13th C.: to enforce a promise, a person had to use a writ of covenant (court document forcing someone into a claim)– a signed and sealed written document of the promise – still in use today
action could also be taken on a claim of debt
wager of law: getting 11 people to swear upon your version of the story
15th C.: introduction of notion of trespass
Defendant had to commit a wrong recognized by the law to warrant damages.
Trespass on the case (trespass assumpsit): an undertaken duty that was done badly
Duties of certain professions
Deceit emerged as an action for fraudulent action
16th C.: pressure to allow actions for simple noncompliance with a promise
ex: action for failure to convey land
17th C.:
1602: Slades Case: Slade brought action against someone for breach of promise to pay
didn’t force the action as debt. But allowed the action under assumpsit (now just called action for brief of contract)
1677: Parliament passes Statute of Frauds – which required certain kind of contracts to be evidenced in writing
Towards a working definition of a “contract”
A Contract is a promise that the law will enforce
Enforcement is a key issue (remedy)
Sanction
Financial or otherwise
Compel performance
Compensation as damages
Limitations imposed on contract breaker
Formal recognition that a party has been wronged
Restitution
Incarceration
what constitutes a promise worthy of legal sanction
Prevent unjust enrichment (cannot “steal” from another by breaching)
Benefit to defendant. Backward looking
Corrective
Reliance
Undoing the harm. Like insurance, encourages people to rely on promise, since resulting losses compensated
Loss to plaintiff. Backward looking. Puts plaintiff into position as though promise never made i.e. restore status quo. Includes restitution. $$ = what P started with – what P ended up with.
Restorative
Expectation
[DEFAULT MEASURE]
Secure benefit. Treat as “money in the bank”. Encourages keeping of contracts, compensates lost opportunities. Hence promotes free-market capitalist credit economy and long complex chains of transactions.
Expected benefit. Forward looking. Puts plaintiff into position would have been if promise had been kept, as far as money can do. Also sometimes court-ordered specific performance. $$ = what P would have ended up with – what P actually ended up with
Distributive i.e. re-distributes assets from point of time the contract was made i.e. re-arranges status-quo
Punitive
Punish / Deter. Almost unknown, hence encourages economically efficient breaches
Loss plus.
Retributive
Expectation Damages
The presumptive starting point for damages.
Goal is to put the innocent party in the position they would have been in, had the contract been fully performed.
If Expectation Damages are too speculative or are otherwise inappropriate, the courts may move to 2: Reliance Damages.
Reliance Damages - compensating for the expectation
Goal is to put the innocent party in the position they would have been in, had they never entered the contract - trying to unwind the promise so as it was never made
Includes expenses incurred in reliance on the contract.
Specific Performance – available in some transactions
Unusual, as not often will a court order someone to fulfill a promise
Would be termed as an equitable remedy
The interests protected
Wetheim v. Chicoutimi Pulp Company [1991] English Privy Council
Atkinson: principle behind monetary compensation must place aggrieved party in the same position if the contract had been carried out
Two measures of damages:
Restoring pre-contract position
Compensating for if the contract had been executed
EXPECTATION measure OF DAMAGES enunciated by Atkins: parties should be placed in the position that would have been present should the contract have been performed
Considers not only costs wasted, but also lost opportunity cost
Ensures censure for contractual breaches
Contract is largely a transfer of risk
If you don’t enforce expectation damages, risk absorbed by the innocent party
Different from reliance measure of damages: damages designed to restore the injured party to the economic position they occupied at the time the contract was entered
Often less than expectation damages, but includes costs that the plaintiff has expended due to the contract and can no longer be recovered now that the contract is broken
Restitutionary interest would restore parties to the position if the contract never took place
Very few grounds within which you can claim ‘frustration of contract’
Most scenarios place the contracting parties as responsible to carrying through the contract regardless of good reasons not to.
How to measure expectancy damages?
This measure seeks to put you back in the position you would have been in if the contract was not made. Normally speaking when dealing with sale of an item and the vendor refuses to sell it your measure of damages will usually be the difference for what you were going to pay and the market price of the item.
