Contractual Obligations – Prof. Helge Dedek Introduction 1

The creditor is entitled to damages for bodily, moral or material injury which is an immediate and direct consequence of the debtor’s default.

The damages due to the creditor compensate for the amount of the loss he has sustained and the profit of which he has been deprived.

In contractual matters, the debtor is liable only for damages that were foreseen or foreseeable at the time the obligation was contracted, where the failure to perform the obligation does not proceed from intentional or gross fault on his part; even then, the damages include only what is an immediate and direct consequence of the non-performance.

A person who is liable to reparation for an injury is not liable in respect of any aggravation of the injury that the victim could have avoided.

Fault:

• 
  Ciment faulted because both parties involved in obtaining the cement were unaware of its difference with silicone, even if so, it takes a lab to distinguish the two. Only Ciment was in a position to detect that error. Agrees with trial judge
  

• 
  Agrees with trial judge that Stellaire should be entitled to costs associated with deconstruction and reconstruction because the above fault was foreseeable to the reasonable cement dealer and was a direct and immediate consequence of the fault (see below).
  

• 
  Loss of insurance, orders and reduction of Ks followed, for Stellaire argued they were penalized for being a young company with incidental finance troubles.
  
• 
  Stellaire must prove that the loss of gains was a direct and immediate consequence (1607 CcQ) of Ciment’s fault and that it was foreseeable (1613 CcQ).
  
• 
  Determination dependent on judicial discretion (draws line in possible never-ending chain of causation)
  
• 
  It differs from the extra-contractual standard because it is adapted to contracts where risks should be foreseen and contracted for
  
• 
  Test is whether the reasonable and prudent contractor would have foreseen the consequences of his actions stemming from the breach
  
• 
  There is no doubt that there is a correlation between the error and loss of insurance however there were other factors that crept in too; e.g. weak capitalization, which ruptured this chain. Stellaire brought forth no proof of a direct connection to this end and it was not foreseeable that a slip up in a small quantity of cement would lead to these disastrous consequences.
  
• 
  Direct and immediate are strongly linked to foreseeability; the damage is not direct and immediate because the company’s fragile state intervened, and it is not foreseeable because the diligent contractor would not know that his actions would lead to a loss of insurance
  
• 
  
  

• 
  An exception to this rule comes through when there is intent behind the fault. When there is bad faith, even if the damage is not reasonably foreseeable, the bad faith party is still found to be liable for whatever happens.
  

• 
  Plaintiffs only told defendants that they wanted to ship a broken mill shaft, not that urgency was needed or that profits were at stake.
  
• 
  Loss of profits can’t be considered a consequence of breach, given reasonable expectations in ordinary circumstances, since the sending of a broken shaft to third parties by a carrier under ordinary circumstances would not produce the stoppage of the mill.
  

• 
  If special circumstances are known to both parties, damages owing from breach would be those that would ordinarily follow under these circumstances; where special circumstances are not known by both parties, damages are those that would be expected to arise generally.
  

• 
  Continues to be the leading authority for breach
  
• 
  No reason not to think that slow shipping would have consequences – this was not the kind of product that is reasonably expected to be essential for the operation of a busines
  
• 
  First part of rule is objective; second part is subjective
  
• 
  This was in the early days of working out the relationship between a company and its agent, i.e., when a company “knows” something (today, if an agent is given information, that’s enough)
  
• 
  The threshold for damages in Hadley is quite high because at the time, the defendant would not enjoy limited liability, but rather would be found personally liable for the damage (there was no bankruptcy law in England at the time). Thus, the court wanted to protect the individual from liability. We see a lowering of threshold in the 20th century Victoria Laundry case.
  

• 
  Hadley v. Baxendale applies.
  
• 
  British Columbia, etc., Saw Mill Co. v. Nettleship added to Hadley that where knowledge of special circumstances is relied on to enhance damages, this knowledge must have been “brought home” to defendant at time of K in circumstances where defendant agreed to bear special losses connected with these circumstances.
  
• 
  Cory v. Thames Ironworks Co. added that when parties are not ad idem in their contemplation of the use to which an article will be put, damages will be based on the “ordinary” use.
  
