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

Damages
•    When discussing non-pecuniary damages (pain and suffering; loss of state of mind; etc.) law tends to view these heads of loss with suspicion.
o    Though jurisprudence says we will compensate for these, it awards these damages somewhat… begrudgingly.
•    Addis v. Gramaphone Co. – page 99 held that an employee that had been wrongfull dismissed was entitled to compensation for the loss of contractual expectation, but not for any pain and suffering, mental distress, or damage to reputation.
•    The extent that we under-compensate victims, we are forcing victims to subsidize defendents.
o    Tends to stimulate economic activity
o    Similar:  In tort law, one is liable only if one is negligent.  Proving the act alone does not make one liable.
•    This in itself is a rule which undercompensates victims and subsidizes defendents.
•    “The people who are out there breaking legs are those who are out in the economy.”
•    Addis v. Gramophone shows the tendency of contract law whereby there are certain losses which may well be real, but for which we do not compensate.
•    There were at least two trad. exceptions:  Breach of promise of marriage; if a bank dishonoured a legitimate cheque.
o    In these two situations, invisible damages could be awarded.
•    In the last ¼ century, under the influence of Jarvis v. Swans Tours (Thanks to Lord Denning), things have begun to change.

Employment Contracts page 97
•    Indefinite duration – an employer has the right to terminate the employment of an employee either “for cause” or, having given “reasonable notice.”
•    2 kinds of implied terms:  officious bystander; business efficacy
o    implied-in-fact – this is different from what they editors are discussing here.  Here they are discussing implied-in-law.
o    Into contracts, the law implies certain terms, whether the parties would have considered them at the moment of formation or not.
•    The parties can explicitly preclude these implications.
o    Courts tend to, for instance, imply the IGF principle into contracts.

•    Vorvis v. Insurance Corp. of British Columbia – page 99
o    A conscientous lawyer being tormented by his employer
o    Sought damages for mental distress (aggravated damages) – non-pecuniary – compensatory
o    Judges agreed that in a proper case, could get aggravated damages, and could get punitive damages.
•    Clear that the damages would be very limited.
o    Not the end of the line – just the beginning of the SCC jurisprudence on this issue.  Bottom line is that the possibility of damages for non-pecuniary loses in breach of contract cases was legitimized.

Whiten v. Pilot Insurance Co. page 123
•    Page 128-129 – list of 10 factors /  general principles
•    Goes on to discuss in rel. to this particular case
•    Page 126 – against the americanization of our justice system
•    Tells lower courts how to approach damages
o    Upheld the $1-Million award…
o    Hinted that this was the limit of what the SCC would be willing to uphold
•    Binnie authorizes the Run-Away Jury (Grisham) approach in Canada.
o    Punitive damages must be proportionate to the means of the defendant if they are to serve their purpose.

Fidler v. Sun Life Assurance Co. of Canada page 143
•    Disability insurance case
•    Turns into a piece of mind case
o    Should provide the assurance of knowing that if something catastrophic happens, one will be provided for.
o    It is a promise not only of payments, but piece-of-mind.
•    Takes aggravated damages into an new direction.
•    Make defendents compensate victims for ordinary injuries which would be expected to arise from a breach – if these are aggravated damages, then we would award accordingly…
•    Page 148 – distinguishes 2 types of aggravated damages:
o    True aggravated damages – arise from aggravating circumstances.  Not awarded under general principle of Hadley.  Rest on defamation, oppression, fraud, etc.
•    Have nothing to do with type of contract – could, in theory, be awarded for any breach of contract which occasioned aggravated mental suffering
o    Second – mental distress damages which do arise out of contractual breach
•    Are awarded under principles of Hadley v. Baxendale – independent of any aggravating circumstances and are based on parties’ expectations at the moment of contract formation.
•    Says that this is not actually aggravated damages, but simply expectations…
•    Here, Sun Life promised piece of mind to Fidler, and did not provide it
o    Failure to deliver the promised ‘happiness’
o    ‘Aggravated’, under these terms, is a more active phenomenon.
•    Courts now believe that there are such things are ‘injuries’ even if they are invisible.
o    Willing to compensate for these injuries
o    Willing to award punitive damages