Bollenback v. Continental Casualty Company (Oregon S.C. 1965)
Facts: Plaintiff was ignored by his insurance company upon request for a claim. Emerged that the company had mistakenly terminated the contract years prior for non-payment.
Arguments:
Plaintiff: action taken against the defendant due to the repudiated contract, asking for return of all premiums paid under the policy
Defendant: plaintiff has a claim for damages but not on the basis of rescission as an internal error caused the contract to be voided
Decision: Lower court found in favor of plaintiff. Appeal unsuccessful.
Reasoning:
Restitutionary measure would restore to him the premiums for which he paid but received no reciprocal service.
Decides that plaintiff should only be compensated the premiums paid since the defendant disregarded the contract - partial rescission.
So for the years after which the company thought he was not contracted but was still paying dues, he will be repaid as the protection for which these payments were being made was not in force. Prevents unjust enrichment of defendant.
Notable mentions:
Establishes the ground of the rescission of a contract to be a valid remedy
Rescission means to unwind the contract from the beginning and pretend it’s as if we never had the contract
Total rescission would be all premiums paid
Only a ‘total failure of consideration’ would merit rescission
Insurance contracts are thought of as special contracts entailing special duties
A contract of utmost good faith, inclines court toward a restitutionary measure
Anglia Television Ltd v. Reed [1972] Q.B.
Facts: Reed, an American, backed out of a film to which he had contractually committed in England. Anglia cannot find an adequate replacement and thus are forced to scrap the entire project. Take action against Mr. Reed for their reliance interest.
Arguments:
Plaintiff: Mr. Reed owes damages not for loss of profits, as the film was never made, but for wasted expenditure. The entirety of the costs of the project must fall upon him.
Defendant: Accepts liability but only for expenses undertaken after the signing of his contract, which comes to 850 pounds
Decision: Lower court held in favor of Anglia. Subsequent appeal dismissed. Reliance awarded on pre-contract and post-contract expenses.
Reasoning by Lord Denning:
Major premise: if the plaintiff claims the wasted expenditure he is not limited to the expenditure incurred after the contract was concluded.
Minor premise: Mr. Reed knew commitments had been made prior to his contract and knew the duties that came with his promise to work.
Notable mentions:
Court will consider reliance damages as an alternative when it can’t be established what the expectancy damages are
Also could not claim expected profits because of obvious evidentiary problem
Instead, chose to claim the sunk costs of the abandoned project.
One can claim either expenses or profits, but not both
A.I. Ogus in “Damages for Pre-Contract Expenditure” (1972) criticizes Anglia judgment
Questions the basis behind awarding damages for pre-contract expenses.
Danger of leaving the plaintiff in a better position even if the contract had been carried out
Must be careful not to be punitive and be only compensatory
Decision in Bolle Logging and Boltar an example of a fortuitous breach of contract as it saved one party from completing a unprofitable venture
Contract breaker in this case not required to pay damages because the opposing party would have lost on the deal had it been completed
Hawkins v. McGee (1929)
Facts: Hawkins contracts McGee for a surgical procedure. Results are unsatisfactory. Plaintiff takes action on breach of promise to make hand ‘perfect’.
Arguments:
Plaintiff: Defendant guaranteed results that did not materialize and appropriate damages need to be awarded.
Defendant: No contractual relationship was entered into. Damages awarded by lower court are excessive. Appeal here.
Decision: Lower court allows expectancy damages; difference between the hand delivered and a perfectly good hand. Appeal successful and a new trial ordered.
Reasoning by Branch:
Weren’t able to justify awarding damages due to harm, but solely in terms of the contract that was unusually entered into.
Special problems in measurement
Carson v. Willitts (1930)
Facts: Only one of three exploratory oil wells that were promised were dug by the defendant. The difficulty of assessing the damages does not equate to a reason to refuse damages
Expectancy:
Could look at cost of drilling
Another possibility would be to measure the chance of finding oil
Lower court decided it would be the cost of drilling that should be recovered
Higher court reassess and says it must be assessed on the chance of finding oil
What is the chance worth? The answer: is the market value, which is what a reasonable person is willing to pay for it
Apply this principle to the case, and the chance is worth the cost he was willing to pay for the drilling
SCC verdict reflect this: Sunshine v. Dolly (1969)
Standard measure of damages for failure to perform work: difference between contract price and market price
Groves v. John Wunder Co (Minn. SC 1939)
Facts: Defendant failed to carry out a construction project that involved altering the land of the plaintiff. Plaintiff is appealing the meagre $15,000 awarded in damages by the lower court.