• 
  No supplier would reasonably not foresee that loss of business would result from delayed delivery of an item like this [implication: we assume that anything bought or sold could be used for profit].
  
• 
  VL claims damages for loss of specific Ks that NIL didn’t know about – doesn’t preclude some general recovery for lost business.
  
• 
  Case referred to a referee to assess damages.
  
• 
  The purpose of boiling water for washing or dyeing is the obvious one. The notion that the boiler might only be needed as a stand-by was negatived by the letter sent by VL that said that they wanted to put the boiler to immediate use.
  
• 
  A reasonable person in defendants shoes most be taken to foresee that a laundry which invested a lot of $ in a boiler which they intended to put to immediate use would be likely to suffer financially because of a 5 month delay in delivery. The defendant would have had to know about the specific terms of the dyeing contract, for the plaintiff to recover damages for them, however, the plaintiff can still recover a general sum for loss of business in respect of dyeing Ks and laundering Ks to be reasonably expected.
  
• 
  Moreover, more damages are rewarded in cases where defendant defaults in supplying a self-contained profit-earning whole than when he defaults in supplying a part. The boiler was a self-contained whole.
  
• 
  This case is distinguished from Hadley because here “there was ample means of knowledge on the part of the defendant that business loss of some sort would be likely to result to the plaintiff from the defendants’ default in performing their K.”
  

• 
  Seems to reduce the second rule from Hadley in favour of the first; suggests that parties should take it upon themselves to think fairly imaginatively about how their goods can/will be used
  
• 
  Normal profits are compensable; exceptionally lucrative profits (the special dyeing Ks) are not
  

• 
  CC must have realized that it was not unlikely for market price to fall (though could equally have risen), and it was not unlikely that the sugar would be sold in the market at market price on arrival.
  
• 
  Hadley intended to lay down a rule that a result which, though foreseeable as a substantial possibility, would happen in a small minority of cases should not be regarded as having been in the parties’ contemplation.
  
• 
  In cases like Hadley, or the present case, the crucial question is whether on the info available to the defendant when the K was made, he should, or a reasonable man would, have realized that such loss was sufficiently likely to result from the breach of K to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within contemplation.
  
• 
  Modern tort rules impose much wider liability
  
• 
  Victoria Laundry goes beyond established authorities by bringing a tort concept, reasonably foreseeability, into assessment of damages. It has never been enough in contracts that a loss was “foreseeable as a serious possibility or a real danger or as being on the cards.” To use these notions from VL would be to extend liability for breach of K beyond what is reasonable or desirable.
  
• 
  Damages are not to be considered too remote just because they might arise from a situation with a “less than even chance” – it’s enough that event was not unlikely
  
• 
  Thus, without relying on VL, and taking the principle from Hadley into account, the loss of profit in this case would not be too remote
  

Concurrence (Lord Pearce)

• 
  Underlying CML rule is that damage will place creditor in same position as if K had been performed – but this is too harsh, so Hadley has stepped in to limit liability.
  
• 
  Some cases debate which of Hadley’s two rules applies – sometimes both apply
  
• 
  It is argued that Victoria Laundry was an erroneous departure from Hadley in that it allowed damages where the loss was a serious possibility or a real danger instead of holding that loss must be probable. These expressions, however were used correctly, not inconsistent with Hadley, as the language in Victoria clarifies the vague notion of the “natural course of things” in Hadley.
  
• 
  Where sale of goods is delayed, prima facie rule is that damage is difference between value of article K’d for at time when it ought to have been and time when actually delivered
  
• 
  Facts of present case lead to the view that the loss of market arose naturally according to the usual course of things from the ship-owners deviation.
  
• 
  Some argue that shipment by sea is different because of The Parana (1877) and uncertain timing, but the rule should be no different, and modern technology permits more accurate estimation of sea travel
  
• 
  Loss of market will usually be found within contemplation of parties
  

• 
  Central issue: is a falling market part of the foreseeable loss? (here, yes)
  
• 
  This is in contrast to the older idea of Ks as exchanging things (in which case you wouldn’t expect immediate resale) – how normal is it that things should be resold?
  