Deglman v. Guaranty Trust – page 238
•    Page 240 – the nephew-aunt scenario
•    No one disputes that there was a contract, but didn’t satisfy the Statute of Frauds
o    Deglman loses on the contractual issue, but does not go away empty-handed
•    Page 240-241 – first case where SCC awarded restitutionary (damages?)
•    The acts done were persuent to the contract
•    Accordingly, embrace the propostion that if Deglman was not give something, the aunt (estate) would be rewarded unjustly.
o    The services were not give gratuitously.
•    ¶6 – “It would be inequitable to allow the promisor to keep both the land and the money and the other party to the bargain is entitled to recover what he has paid.”
o    Statute of Frauds doesn’t preclude from bringing a restitutionary claim
o    Not for contract; not for tort; not for trespass – it is to alledge that otherwise a defendant would be unjustly enriched.
•    Quantum meruit.
•    Normally, (F&P language) in a restutitonary scenario, a pl. has given a benefit to a def. (prepaid, for instance)…
o    The pl is minus the payment (say, -$100), and the def is plus the payment (+$100).
o    Court, enforcing its equitable power to police the defendant, can force the D to give back the measure of the benefit.
o    In pure restitutionary theory, to quanitfy what the Pl receives, you look at how the Def was enriched (not how much the pl paid).
o    In Quantum meruit, one asks how much the pl deserves – put a fair market value on what the pl supplied.
o    Could lead to the same conclusion – but may be cases in which it cost the pl more than the def was enriched.
•    Evaluated by a Quantum meruit procedure, would look at what the pl paid.  Pure restutionary, would look at how much the Def benefitted and award that to the pl.
•    Note 5 page 245 – example of the pl incurring much expense, but suing on restitutionary theory… read this note
o    The pl got nothing

For next day:  Do all cases on the rest of the syllabus to this point

This is the second class.  Last week’s class was replaced by visit to N.B. C.A.

Remedies:  Review from last day
•    Principle remedy for a broken contract is a money-remedy – damages
o    Again, do not confuse damages with damage.  Damage is the injury.  Damages is a technical term for the money remedy awarded by courts.
•    The traditional first principle of damages is that the obj. of the award of damages is to put the plaintiff in the pos. he/she would have been in had the contract been properly performed.  This works on the theory that the pl. can then take this quantum of money to go into the marketplace to buy a replacement for performance.
•    Reliance principle:  To put the pl. back to even.  Calculate how much the pl has relied up on the def’s broken promise… to make the “whole” again.
o    Fuller and Purdue – say that damages could be calculated so as to vindicate what they call the pl’s restitutionary principle.  Often, in pursuance of a contract, a pl. will have conferred a benefit on a def., enriching the def. and impovershing the pl.  Restitution to the pl. in this situation is the unjust enrichment principle, or restitutionary principle.
o    These are not a hierarchy of quantum.

•    In Peevyhouse, both the majority and the minority wish to give the Peevyhouses their expectation, but both camps interpret this expectation differently.

Anglia Television Ltd. v. Reed P. 68
•    Denning L. here brushes aside a traditional problem in contract law.
o    The pl. will not get its expectation here – this is a question of damages.
o    Do not know what the profits of the film would have been.
o    In Fuller and Purdue terms, supposed to put the pl. in the pos. they would have been in had the film been produced, but here, doing so is so speculative that it is in fact impossible.  This is so obvious that it goes largely undiscussed.
o    The courts have a slogan:  The fact that awarding damages may be very difficult does not excuse the court from doing so.
o    Here the pl. is asking for reliance.
•    Problem:  Most of the expenditure for which they seek compensation, was made prior to Reed’s promise.
•    If this is the case, then how can it have been made in reliance to Reed’s promise…?
•    Denning:  “If the pl. claims the wasted expenditure, he is not limited to the expenditure incurred after the contract was concluded.  He can claim also the expenditure incurred before the contract, provided that it was such as would reasonably be in the contemplation of the parties as likely to be wasted if the contract was broken.” ¶4.
o    Denning here sounds like he is citing a know proposition of law.  It is not.  He is making it up.

Bowlay Logging Ltd. v. Domtar Ltd.  p. 72
•    The twist in this case is that the pl. was losing money on the contract, and was in fact better off having it broken off.
•    In F&P language (and this is the first Canadian case that uses F&P), the pl. is suing, not for their expectation (as they expected to lose money), but for their reliance – the money thrown away in pursuit of a broken contract.
•    The judge does not deny that they can sue for either, but says that the court will not put a pl. into a better position than they would have occupied had the contract been fully performed. ¶4.
o    There is a limit to their recovery under the reliance interest.
o    They would have lost money under the contract.
o    Can give them their reliance, but will make deductions.
o    The court awards, in this case “nominal damages”
•    Any contract victim is entitled to token damages.
•    Unlike negligence, where one is entitled only to the damages one can prove.
•    Contract suit is more like a trespass suit.  Victorious pl. is always entitled to something.
•    Pl. can sue on expectation or reliance theory.  Reliance here would be more than expectation.
o    Though pl. may have that election, reliance recovery may not put one in a better position than had the contract been performed.