Reasoning:
Majority by Stone J.: Orders a new trial to reassess the damages which should have covered the cost of the performance of the contract. The fact that there is little value in the land at present is of no relevance. The plaintiff is entitled to what his contract with the defendant laid out.
Dissent by Julius and Olson: if the value of the property is only 12K, any judgement that give the plaintiff more ignores the market value and gives the plaintiff more than the contract had in mind.
Notable mentions:
The standard measure of damages for failure to perform work is tricky because in this case the contract was not profitable, thus the plaintiff could be placed in a better position that at the beginning of the contract
Higher court decides against lower court, says that the principles are clear in this matter, it is of no concern whether the contract was economically insensible
‘Ugly fountain example’: should be able to claim damages for non-performance even though it reduced the value of my land
Volume problems
usually apply to sale issues
sale of goods statutes are provincial. All common law provinces have such legislation. Based on English sale of goods act, attempt to codify law relating to the sale of items
damages typically speaking are contract price versus the market price, but on sale questions; issues of supply and demand emerge, expectancy damages used to look at whether the seller can resell the item
Lost Volume problem: If you agree to sell someone and they refuse to take it. And then you sell it to another for the same price. You’ve lost nothing. Applies to Charter and Thompson cases
Thompson (W.L.) Ltd. v. Robinson (Gunmakers) Ltd. [1955]
Facts: Defendants had contracted to buy a car from the plaintiff. Pulled out of the contract.
Decision: in favour of the plaintiff the profit margin of the sale
Reasoning:
Defendant claimed there was an available market to sell at the fixed price. What therefore had the plaintiff lost?
However, plaintiff returned the car to the supplier because apparently there was no market for the car. Lost the profit margin on the sale of the car.
Charter v. Sullivan (QB, 1957)
Facts: Similar to Thompson. Defendants withdrew from contract with plaintiff to buy a car. Difference was this time demand exceeded the supply
Decision: Appeal by defendants allowed. Damages reduced to nominal sum.
Note on Loss of Chance
Plaintiff can recover damages for lost chance if four criteria are met:
Establish on balance of probabilities that but for the defendant’s action, the chance to obtain a benefit or avoid loss would have occurred
Must show chance to be real and not speculative.
Must demonstrate that outcome depended on someone or something other than plaintiff
Show that lost chance had practical value
Remoteness
The Hadley Principle: Damages must
1) arise naturally from the breach
‘Arise Naturally’: the kind of predictable consequences that would normally arise from such a contract.
2) be in the reasonable contemplation of the parties at the time of contract.
‘Reasonably Foreseeable’: based on what parties knew, and what they ought to have known. (Party sophistication will be factored in.)
The burden is on the defendant to establish that a damage was too remote.
Special circumstances: where unusual damages would result from breach:
The onus is on the relying party to communicate those issues.
The other party must accept the special risks.
Hadley v. Baxendale (1854)
Facts: Baxendale transports a broken mill-shaft for Hadley. The delivery was delayed and thus the plaintiff brought action for the profits lost due to the mill standing idle.
Decision: Trial jury awarded plaintiff money for lost profits. On appeal, court decides in favour of defendant- no lost profits compensated: ‘too remote’.
Rationale by Baron Alderson:
Finds the damages awarded unreasonable because it did not take into account the terms understanding of the contract by the parties. He thought the deliverer did not know that such consequences would result from a breach (or delay) of the contract.
Notable mentions:
Ratio of case (test for what is too remote)
1. You can recover damages naturally arising (what ought to know)
2. If they are special circumstances, they have to be clearly communicated to the defendant (that was known)
Hadley v. Baxendale had two lasting effects:
It is wise not to go too far in enforcing promises worthy of legal sanction. Emphasizing business context.