• 
  Think of what would have happened if something had gone slightly differently: if ship had arrived late and market had risen, buyer would have kept the windfall (no basis for sharing)
  
• 
  Two Js disagree over whether Asquith’s judgment in Victoria was a radical reformulation or a correct interpretation of Hadley
  

Tort Claim for Damages (Restitutio in integrum)

breach of contract

* Is entitled to damages to the restore

Pre contract himself to the position in which he would have

been had the contract never existed

* Principle of restitutio in integrum, party

Post Contract does not benefit from the breach

Contractual Claim for Damages

Expectancy bargained for but through the breach or

partial or inadequate performance of the

other party, he has been deprived of a

benefit

Post-Contract * He is entitled to the difference of what was

Pre-Contract

Hawkins v. McGee Claim for Damages

Expectancy

* The boy has a claim for the

100% Good Hand difference between a burned hand

and a 100% good hand

Pre-Contract Burned Hand

• 
  Authority for any specific rule of damages is lacking, but when tested by general principle and by analogy it appears the instructions were erroneous
  
• 
  In contract law, “damages” is intended compensation for breach, measured in terms of the contract (Davis v. Company)
  
• 
  The purpose of law is to “put the plaintiff in as good a position as he would have been had the defendant kept his contract” (Hardie Co. v. Company)
  
• 
  As a general rule, the measure of the vendee’s damages is the difference between the value of the goods as they would have been if the warranty as to quality had been true, and the actual value at the time of the sale, including gains prevented and losses sustained, and such other damages as could be reasonably anticipated by the parties as likely to be caused by the vendors failure to keep his agreement, and could not by reasonable care on the part of the vendee have been avoided (Union Bank v. Blanchard)
  
• 
  Therefore damages in this case  difference between the value to him of a perfect hand / good hand, such as the jury found he was promised, and the value of his hand in its present condition, including any incidental consequences fairly within the contemplation of the parties when they made their contract
  

• 
  What about the “positive ill effects”?
  
• 
  What about pain & suffering?
  
• 
  We have the pain and suffering regardless of whether or not the result of the operation was favourable – he would have suffered even in the event of perfect performance
  
• 
  Additional pain and suffering, caused by the faulty performance, was not addressed – mental anguish, etc.
  
• 
  Exact calculation – uncertainty? How could uncertainty be prevented?
  

• 
  Reasonableness – not held liable for every possible consequence – limits to civil liability (scope of risk) (e.g. if the kid wanted to be a hand model and is claiming lost future income)
  
• 
  Limits by statute?
  

• 
  Ordinarily the rule for damages where the carrier fails to deliver within a reasonable time, is the difference in market value of the goods at the time of delivery and the time when they should have been delivered
  
• 
  However where the carrier has notice of peculiar circumstances under which the shipment is made which will result in an unusual loss, the carrier is responsible for the real damage sustained from such delay if the notice is given is of such character, and goes to the extent, in informing the carrier of the shipper’s situation, that the carrier will be presumed to have contracted with reference thereto
  
• 
  The general rule is that where there is a breach of contract, the party suffering the loss can recover only that which he would have had, had the contract not been broken, and this is what the defendant relies on (although in some instances the injured party may recover expenses incurred in relying upon the contract)
  
• 
  The problem is that there are no lost profits here, as the plaintiff was not planning to make a sale. The only way to measure damages here is in terms of the plaintiff’s expenses
  
• 
  “Unless the plaintiff is entitled to recover the expenses that it went to, which were a total loss to it by reason of its inability to exhibit the furnace and equipment, it will be deprived of any substantial compensation for its loss”
  
• 
  Although certain expenses were initiated before the contract, (rental fee) they were done in reliance on the product being shipped in a timely fashion, it can therefore be fairly said that the damages or loss suffered by pltf grew out of the breach of contract, for had the shipment arrived on time, he would have had the benefit of the contract, which was contemplated by all parties.
  

• 
  Pre-contractual expenses – will usually be reimbursed, see Anglia Television v. Reed [1972] 1 Q.B. 60 (C.A.)
  

• 
  Recall that the default rule in damages is expectancy, but if it is impossible to quantify expectancy, such as in this case, you can shift to reliance damages.
  
• 
  There is a limit to reliance damages – they cannot exceed the expected benefit of the promise!! (If you relied $1million as a result of a contract that would benefit you $100, you cannot claim $1million in reliance damages!!)