Jarvis v. Swan’s Tours p. 92
•    Here the law confronts an invisible emotional injury.
•    Denning notes that the law has had great difficulty bringing itself to a situation where it will award damages for invisible injuries.
o    In this case, the law made a sort of breakthrough.
•    Swan’s Tours’ brochure set up certain expectations of their resort.
o    Whether the brochure promised him these things is an issue.  We will take this up later in the term.
•    Jarvis, after his sub-par vacation, sues for breach of contract.
•    Denning begins by citing two prior railway cases in which he says courts declined to award for mental distress or for “mere inconvenience, sich as annoyance or loss of temper, or vexation, or for being disappointed in a particular thing which you have set your mind upon.”
•    Denning goes on to say, “I think those limitations are out of date.” ¶4.
o    Here lies the basis for the new law.  Denning.  Making it up as he goes along.  What a guy.
•    Denning gives Jarvis twice what he paid for the tour.  The trial judge had given him half his cost.
o    There is no basis for this award of damages.

•    Are employment contracts covered under state-of-mind?
•    Pages 94-97 show the consequences of Denning’s ruling in this case.

Damages:  discussion
•    Divided into two categories:  General and Special
•    General
o    The type that the law presumes a pl. would have to have incurred in the course of the contract.
o    Compensate for damage which the law presumes that such a pl. under such a breach, would have incurred.
o    Can included annoyance, frustration, etc.
•    Special damages are of the type for which one can produce a receipt.
o    Things purchased, etc.
•    Aggrevative and punative / exculport
•    Aggrevative compensate the victim for aggrevated damage.  They are compensatory.
•    Where the breach has occurred in circumstances where the victim of the breach has sustained more annoyance, disappointment, etc. than the norm, then the court can award aggrevative damages to recognize that the victim has suffered aggrevated damage…
•    Punitive damages – Contrasted with aggrevative damages.  When these arise, it is in circumstances similar to aggrevative damages.  Point though, is not to compensate the pl., but to punish and make an example of the defendant.
•    In reading the materials, note that the courts do not like to award aggrevative damages, and really do not like to award punitive damages.
•    When courts do award these types of damages, the damages are most often low.
•    There is one ON case where a civil jury awarded against an insurance company a very large sum.
•    Judges, on the other hand, have had an unwritten vow to not let Canadian civil litigation evolve into that which the U.S.’ has become.

For next day, read the notes.  Of course feel free to read the associated cases.  Read Fidler v. Sun Life Assurance, and Hadley  v. Baxendale.

Assignment #2 – “major” research essay.  Due March 13th (tentative).
Will settle on questions in the next week.  Can suggest our own topics.
Read commentary on Dec. exam on TWEN.  Can see Bell about your particular exam.  Would like to see anyone who did ‘poorly’.

Remedies
•    In our legal trad. we usually do not give the victorious plaintiff specific performance.
•    For the most part, translate the promised performance into an award of money.
•    Will study how courts approch this “translation”.
•    Money as a substitute for the performance, because to make the def. perofm literally for the plaintiff would often be to force two adversarial parties to then cooperate.
•    Allows the pl. to go out into the marketplace and buy a replacement performance.
•    Damages – the money remedy that courts award victorious plaintiffs.  This (says Bell) is the only time to use ‘Damages’ with the ‘s’.  ‘Damage’ (no ‘s’) is the injury itself.  This appears to be something that Bell will nail us to the wall for.
•    Though money is the principle remedy used by the courts, there are alternatives.
o    All non-damages remedies are lumped under equitable remedies
o    Damages was the only remedy with the courts of England before the judicature act awarded.
o    Specific performance – some occasions where no amt. of money would give the pl. what he/she wants.  Ex:  If one were buying the Mona Lisa, no amt. of money would allow the pl. to buy a substitute in the marketplace.
o    May want the def. to be prevented from doing something, as once done, it may not be undone.
•    For instance, the publishing of something injurious to one’s reputation, or a neighbour building something that would irrevocably subtract water from one’s land or alter a landscape forever.  In these situations, the pl. desires an injunction – an equitable remedy.
•    We will, however, begin with legal remedies.
•    Law is the realm of right.
o    Equitable remedies are discretionary, not of right.

•    Note quote on page 5 from Wertheim v. Chicoutimi Pulp Co.
o    Damages is not a science… it is an art…
o    Try to give the pl. a money substitute award.