Deeming a breach compensatable should pivot on the test of foreseeability by the parties at the time of contract
Mindful of risk environment in which the contract is made
How the parties understand the risks to which are being shared and transferred is important
Horne v. The Midland Railway Company (1873)
Facts: Plaintiff missed the delivery of a product due to a rail delay.
Decision: Trial judge didn’t consider the losses of the plaintiff as a responsibility of the defendant regardless of a notice given of the importance of the delivery. Appeal dismissed.
Reasoning: Refers to Hadley and also holds that the notice did not constitute a contract in which both parties understood the consequences to a breach.
Court stated that special circumstances have to be explicitly be put into the contract and the notice in this case did not constitute a contract
Victoria Laundy Ltd. v. Newman Industries Ltd. [1949]
Facts: The defendants were an engineering company supplying a boiler to a laundry. Boiler delivered months late. Plaintiff takes action for loss of profits. Gets awarded nominal damages.
Decision: Appeal upheld. Damages indeterminate, but they will include profits lost by the delay.
Reasoning by Asquith L.J.:
Defendant knew why the plaintiff wanted the boiler and that they wanted it immediately. Defendant could have forseen the results of a breach and are thus liable to some of the profits lost by the plaintiff due to the delay (expectancy damages).
Key difference with Hadley v. Baxendale = specific knowledge and nature of contract: expert engineers v. general transportation company, whole boiler v. transport of one part (shaft).
Defendants with specialized knowledge liable under “in contemplation” rule.
Munroe Equipment v. Canadian Forest Products Ltd. (1961 Man CA)
Facts: Plaintiff rents second-hand tractor to defendant. Tractor fails to perform in tough, demanding conditions. Plaintiff attempts to recover his rent payment, and does get $2k awarded to him. Defendant launches a counterclaim for loss due to breakdown of machine.
Decision: Counterclaim dismissed. Plaintiff’s award reduced to 1,800
Reasoning:
Defendant cannot succeed in the counterclaim because the plaintiff was unaware of the work that the tractor would be required to do as the contract was informal.
Court does see it as reasonable for anybody to forsee that the tractor could have been responsible for the entirety of the forest work that the defendant planned for it.
Scyrup v. Economy Tractor Parts (Man. CA 1963)
Facts: Scyrup loses a construction contract cause the defendant’s tractor was faulty. Awarded costs + loss of profits. Defendant appeals to this court.
Decision: Appeal denied.
Reasoning by Freedman JA: Draws parallels to Victoria Laundry. States that reasonable foreseeability test passed because defendant knew the equipment was needed in good condition. Plaintiff made clear that the equipment was vital to his goals.
Dissent by Miller CJM: Draws parallels to Munroe case. Defendant simply did not have enough information to establish liability for the damages that resulted as a consequence of his faulty product. Would not allow the damages to include loss of profits.
The Heron II: Koufus v. C. Czarnikow, Ltd. (H.L., 1969)
Facts: Heron II owner takes to court charterers of the vessel for damages incurred by breach of contract (by means of a delayed shipment of sugar to Basrah). The sugar was thus sold at a lower price than expected, yielding the owner a smaller profit margin.
Decision: Trial judge says ship-owner would not have known that such a loss could have occurred from a delay/breach. CA cites Victoria Laundry in saying its foreseeable thus recoverable. Appeal to the HL. Appeal dismissed. Ship-owner gets his damages.
Argument by charters: we owe damage and interest for delay, but not the difference that the price fluctuation cause on the whole cargo.
Reasoning by Reid:
Price fluctuations known to commodity dealers. So both the ship-owner and charterers should have known of the possibility given a breach.
Two-step qualification from Victoria Laundry case:
1. Reasonably foreseeable? Yes
2. Liable to result? Yes
The charterers changed the route and thus changed the risk evaluation and is thus a major breach of contract in maritime law
Judgement depended on the fact that there was a deviation from the contract
The loss upon such a breach was foreseeable
Transfield Shipping Inc. V. Mercator (The Achilleas) [HL, 2009]
Facts: Charterer returns ship to owner late. Fluctuating shipping rates in this delay force him to reduce the rates for a redrawn contract for the next charterer. He takes the original charterer to court to try recover the difference of the price, contrary to standard shipping practice which only provides payment for the delayed days.
