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McGill Faculty of Law
Smith, Stephen A.

1.                    Introduction to Damages for Breach of K
Sally Wertheim provides a general “compensation principle” which is morally and commercially satisfactory but in many cases it does not lead to an obvious answer for damages. Underlying everything is a concern to do what is just. A case is an example of a solution to a problem and can be good or bad:
·          Good decisions are decisions to rely on.
·          Bad decisions may be acknowledged but one will always try to avoid them if possible by distinguishing them in some manner.
The only guide are those facts which will move the court to want to find in favour or the client.
1.1.               Sally Wertheim v. Chicoutimi Pulp
Pulp is delivered late and must be sold for a reduced price.
Can the P succeed in an action for damages between the difference in actual price and the price which would have been received for the pulp had it been delivered according to the K?
Lord Atkinson, “[I]t is the general intention of the law that, in giving damages for breach of contract, the party complaining should, so far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed. … That is a ruling principle. It is a just principle.”
“In the case of non-delivery, where the purchaser does not get the goods he purchased, it is assumed that these would be worth to him, if he had them, what they would fetch in the open market; and that, if he wanted to get others in their stead, he could obtain them in that market at that price.”
2.                    The Interests Protected and the Purposes Pursued
2.1.               Fuller & Purdue
The article provides an analytical frame work of what underlies the compensation principle by identifying three interest:
·          Restitution, P pays D something, e.g. a deposit. P has a strong claim.
·          Reliance, P due to reliance has losses. D has no benefit. P has a moderate claim.
·          Expectation, P does not gain what he should have gained. D gains nothing. P is no worse off. P has a weak claim.
For example P loans D an amount and D defaults on loan. The principle is a restitutionary interest but what is the lost interest. It looks like an expectation interest but in reliance on the loan agreement the bank lost the opportunity to make a loan elsewhere. The expectation claim is the difference that can be made between the defaulting borrower and the next highest potential borrower (i.e. the reliance losses are equal to the interest that could be made by lending to another.
2.2.               Note
The general rule in K damages is to put the P in the position he would have been in had the K been performed. The court must predict where it is that the P would have reached had the K been performed, working within the limits prescribed by the doctrines of remoteness and certainty.
In cases where the reliance interest is claimed as an alternative to the expectation interest, the P may recover as part of his wasted expenses the value of any benefit he conferred on the D. Where the expectation interest is the basis of the award the P may recover his restitution interest only if it has been deducted in the calculation of the expectation interest, that is, only if the expectation interest was estimated on the basis of net profits rather than gross profits.
Analogous principles will apply where the P seeks to recover his restitution interest and his indemnity interest: he will be barred from accumulating both only where he recovers also for his expectation interest, the calculation of which does not account for the payment of the restitution interest.
2.3.               Canlin v. Thiokol Fibres
P manufactured swimming pool covers (tarpaulins) which were designed to keep out debris but let rain water pass through.P asked D if it was interested in providing the required polyethylene material for making the covers stating that the were going to provide a 3 year guarantee along with the cover

oth for school uniforms). Here the court recognises that the K explicitly involves future aspects. Most commercial Ks have a past and future and are not discrete. There are serious practical problems when dealing with these “relational” Ks (for example franchise, distribution, suppliers, etc.).
2.4.               Waddams, The Law of Damages
Argues that the performance of a K is a right. This is reflected in that it is usually said that the object of compensatory damages is to put the P in the position he would have been in if his rights had been observed (which is a general principle which can be applied when determining compensation in both tort and K).
Is the wrong in breaking the K or making a K which is not kept?
If the law normally only protected reliance, a new class of contracts would emerge where the promisor fully guaranteed performance. Following normal rules of contract construction such a guarantee could be implicit, as well as express, and this would bring us back to the present position. In other words, the argument is that the normal measure of contract damages simply reflects the usual implications of a contractual transaction.
This point is strengthened by the existence of the doctrine of consideration as the normal test of contract enforcement. One of the reasons for allowing the promisee to recover the value of the promised performance it that he has “bought” the right to it.
However, when the promisee has not bought the right to performance (through valid consideration), there is much less reason to allow recovery of its value.
Risk allocation contracts ought to be enforced.