Compensation for Harm to Property Interests

• Author: Jamie Cassels/Elizabeth Adjin-Tettey
• Profession: Professor of Law, Vice President Academic, and Provost, University of Victoria/Professor of Law, University of Victoria
• Pages: 65-110

65

ChaPter 3

COMPENSATION

FOR HARM TO

PROPERTY INTERESTS

a. introDuCtion

An interest in property may be harmed in a variety of ways. The prop-

erty may be stolen, damaged, or destroyed by the wrongful act of the

defendant. In these cases the cause of action will be in tort (e.g., negli-

gence, nuisance, trespass, conversion, and detinue). Alternatively, the

plaintiff may be kept out of possession of property by a bailee, or by a

vendor who fails to live up to a contract to sell the property; or a con-

tractor may breach their contract to improve or preserve property. In

these cases the cause of action will be in contract. This chapter outlines

the basic principles of damages assessment in relation to property in-

terests, in both contract and tort.

The f‌irst principle in respect of compensation of property interests

is restitutio in integrum. The owner of property is entitled to be put in

the position as though the wrong had not been done. The damages will

be measured by the loss in value of the property to the owner.

Where the wrong is a breach of contract (e.g., a failure to deliv-

er property that the plaintiff has purchased from the defendant, or a

breach of contract to improve property), the plaintiff is entitled to ex-

pectation damages. These will be measured by the value that the prop-

erty would have had to the plaintiff had the contract been performed.

The same basic principle applies in tort cases. When property is dam-

aged or destroyed, the plaintiff is entitled to full restoration; that is, to

be put in the position as though the wrong had not been done. This

REMEDIES: THE LAW OF DAMAGES66

means that, where property is destroyed, the owner is entitled to the ac-

tual value that the property had to her at the time of the wrong. Where

the property is “fungible” and available for purchase on the market, the

damages will be assessed by the cost of acquiring a substitute. Where

the property is not easily replaced, courts must engage in more com-

plex calculations to determine its value to the owner. The method is

explained in the f‌irst part of this chapter.

Where the property is damaged, the owner is also entitled to be

made whole. Typically, damages will be assessed by the reasonable cost

of repairing or replacing the property. The most signif‌icant problems

arise when the cost of repairing the property is out of proportion to the

market value of the property. This problem is discussed in depth in a

later section of this chapter.

In addition to the value of the property itself, the plaintiff is en-

titled to compensation for consequential losses, subject to the rules

of remoteness and the duty to mitigate. For example, the purchaser of

goods, or the owner, may have been intending to resell the goods or

to use them in some enterprise. The breach of duty by the defendant

(whether a breach of contract to deliver the goods, or a tort that dam-

ages them) may result in an additional loss of prof‌it. Where substitute

property can be immediately procured, or the property can be immedi-

ately repaired, damages will be limited to the cost of doing so since

there will be no lost prof‌its. However, in the case of many prof‌it-earn-

ing chattels such as heavy machinery or ships, there will inevitably be

a period of delay, as there will be in cases involving non-delivery of

certain goods and real property. In these cases, the plaintiff is entitled

to consequential losses, including lost prof‌its, subject to the limitations

imposed by the rules of remoteness and mitigation. Even where the

property is not intended to be used for prof‌it, the owner will have been

deprived of its use and may have a claim for the loss of use.

b. non-DeLivery of ProPerty

Chapter 2 addressed the basic principles regarding the recovery of

damages for a breach of contract. Those general principles apply to

contracts to sell both real and personal property, and that chapter con-

sidered the law with respect to the sale of goods. The following section

deals with contracts in respect of land.

Compensation for Ha rm to Property Intere sts67

1) Breach of Contract to Buy and Sell Real Estate

a) General Principles

Historically, the primary remedy for breach of a contract to sell land

was specif‌ic performance — an order to the vendor actually to deliver

the land. Land, especially residential real estate, has been considered

unique and damages are presumptively inadequate. However, expecta-

tion damages are also an available remedy at the plaintiff’s option; and

with the diminishing availability of specif‌ic performance for the sale of

land, damages are becoming a more important remedy.1

Expectation damages in real estate cases will be the difference be-

tween the contract price and the market price of the land.2 For ex-

ample, if the vendor refuses to deliver the property at a contract price

of $100,000, and its value has increased to $110,000 at the time of the

breach, the vendor will be liable for $10,000 (and the buyer will be

entitled to the return of any deposit paid). Likewise, if the buyer is in

breach, and the land has decreased in value, the vendor will be entitled

to the loss.

If the buyer has incurred legal fees or other expenses in anticipa-

tion of closing, these are not recoverable, since they would have been

incurred in any event had the contract gone through. And if the plain-

tiff has saved such expenses, they must be deducted from the damages

for the lost value of the land since, had the contract been performed,

these expenses would have been incurred in order to earn that value.3

b) Time of Assessment

Ordinarily, in determining compensation for breach of contract, dam-

ages are assessed at the date of the breach. This is a corollary of the

rule of mitigation since it assumes that at the time of the breach the

plaintiff will be able to enter into an alternate transaction. It also pro-

motes eff‌iciency in the assessment of damages by dictating an arbitrary

but convenient point at which the valuation exercise should be done,

and avoiding costly and complex litigation over the exact time at which

the loss should be evaluated. These principles are discussed fully in

Chapter 12.

In ca ses invo lving re al estat e, the ru les about time of as sessme nt are

more complex, particularly in the case of the buyer’s action. Since the

1 Semelhago v. Paramadevan, [1996] 2 S.C.R. 415; Hunter’s Square Developments

Inc. v. 351658 O ntario Ltd. (2002), 60 O.R. (3d) 264 (S.C.J.), aff’d (2002), 62 O.R.

(3d) 302 (C.A.).

2 Pitcher v. Shoebottom (1970), [1971] 1 O.R. 106 (H.C.J.) [Pitcher].

3 Ibid.