Decision: Arbitrators and lower courts rule with owner. HL rules in favour of the charterers.
Reasoning: The judges rule thus because they do not see a settlement contrary to standard shipping practice as something that the contracting parties would have agreed upon.
Liability can only extend to the voluntary assumption of risk and within the industry [context important] this has clearly already been laid out
Measure foreseeability at the date of the contract, after which the market fluctuations were fairly unusual. How could that have been predicted?
Intangible injuries and punitive damages
questions about awarding damages for mental distress over and above restitutionary interest or other standard procedure
comes up frequently in wrongful dismissal cases
emotional attachment to job
considerable amount of self-worth
three different employment contract categories:
fixed term
contracts under collective agreements
employment w/o term
Types of damages:
Aggravated damages: for losses you have suffered, but not economic losses.
Cover things like hurt feelings and loss of enjoyment
Punitive damages: unconnected to plaintiff’s loss. Awarded by court to punish the defendant.
Rationale of punitive awards: retribution, deterrence, and denunciation
Addis v. Gramophone Company Limited (HL, 1909)
Facts: Addis wrongfully dismissed. Brings action for breach of contract.
Decision: Lower court awards plaintiff exemplary damages. Appeal to HL reduces it back to compensatory damages.
Reasoning: An action for breach of contract is different from an action in tort. In contract damages can only be awarded in a specified manner and not as punitive.
Ruled out compensation for mental distress or punitive damages
Jarvis v. Swans Tours Ltd. (QB CA, 1973)
Facts: Jarvis has a disappointing Swiss holiday. Brings action against tour company for damages.
Decision: Lower court awards Jarvis half his costs. His appeal for more is upheld.
Reasoning: Decide that damages can be awarded in contract cases on the basis of mental distress (aggravated damages). Award double the plaintiff’s costs.
Notable mentions:
Court speaks of a significant social evolution since Addis, and now contracts not only about economic loss.
Difficulty of measuring aggravated damages can sometimes leads into punitive sphere
Rule: damages for mental distress are recoverable if contract’s purpose is to provide a specifically non-financial benefit
Vorvis v. Insurance Corp of BC (SCC, 1989)
Significance: reinforces the precedent that punitive or aggravated damages will rarely be awarded for wrongful dismissal
Trial judge decided that given his wrongful dismissal Vorvis is entitled to the severance pay in leui of a reasonable period of notice (compensatory damages)
But Vorvis appeals and claims for aggravated damages for his own stress and goes on to ask to punitive damages against ICBC for their treatment of him
SCC said you can get aggravated and punitive damages in some cases, but not here
Vorvis rule: an ‘actionable wrong’ [i.e. tort] warrants punitive damages
Wallace v. United Grain Growers (SCC, 1997)
Breach of employment contract case
SCC still said you don’t get aggravated or punitive damages unless you have an actionable wrong
Did something a little different, implied a term into all employment contracts; duty of good faith in terminating an employment contract
Employer in ending the contract must be candid, honest, reasonable, and forthright in the manner of dismissal
The precedent from the case resulted in what was called Wallace damages
Fidler v. Sun Life (SCC, 2006)
Significance: McLachlin lays out the circumstances in which damages for mental distress can and should be awarded in a case of a breach of contract.
Two things need to be shown
1) an object of the contract was to secure a psychological benefit (Peace of mind contract deserve damages for mental distress)
2) degree of breach was sufficient to warrant damages for mental suffering
DON’T NEED AN INDEPENDANTLY ACTIONABLE WRONG FOR aggravated and/or punitive damages
Court cites Hadley and Baxendale, when discussing damages for mental distress; were these damages reasonable foreseeable when the contract was entered into
Whiten v. Pilot Insurance (SCC, 2002)
Facts: Whiten family home burned down. Claim of fire insurance denied and deliberately extended to force the family to accept a poor settlement. At trial, jury awarded plaintiff damages + 1million in punitive damages. Defendant appeals for more reasonable verdict.