Page 28 – Fuller & Purdue
•    From legal realist period of 1930s.
•    Subject of the article is the reliance interest in contracts.
o    Our excerpt consists of the preface.  The establishment of the vocabulary of the article.
•    Enunciate 3 interests which a court might be seeking to vindicate when seeking to award damages to victorious plaintiff.
•    Contract law is the embodiment of laissez-faire economics.  Mirror-image of Darwinian conception of economics.
•    When people in the 30s began questioning the usefulness of an economic system which led to monopolies; when laissez-faire¬ produced the Great Depression, the public response was the invention of the regulatory/administrative state – ensured that the economy was regulated, in an effort to avert future catastrophes.
•    Legal realists attacked and reconceptualized “the legal heartland” of laissez-faire – contract law.
o    The legal realist approach can often be reduced to what courts do, that is the law.
•    If one wishes to understand the law of contract, one should not look at a treatise on contracts – one should look at what courts do in concrete cases.  Judges often deviate from supposed rules.
•    If real judges in real cases do not use supposed rules, then is a rule a rule?
•    Lord Denning, for example, in High Trees, cited a group of cases since the judicature act in which courts had enforced promises without consideration.  He pointed these out, and gave the phenomenon the name of equitable estoppel.
•    Legal realists were ‘terribly empirical’.
o    Study the law in action.

•    Fuller begins by saying that everyone says that at the end of contracts cases courts contract expectations into monetary terms.  Tries to put the vic. pl. into the same position they would have been had the def. fulfilled their obligations.
o    Label this the expectation measure of damages.
•    Great contribution of this article is to point out two other common approaches to awarding damages (two other interests).

Reliance Interest
•    Commonly, courts do not award expectation interest at all.  In many, courts award what Fuller labels the reliance measure.
•    This differs in that it tries to put the pl. in the pos. that he/she were in before the contract.  Try to make the victim “whole” again.
•    Plaintiff has not only not gained, but has in fact lost something by non-performance of the contract.
•    Para 7, page 30.  The pl. has, in reliance on the promise, changed his position.

Restitution Interest
•    See Deglman v. Guaranty Trust
•    Happens when, in the context of the contract, the pl. has conferred a benefit on the def.
o    The pl. has been impoverished to the extent of this conferral, and the def. has been enriched to the same extent.
o    Court forces the def. to ‘disgorge’ the benefit conferred; to restore the benefit to the pl.
•    If the court does this, it is trying to prevent the def. from being enriched unjustly.
o    In Deglman, court said that the nephew had conferred a benefit on his aunt (and not out of the goodness of his heart).  To prevent unjust enrichment, put his services into a dollar amount, and had the estate disgorge this amount.
o    Could not give him his expectation, as it was non-enforceable.  Instead based the decisionon equity and unjust enrichment.
•    Restitution rarely arises inside of real orthodox litigation.
o    Usually arises while trying to clean up “near-contract” situations.

Economic Analysis of Law
•    Response to Lord Atkin.
•    Page 38 – the basic insight is that the propositions of the common law are economic propositions (as, they would say, are moral propositions [such as, ‘thou shalt not steal’]).
•    The law that exists, has evolved as it has, because it is conducive to economic activity.
o    Bell calls this the “is” proposition
•    The “ought” proposition:
o    Judges ought, in deciding new cases, make the decision that is most conducive to economic efficiency.
o    Make liable the person who could have most cheaply avoided a tort, for instance.

Peevyhouse v. Garland Coal & Mining Co.
•    Garland leased property from the Peevyhouses for the purposes of strip-mining coal.  A clause in the contract obliged Garland to perform “certain restorative and remedial work” at the end of the lease period.  All other obligations of the contract had been lived up to by both parties, but for this one.
•    The cost of performace was expertly estimated at about $29,000.
•    Ma and Pa Peevyhouse win in contract law.  That is not in dispute.
o    Issue: Should the judgment for the plaintiffs be in the amount equal to the cost of performance of the remedial measures, or for the amount that the value that the property was diminished?
o    The debate is over how to give the Peevyhouses their expectation.
•    By spending $29,000 to restore the farm to its “original” condition, its value would be increased by $300.
•    Would awarding the Peevyhouses the $29,000 simply be awarding them an unjust windfall?  Would they restore the property themselves, or pull up stakes and move to Florida?
•    The value of the land to the plaintiffs might be quite different from the actual fairmarket value.

There is no area of contract law in which there is more of a disjuncture between theory and practice, than remedies.
Here, the debate is not over which measure to use.  They both use the same measure, but in different ways.  Remedies jurisprudence is full of sub-jurisprudence.

For Next Monday, do Anglia Television, Bowlay loggin, Jarvis.