied. It is clearly established Canadian law, however, that the receipt of partial consideration by the party in default does not preclude a restitutionary claim for monies paid to the innocent party.81

If the innocent party has suffered loss in the form of expenses wasted in preparation for performance, such losses are compensable in the innocent party’s claim for damages for breach of contract. Thus, in Stevenson v. Colonial Homes,82where a purchaser of a prefabricated cottage defaulted, the supplier was allowed to recover expenses of this kind that it could not otherwise recoup, including the cost of converting the prefabricated materials to another use. Recent English authority83 suggests that in the context of a contract to provide work and materials that requires payment of the purchase price by instalments, it is arguable that the payments were intended to fund the work in progress and are therefore not recoverable. The cases in question involved the construction of large ships and, although the claims were made against the guarantors of the buyer’s obligations under the shipbuilding contracts,

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the guarantors argued that they ought to be able to defend the claim on the basis of the Dies principle. If the monies had been paid by the buyer, the guarantors argued, they would be recoverable on the basis of Dies and, accordingly, this should also constitute a defence to the claim against them. The English courts held, however, that in an instalment contract of this...

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