Decision: CA reduced the punitive sum to 100k. SCC allows the appeal and restores the sum to the original 1 million of the trial jury.
Reasoning by Binnie J:
Punitive damages awarded only when indecent behaviour merits it [it’s the exception, not the rule]: the allegation of arson was malicious in this manner.
Focus on determining the number not the plaintiff’s loss but the defendants misconduct – breach of duty to act in good faith
Rational purpose test to punitive damages: deterrence from similar conduct
Dissent by LeBel: The judgment moves this case firmly out of compensation and into the realm of punishment.
Notable mentions:
Problems with punitive damages: place a party in a better position should the contract have been carried out, not the stated objective of contract law
Windfall to the plaintiff
No mechanical or formulaic approach, only need some sense of proportionality
Keys v. Honda (SCC, 2008)
Facts: Plaintiff worked for Honda for 14years. Fell seriously ill. Insurer terminated his payments on learning that plaintiff could return to work with accommodation. Keys returned to work, but often absent. Honda had specific accommodation for disability, but Honda concerned about doctor’s notice. Honda asked Keys to meet with new doctor. Keys refused and was fired. Sued Honda for breach of employment contract.
Decision: Lower court deems dismissal unfair and awards plaintiff 15 months of severance pay with 500k in punitive damages (Wallace damages). CA increases it to 24month severance but reduced the punitive damages. SCC refused to uphold aggravating or punitive damages without evidence of bad faith or improper conduct by employer, but agrees with severance settlement.
Reasoning:
Fiddler is the law, Wallace has been overridden. No indication that they breached their implied duties. Aggravated damages not evident.
Mitigation
Plaintiff is required to act in a reasonable manner to mitigate losses (i.e. search for work following wrongful dismissal) to not overburden the contract breacher
Pivots upon the ability of the innocent party to enter the market and seek a similar end as the original contract
Duty to mitigate lessened in circumstances where the innocent party has the right to insist that the contract be performed
Payzu Limited v. Saunders (CA, 1919)
Facts: Defendants adds conditions to an existing contract under the false belief that the plaintiff is in financial trouble. The plaintiff unreasonably chooses to resist new conditions to pay by cash only, and brings an action against the defendant for breach of contract.
Decision: Lower court reluctantly rules with the plaintiff. CA dismisses the appeal and upholds the same judgement.
Reasoning:
Breach of contract: defendant wasn’t providing the silk on the terms given in the original contract (not allowing credit and discount)
Court didn’t award plaintiff what they wanted because they didn’t mitigate their losses
They were in a position to pay cash but they refused to do so
The court says that while the breach is evident a reasonable person would have mitigated their own losses
White & Carter (Councils), Ltd. v. McGregor (HL, 1962)
Facts: Defendant repudiated K made by his sales manager to advertise on the plaintiff’s trash bins before any aspect of the deal had been done. Plaintiff doesn’t sue for damages, but for the first payment according to K.
Decision: Previous judgements dismissed the case. HL upholds for plaintiff.
Dissent: Dangers arise from giving an unrestricted right to the innocent party to carry out a repudiated contract. Awarding contract price rather than damages is absurd.
Notable mentions:
The majority decision has been severely criticized as being an inaccurate statement of the law because plaintiff did nothing to mitigate losses by looking for other customers
Controversial precedent: If you break K, the innocent party has a choice:
accept the repudiation and sue for damages OR
refuse the repudiation and carry out the contract
Finelli v. Dee (Ont CA, 1968)
Facts: Plaintiff sues defendant for contract price of a repaving job that the defendant clearly repudiated. Construction work done without approval of defendant and whilst on holiday.
Decision: Regardless of whether it was a repudiation or a rescission, carrying out the contract was by no means warranted and thus the suit is dismissed.
Judgement by Laskin:
No consent to come onto property and do the work. Distinguishes the case from the White case, which is criticized.
Just as two can agree to make a contract, two can agree to unmake a contract
Anticipatory breach of contract: a breach of K that occurs before the contract is fully carried out (sometimes called a breach of a executory contract). Executory meaning that it hasn’t yet been carried out, it comes before the agreed upon action in the K.
