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

Cha Pter 3

COMPENSATION

FOR HAR M TO

PROPERTY INTERESTS

a. introDuCtion

An interest in propert y may be harmed in a var iety of ways. The prop-

erty m ay 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 deti nue). Alternatively, the

plaintiff may be kept out of possession of proper ty 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 proper ty. In

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

the basic pr inciples 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 w ill

be measured by the loss i n value of the property to the owner.

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

er propert y t hat t he pla intiff 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 h ave 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 plaint iff is entit led to full restoration; that is, to

be put in the position as t hough the w rong had not been done. This

REMEDIES: THE L AW OF DAMAGES66

means that, where property is dest royed, 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 purcha se on the market, the

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

the propert y is not easily replaced, court s must engage in more com-

plex ca lculations to determine its value to the owner. The method is

explained in the f‌irst part of this chapter.

Where the proper ty is da maged, the owner is also entitled to be

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

of repair ing or replacing the property. The most signif‌icant problems

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

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

later section of this chapter.

In add ition to the value of the proper ty itself, the plaintiff is en-

titled to compensation for con sequential losses, subject to the r ules

of remoteness and the duty to m itigate. For example, the purchaser of

goods, or the owner, m ay have been intending to resell the goods or

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

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

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

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

ately repaired, damages wi ll 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 a s heavy machinery or ships, t here will inevitably be

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

certain goods and real propert y. In these case s, the plainti ff 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, t he owner will have been

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

b. non-DeLiv ery of ProPerty

Chapter 2 add ressed 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 contract s in respect of land.

Compensation for Ha rm to Property Intere sts 67

1) Breach of Contract to Buy and Sell Real Estate

a) General Principles

Historically, t he pri mary remedy for breach of a contract to sell land

was specif‌ic per formance — an order to the vendor actually to deliver

the land. Land, especially residential re al estate, ha s been considered

unique and damages a re presumptively inadequate. However, expecta-

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

with the diminishing availability of specif‌ic performa nce for the sale of

land, damages are becoming a more important remedy.1

Expectation da mages in real estate cases wi ll 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 t ime 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 ex penses 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 cont ract been performed,

these expen ses would have been incurred i n order to earn that value.3

b) Time of Assessment

Ordinari ly, 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 t he breach the

plaintiff will be able to enter into an alternate transact ion. 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 comple x 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, pa rticularly 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.) [Pitche r].

3 Ibid.