Contract Law

Mitigation
•    The victims of a broken contract must act reasonably to mitigate their losses.
•    This will reduce the damages that the D will have to pay in the case of a law suit.
o    From Chicoutimi, a victorious P is to get their expectations.
•    So in the case of a broken employment contract, the expectation would be salary for the length of the contract.
o    However, our economic prosperity depends on people being in the workforce selling their talents.  Someone sitting at home collecting money goes against society’s interests.
•    Common law says to the victim that they must immediately act to minimize their loss.
•    The effect of the plaintiff mitigating is wholly on the defendant.
o    A successful mitigation minimizes the damages paid by the defendant.
o    If, for instance, a plaintiff does not attempt to mitigate their losses, a court will deduct this from their damages.
•    In the case of a contract for sale of goods, if one manages to replace the goods in the open market and they are more costly, then one can sue for the difference.  However, if one manages to find the goods for cheaper…
•    If reasonable mitigation costs the P money, then P is allowed to add the cost of the reasonable mitigation to the ‘tab’.

Payzu Limited v. Saunders
•    A text-book example of mitigation
•    The contract was broken – no dispute
•    P declined to mitigate their losses by dealing with the D after feeling “insulted” by the suggestino of possible insolvency.
o    Did the P adequetly mitigate?  Was refusing to buy the silk in future from the D and paying a higher price reasonably?
o    Court said that even though there were hard feelings, P should have made a business decisoin to deal with the D under the new terms – would still have been cheaper than from other suppliers.
o    Therefore did not properly mitigate their losses, and will not recover to the extent they would have had they done so.

•    What if, for instance, one is selling a car and the buyer, after making the agreement, backs out?
o    One is required to try to sell the the nonetheless.
o    Must mitigate by selling to buyer #2.
o    However, what if one has more than one car for sale (like a dealership)?
o    Though it might look superficially as if one has mitigated their damages, in fact, has lost a sale.  The car sold to buyer #2 would have been in addition to the car that was originally going to be sold to buyer #1.

White and Carter (Councils) Ltd. v. McGregor page 198
•    Contract whereby the council would be advertisements for the D on their litter bins.
•    3-year contract
•    when the contract was up, the advertiser renewed.
o    …then cancelled
•    the council refused to accept the cancellation, and proceeded as planned
•    The contract had an acceleration clause
o    Meant that if the balance due was in default for 4 weeks, the balance of the contract would become due.
•    In theory, once the defendents ‘cancelled’ the contract, the P would have immediately tried to obtain a new advertiser.
•    General Proposition of Law ¶4 page 199
o    “If one party to a contract repudiates [a contract] in the sense of making it clear to the other party that he refuses or will refuse to carry out his part of the contract, the other party, the innocent party, has an option.  He may accept that repudiation and sue for damages for breach of contract, whether or not the time for performance has come; or he may if he chooses disregard or refuse to accept it and then the contract remains in full effect…”
•    If you keep a contract alive, you keep it alive for both parties.
o    Cannot sue for breach of contract if the other party says they are breaking the contract, but the other party disregards this and acts as if it is still alive.  This gives the other party the chance to change their minds.
•    This case is not analogous to the ‘usual case’
o    Usually, one side of the contract needs the other sides’s cooperation.
o    Here, the municipality could go ahead and affix the advertisements without the cooperation of the advertiser.
o    So, do they have a duty to mitigate?
•    According to this case, no.
•    This scenario arises only when there has been a breach.  In this case, the other side breached only when it hadn’t paid the bill for the first week’s advertisement (however, there was a four-week grace period – def. in breach at the end of these four weeks).
•    The P has a duty to mitigate as soon as it is a victim of a breach.
•    This case had in it the fluke of the acceleration clause.  Instantly accelerate to the end of the contract.  If we are at the end of the contract, there is nothing left to mitigate.
•    ¶6 page 200
o    the example of the expert sent abroad to write a report
o    the expert can decline to accept repudiation of the contract and go abroad and write the report.
o    Another example where the party can go ahead without the cooperation of the other party.
o    Once the report is submitted and the party does not pay, they are in breach.
o    The contract is fully performed, so there are no losses to mitigate.
o    This is, in fact, a better example that White and Carter Councils v. McGregor, because it doesn’t have the acceleration clause.
•    Important to understand why the duty to mitigate did not arise.

•    Note 4 page 203
o    The contractor req’d cooperation from the other party to fulfill his duties (permission to enter on the land), so his failure to get permission disentitled him from suing for the contract price.

Equitable remedy
•    For any other remedy other than damages (money), in the past, had to go to chancellory court.
•    Was to correct a problem in the law
•    Explains why equity is so difficult sometimes to comprehend
o    Equity is ‘unteachable’

Next day – entire section on equitable remedies; will get into first section of next part of syllabus

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