Importance of Contract Law
Remoteness
• A great many reactions can be construed to have spawned from a single action.
• The question is how many of these reactions are worthy of being compensated as the result of a broken contract
• Out of necessity, many contract plaintiffs will be under-compensated.
o Example. Page 48.
• 2 questions: Practicality & Policy
o the law says that there is an ambit of compensability within a certain ‘radius’ of a breach of contract.
o There are consequences beyond this ambit where we do not try to translate reaction (result) into an award of money.
o These four cases address “where we draw the line” in contracts
Hadley v. Baxendale
• Historic case. The other cases here explain this case.
• A carrier transporting revenue-producing chattel
• In breach of contract, took took too long, causing lost profits.
• P 50 – “object is to discriminate between that portion of the loss which must be borned by the offending party and that which must be borne by the sufferer.”
o Almost an acknowledgment that contract law will under compensate the victim.
• ¶3 – “The damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered [Rule 1] either arising naturally, according to the usualy course of things, from such breach of contract itself or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probably result of the breach of it”
• Rule 2: “…id the special circumstnaces under which the contract was actually made were communicated by the plaingiffs to the defendents, and thus known to both parties, the damages resulting from the breach of tushc a contract which they would reasonably contemplate, would be the amt of injury which would ordinarily follow from such a breach of contract under these special circumstances so known and communicated.
o The relevant moment for the court to examin in this test is the moment of formation.
o ¶3 key words: Arising naturally; usual course of things; probable result
o compensable consequences of the breach are those consequences which are probable.
Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd. – p. 55
• Newman Industries selling a boiler to the plaintiffs for £2,150.
• Req’d boiler asap.
• Ds promised to deliver on 5 June 1946.
• Boiler damaged by contractors dismantling for transport – not repaird for 20 weeks
• Ps sought to recover for loss of profits during the delay. Proved they had extremely lucrative dyeing contracts as well as the normal business of launderers and dyers.
• Trial judge gave judgment for the Ps for the costs incurred in a futile trip by the P to pick up the biler on 1 June, but disallowed claim for profits.
• Special circumstances: The lucrative contracts
o Court says that there was no communication of these special circumstances and so does not fall under the rule.
o What is imp. Is the attempt by Asquith L.J. to explain Hedley v. Baxendale
o Apparenlty, forcing the victim to subsidize the defendant is a policy…
• In the full version, says that Contract law compensates far fewer consequences than tort law.
o “Reasonably foreseeable as liable” – this phrase from this case causes much consternation in the next case.
• Puts into new words, the Hadley v. Baxendale formula
o We will compensate the P for consequences of the breach which need not be probable consequences – need only be a serious possibility
Koufox v. C. Czarnikow Ltd. (“The Heron II”)
• Transporting sugar.
• No debate that the voyage took 9 days longer than it should have as a result of deviations made to other ports in breach of contract.
• Load of 3000 tons
• Because of another shipment that arrived in the interim, the price of sugar was down by the time this load arrived.
• HoL uses this as an opportunity to review what the CA had said 20 years earlier in victoria laundry
• Our editors have made the choice to include what other judges said in this case. Most only include what Lord Reid said.
o The “full flavour” leaves the case much murkier…
• Lord Reid:
o ¶6 – can the P recover as damages for breach of contract a loss of a kind which the d, when he made the contract, ought to have realized was not unlikely to result from a breach of contract causing delay in delivery.
o Just as victoria laundry is the reasonably foreseeable as liable case, this is the ‘not unlikely’ case.
o “Not unlikely” – not the same as ‘likely’.
o If you stop reading with Lord Reid, would probably toss out Victoria Laundry altogether. With the judges together, however, might see it as still somewhat useful.
• Note page 66 - when drafting tentative replacement for Sale of Goods Act…
Canlin v. Thiokol Fibres Canada Ltd.
• Facts: sale of goods case. Goods not suitable for purporse which would amt. to breach of contract under the Sale of Goods Act.
• Statute says that in a contract for sale of goods, measure of damages is estimated loss directly resulting from loss from breach of… warranty?
• Essentially a case on common-law remoteness sense, with sale of goods act trying to codify this principle.
• T. judge held that the defendant had breached a warranty impled by the sale of goods act s. 15(1) – that the goods supplied would be “reasonably fit for their known and intended purpose.”
o In add’n to the $93k for losses on the covers actually manufactured and sold in ’75, the t. judge included an award of $100k in respect of loss of profits for business for ’76-’80.
• Note 2 – saying that the test is the same doesn’t mean that the recovery will be the same