A Helpful Guide For How to Determine the Manner In Which Damages Are Calculated Within Contract Law Disputes

Contract Document 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 tort 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a purported or alleged contractual relationship if a court determines that the alleged contractual relationship is rescinded or unenforceable or a nullity.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
Failure to Perform

The law regarding how damage awards should be calculated is much more complicated than could ever be summed up within just a 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.

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Failure to Contract

Where a court determines that, despite the allegation or purporting that a contractual relationship was in existence, such as where a wrongdoing such as misrepresentation occurred and it is deemed that the alleged or purported contractual relationship would be avoided 'but for' the wrongdoing that led to the failure to contract, generally, the sum awarded will be the amount required to put the parties back into the position that existed just before the failure to contract occurred.

Summary Comment

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