B. Remedies upon Breach: The Innocent Party

• Author: John D. McCamus
• Profession: Professor of Law. Osgoode Hall Law School, York University
• Pages: 965-979

Contenidos

• 1) Restitution of Benefits Conferred.
• 2) Disgorgement of Profits Secured.

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1) Restitution of Benefits Conferred

When confronted by a repudiatory breach of contract,²⁰the innocent party may elect either to affirm or disaffirm the contract. In either case, the innocent party is entitled to pursue a claim for damages for losses resulting from the breach.²¹If the innocent party affirms the contract, the executory obligations of the parties remain enforceable and the innocent party’s remedies are restricted to a claim for the damages sustained as a result of the breach. On the other hand, if the innocent party disaffirms the contract, the executory obligations of the parties are discharged by the breach and, as an alternative to the claim for damages, the innocent party may pursue restitutionary relief. Historically, the claim would be for money had and received if the innocent party had paid money to the party in breach or in quantum meruit or quantum valebat for the value of services rendered or goods supplied. The innocent party may prefer the claim in restitution to a damages claim in cases where the actual quantum of damages is difficult or inconvenient to prove or where, the contract being an unprofitable one,

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the claim for restitution of benefits conferred may yield a higher measure of relief than a claim for damages.

Under traditional English doctrine, the claim in money had and received could be met by a defence that the plaintiff had received some value under the agreement and, accordingly, there did not exist the requisite "total failure of consideration." The requirement of a total failure of consideration is typically illustrated by the two contrasting cases of Hunt v. Silk²²and Giles v. Edwards.²³In Hunt v. Silk, a landlord had agreed to execute a lease for nineteen years within ten days and perform some repairs on the subject property, the tenant having paid a deposit of ten pounds. The tenant took immediate possession and, when the ten days elapsed without the repairs being made, the tenant tried to require the landlord to undertake them. When his overtures failed to enjoy success, the tenant quit the premises and sought return of the ten pounds. The claim was rejected on the basis that the tenant had enjoyed an interim occupation of the premises. In Giles v. Edwards, by way of contrast, a claim to recovery of a deposit paid by a purchaser of lumber enjoyed success on the basis that the purchaser had apparently not taken delivery of any lumber. The supplier had refused to cord all the required lumber and the purchaser, it was said, was not obliged to take part of the wood only. A strict requirement of this kind that restitution is contingent upon a showing of a total failure of consideration is very difficult to justify. In a case like Hunt v. Silk, it appears obvious that the justice of the defendant’s position could be met by simply deducting the value of the interim enjoyment of the premises from the plaintiff’s restitutionary claim. Traditionally, however, the requirement was considered to be a strict one and it was understood that the common law would refuse to apportion value in such circumstances.

Although there are some modern English and Australian authorities applying the total failure requirement, none of the recent cases offer a modern justification for the doctrine. Moreover, they tend to underscore the unsatisfactory nature of the doctrine. In Baltic Shipping Company v. Dillon,²⁴for example, the Australian High Court would have denied restitutionary recovery of a fee paid for a fourteen-day pleasure cruise on the basis of the doctrine. Eight days into the cruise, the ship sank. The plaintiff sued to recover both damages and the fee. The latter claim was denied on the unexceptionable ground that one could not recover both damages and the fee. This would amount to double

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recovery. The court went on to suggest, however, that, in any event, the restitutionary claim for the fee would fail because of the partial performance of the contract and the resulting lack of a total failure of consideration. The manipulability of the requirement is evident in the decisions at various levels in this case. Both the trial judge and the court of appeal would have held that the fee could be recovered on the basis that in such circumstances the entire value of the cruise had been destroyed by its catastrophic end. The consideration had totally failed. In the High Court’s view, however, part of the consideration had been received during the first eight days. Although the concept of "consideration" is manipulable, the doctrine is rigid in its "all or nothing" approach. Either there has or there has not been a total failure of consideration. In cases like Hunt v. Silk, however, recovery subject to a deduction for value received seems an appropriate but, under traditional doctrine, unattainable result.

