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Contract Law Damages: The Principle of Putting a Person into the Position as If the Contract Was Performed
Question: How are damages calculated in a contract dispute in Canada?
Answer: In Canadian contract law, damages are primarily calculated to restore the non-breaching party to the position they would have been in had the contract been fully performed. This principle was upheld in Fidler v. Sun Life Assurance, [2006] 2 S.C.R. 3. The award can involve "expectation damages," the cost required to complete the contract as agreed, or "restitution damages," reflecting the benefit gained by the breaching party. To navigate these complexities, consulting legal professionals such as Caruso Legal Services can ensure your rights are properly defended. Contact Caruso Legal Services to get started today.
Calculating Damages Within Contract Disputes
The basis for the proper sum as a court award in an contract law dispute differs based on the nature of the claim brought to the court. With some contract law disputes, the matter is a case about the failure of a party to properly perform a contract. In other contract law disputes, which may actually be better viewed as tort law disputes rather than contract law disputes, the case is about wrongs that led the parties to enter into a contractual relationship or merely a purported or alleged contractual relationship if a court determines that the alleged contractual relationship is rescinded or unenforceable or a nullity. Perhaps even better said, some contract law cases are about what was left undone contrary to the requirements of the contract while other contract law cases are about whether the contract was actually binding and enforceable and therefore whether there ever really was, legally, a contract at all. For the purposes of this article, where a binding agreement is deemed to exist; however, a party to the binding agreement, meaning the contract, failed to fulfill the duties agreed to within the contract, such will be referred to as a failure to perform. For the circumstances where wrongfulness occurred during the attempt to form a binding agreement and it is deemed that an enforceable contractual relationship failed to occur, such will be referred to as a failure to contract. Accordingly, it will be important to understand and appreciate that a signed document, even a document titled Contract or something similar may be, legally, just some paper.
The Law
General Principle
In the Supreme Court case of Fidler v. Sun Life Assurance, [2006] 2 S.C.R. 3, the general principle that in determining the appropriate award in a breach of contract case, courts are to determine what sum of money is required to put the party harmed by the breach back into the same position as would have existed without the occurrence of the breach. Specifically, the Supreme Court said:
27 Damages for breach of contract should, as far as money can do it, place the plaintiff in the same position as if the contract had been performed. However, at least since the 1854 decision of the Court of Exchequer Chamber in Hadley v. Baxendale (1854), 9 Ex. 341, 156 E.R. 145, at p. 151, it has been the law that these damages must be “such as may fairly and reasonably be considered either arising naturally . . . from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties”.
Failure to Perform
The law regarding how damage awards should be calculated is much more complicated than could ever be summed up within just this webpage article. Indeed, there are entire books written on just this one subject. However, as a mere introductory insight and starting point, it should be known that when a contract is deemed valid and applicable but breached by a failure of perfomance of the duties within the contract, the innocent party, being the party without breach is entitled to compensation in the sum required to complete the contract in a manner as if the contract was properly performed. Simply said, when a person agrees to do something specific, and then fails to do that something specific, the amount due for breaching the contract will be based on the cost to hire someone else to do the something specific. For example, if ABC Contracting agrees to build a loading dock for XYZ Manufacturing at a price of $10,000 and fails to do so, XYZ Manufacturing may sue for the breach of contract and claim damages for the difference between what XYZ Manufacturing reasonably pays another contractor to do what ABC Contracting was supposed to do. For most people, this basis for calculating a damages award makes logical sense. This principle was stated by the Supreme Court in the case of Bank of America Canada v. Mutual Trust Co., 2002 SCC 43 (CanLII), [2002] 2 S.C.R. 601, as well as Naylor Group Inc. v. Ellis-Don Construction Ltd., 2001 SCC 58 (CanLII), [2001] 2 S.C.R. 943, wherein each it was said:
25 Contract damages are determined in one of two ways. Expectation damages, the usual measure of contract damages, focus on the value which the plaintiff would have received if the contract had been performed. Restitution damages, which are infrequently employed, focus on the advantage gained by the defendant as a result of his or her breach of contract.
(a) Expectation Damages
26 Generally, courts employ expectation damages where, if breach is proved, the plaintiff will be entitled to the value of the promised performance (S. M. Waddams, The Law of Damages (3rd ed. 1997), at p. 267).
27 See Haack v. Martin, 1927 CanLII 57 (SCC), [1927] S.C.R. 413, per Rinfret J., at p. 416:
The case is governed by the general rule applicable to all breaches of contract, and laid down as follows by Parke B. in Robinson v. Harman (1848) [1 Ex. 850, at p. 855].
The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.
73 The well-accepted principle is that the respondent should be put in as good a position, financially speaking, as it would have been in had the appellant performed its obligations under the tender contract. The normal measure of damages in the case of a wrongful refusal to contract in the building context is the contract price less the cost to the respondent of executing or completing the work, i.e., the loss of profit: M.J.B. Enterprises Ltd., supra, at p. 650; Twin City Mechanical v. Bradsil (1967) Ltd. (1996) 31 C.L.R. (2d) 210 (Ont. Ct. (Gen. Div.)), at pp. 225-26; S. M. Waddams, The Law of Damages (3rd ed. 1997), at para. 5.890; H. McGregor, McGregor on Damages (16th ed. 1997), at para. 1154.
Conclusion
In summary, the determination of damages in contract law depends heavily upon the nature of the dispute including whether a breach involves a failure to perform arises under an enforceable contract or whether a failure to contract occurs due to issues such as misrepresentation or mistake, and the approach to awarding damages will vary accordingly. For a failure to perform, compensation focuses on ensuring the non-breaching party is put in the position that would exist if the contract was properly performed. For a failure to contract, the focus is on putting the parties back into the position that would had the relations failed to arise at all. Concerns such as preventing unjust enrichment, among other issues, will also arise. Understanding these distinctions is crucial for anyone dealing with contract disputes, as the nature of the breach directly impacts the remedy awarded.
