In a building in Edmonton, because of the problems
that happened between the tenants for their parking lots and to prevent this
situation to happen again, the manager of the building put a sign on the
parking garage that contained:

“Tenants are required to park in their own assigned
parking lot. Violators will be towed away at owner’s expense”

Andrew, the tenant of the apartment number 7, had a
party and invited a few friends to his place. Andrew did not inform his guests
about the situation of the parking. When Jim arrived, he could not find an
empty parking spot in the visitors’ section; so, he decided to park his car in
parking stall number 9 which was empty at the time. Bill, the tenant of
apartment number 9 came home and found that his parking spot was occupied.
Since he could not find any way to contact the owner of the car, he called the
manager to handle the situation. The manager called a tow truck and they towed
away Jim’s car. After the party, when Jim found out about his car, the manager
pointed at the sign and told him that it was totally his fault to ignore the
sign which clearly indicated that he was not allowed to park in any parking
slot other than visitors’ area. To defend himself, Jim told the manager that he
was not a tenant of the building, thus the sign did not apply to him as a guest
or visitor. Therefore, he asked the manager to pay for the tow expenses.

The above example clearly shows that if the court
wants to use the literal approach in defining the meaning of the sign and
finding the innocent party, the decision would not make sense and would not be
fair. It was clear from the sign that Jim was not supposed to park his car in
another apartment’s parking stall. However, if the court wants to take the
literal meaning of the sign, it would mean that the manager had no right to
call the tow truck and get his car towed. Clearly in this case, the literal
approach cannot help in finding a fair solution to the issue. Because a
reasonable person would understand the hidden meaning of the sign and would not
violate other tenants’ rights. This is one of the many cases that shows that,
in certain circumstances, the literal approach is ineffective.

 

The other three approaches are contextual approach,
the golden rule, and the contra proferentem rule.

1.     Contextual approach “goes beyond the four corners of the document by
looking at the parties’ presumed intentions and their circumstances” (McInnes,
Lerr, & VanDuzer, 2014, p. 218). In this approach the court considers the
presumed intentions of the parties and their circumstances in defining the
meaning of the terms in documents. In the above example, manager would argue
that the purpose of the sign was about the parking stalls, regardless of
whether the drivers were tenants in the building or not. Contextual approach
suggests a more reasonable and fair solution to this issue.

2.     Golden rule “says that words will be given their plain,
ordinary meaning unless to do so would result in absurdity” (McInnes, Lerr,
& VanDuzer, 2014, p. 219). Absurdity is a subjective word and it depends on the interpretation of a
reasonable person of a document. In the case of the above example, the
interpretation of a reasonable person would back up that of the contextual
approach in order to avoid absurdity. Therefore, the building manager intended
to warn everyone including tenants and their guests from violating other
tenants’ parking rights.

3.     The contra proferentem approach “ensures that the meaning least favourable to the
author will prevail” (McInnes, Lerr, & VanDuzer, 2014, p. 219). This rule is justified because the building
manager, which was the author of the sign, should have created a sign with
unambiguous terms. An example would be:

“Park only in your assigned parking stall. Violators will be towed away at vehicle owner’s
expense.”

However, using the contra proferentem rule, the building
manager could not enforce Jim to pay for towing expenses, because the outcome
would be the most favourable to the author.

There are different kinds of damages
that can be awarded based on the type of injury: expectation damages and
reliance damages.

Expectation damage is what one party
usually is awarded, in case the other party does not fulfill the contract. “Expectation
damages represent the monetary value of the benefit that the plaintiff is expected
to receive under the contract” (McInnes, Lerr, & VanDuzer, 2014, p. 288). This definition shows
that the expectation damages are forward-looking; meaning they would intend to
place the plaintiff in the position that they would have been, should the other
party performed based on the terms of the contract.

Reliance damages are the other type
of damages that are usually awarded when expectation damages are hard to
calculate. Reliance damages are designed to put the innocent party in the
position that they would have been, if the contract had never been made in the
beginning. As mentioned in the textbook, “reliance damages represent the
monetary value of the expenses and opportunities that the plaintiff wasted
under a contract” (McInnes, Lerr, & VanDuzer, 2014, p. 296).  

Expectation damages are the opposite
of reliance damages. If one asks for reliance damages, they are asking the
other party to give them back what they lost, as a result of the other party breaching
the contract. They are asking to be put back in the situation that they were
enjoying before entering into the contract with the other party. However, if
one asks for expectation damages, they are asking the other party to give them
what they were supposed to get, had the other party fulfilled the contract. Therefore,
reliance damages look backward to try to undo the effects of a contract, but
expectation damages look forward to get the results of fulfilling a contract.

The plaintiff is generally entitled
to receive either expectation damages or reliance damages, but not both. Thus,
the plaintiff should consider which one is better for him/her. Reliance damages
are a reasonable way to recover losses under business contracts; however, there
are some limits to them. They can be awarded only to the extent that a contract
is not unprofitable.

They can be awarded only to the extent that a
contract is not unprofitable, but one cannot use reliance damages to escape the
consequences of a bad bargain. This rule ensures that one party cannot hold the
other party liable for his/her own poor decision. The reason is that if the contract had been performed, the plaintiff would have lost money anyways. Thus,
the rule is justified. The calculation formula is:

Paid in reliance – Extent of bad bargain = Reliance
damages

Rachel agreed to buy Monica’s car in exchange
for $30,000. Rachel provided Monica with a $10,000
down payment; However Monica refused to deliver the car as agreed. Rachel sued Monica
for breaching the contract. At the trial, the evidence indicated that Rachel had
entered into a bad bargain. Even though Rachel had agreed to pay $30,000 for
the car, the evidence showed that the car was worth just $25,000. If the
contract had been fully performed, Rachel would have suffered a net loss of $5,000.

Since Rachel did not expect to earn a profit
under the contract, she could not recover any expectation damages. Additionally,
although Rachel paid $10,000 under the contract, she could not recover reliance
damages to the extent that her contract was unprofitable. If the contract had gone
as planned, Rachel would have suffered a net loss of $5,000. Therefore, she can
just recover $5,000 in reliance damages, and is responsible for the $5000 loss that
she expected to lose, because of entering into a bad bargain.

The above example shows that reliance damages
cannot be used to escape the consequences of a bad bargain. It emphasize that
when entering into a contract, it is important for the involved parties to
research the business situation and the contract to find and prevent any
potential loss.

 

 

 

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