For a variety of reasons, it appears unlikely that Canadian courts would apply the total failure requirement strictly in the context of money claims. First, the requirement has simply been ignored by Canadian courts in a number of cases. Thus, in the context of sale of defective goods, interim use of the goods does not prevent restitutionary recovery.²⁵Similarly, restitutionary recovery of moneys paid for defective services has been allowed.²⁶Further, under traditional English doctrine, the total failure requirement is simply inapplicable to claims in quantum meruit and quantum valebat.²⁷One can recover the value of goods or services supplied subject to a deduction for moneys received to date. There appears to be no sound reason for treating money claims so differently from claims for the value of goods and services. Further, Canadian courts have simply ignored the requirement in the context of monetary restitutionary claims brought by the party in default.²⁸It would appear anomalous to allow greater restitutionary relief to the party in default than to the innocent party. Finally, it appears that the total failure requirement is of diminishing significance in English law.

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In the recent decision in Goss v. Chilcott,²⁹the Privy Council allowed monetary restitutionary recovery, notwithstanding the receipt of some consideration by the plaintiff "at least in cases in which apportionment can be carried out without difficulty."³⁰The facts of the case concern recovery of moneys advanced on a mortgage loan from which, of course, it would be a simple matter to deduct the value of payments already received by the lender. Presumably, however, this authority could be applied in any situation in which the apportionment is not considered to be beyond the fact-finding capacities of a court. Under Goss, then, a more sensible result could be achieved in Hunt v. Silk. A simpler solution, however, would be simply to dispense with the total failure requirement and this, indeed, appears to be the Canadian position.

In cases where the contract in question is an unprofitable one for the innocent party, the question arises as to whether a restitutionary claim ought to be available to the innocent party, even though it might have the effect of granting a greater quantum of relief than that available in a contractual damages claim. As we have seen,³¹the measure of relief in a claim for contract damages is in the expectancy measure, that is, a monetary award that will, to the extent that money can do so, place the innocent party in the position he or she would have been in if the contract had been performed. Thus, in the simple case of a contract for the purchase of goods having a market value of one hundred dollars and a price of ninety dollars, breached by the seller who refuses to deliver the goods, the disappointed purchaser will be fully compensated in the expectancy measure by an award of ten dollars. The purchaser can combine the ninety dollars he would have spent, together with the ten-dollar award and acquire a satisfactory substitute in the marketplace. If the numbers are reversed, however, and the buyer had agreed to purchase goods having a market value of ninety dollars at a price of one hundred dollars, the expectancy principle yields no recovery. The purchaser will be as well off, indeed better off, by purchasing substitute goods at the market rate. If, in the latter case, the purchaser had, however, paid a down payment of twenty dollars, the logic of the expectancy principle would yield recovery only of ten dollars on the basis that the award of ten dollars coupled with the unspent eighty

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dollars could yield a satisfactory substitute at the market rate. In such a case, then, the seller would profit to the extent of ten dollars from the breach of contract as a result of having astutely taken a down payment. In such a case, the buyer would prefer to bring a restitutionary claim for the entire down payment, thus preventing what would otherwise appear to be the unjust enrichment of the defendant. In such a case, it is trite law³²that the full down payment is recoverable. The expectancy principle imposes no limit on the extent of restitutionary recovery in this situation.

A more difficult case arises, however, in the context of partial performance of a contract to supply goods or services. When confronted by a repudiatory breach, the supplier who is committed under the contract to an unprofitable price will no doubt prefer to bring a restitutionary claim for the full value of the goods and services supplied in a quantum valebat or quantum meruit claim, rather than pursue what would be, at best, a claim for nominal damages for breach of contract. Interestingly, such commonwealth,³³including Canadian,³⁴authority as exists on the point uniformly holds that the alternative restitutionary claim, untrammelled by either the contract price or the expectancy principle, will enjoy success. Such results may be defended on the basis that, as in the case of the...