The decision in Cassidy v. Smith 2008 BCSC 1778 provides useful guidelines regarding the proper date for assessing damages for breach of contract in a falling market.
The plaintiff seller agreed to sell her home to the defendant buyers. The buyers paid a deposit of $80,000, and the closing date was set for April 29, 2008. The buyers were unable to arrange financing and gave notice that they would not complete. The seller accepted the buyers’ repudiation of the contract, commenced an action for the deposit to be forfeited and for damages and relisted the property at the same price the defendant buyers had originally agreed to pay. In August 2008, the seller obtained a favourable judgment, the $80,000 deposit was forfeited to her and she was awarded damages, but the amount was to be determined in a later hearing. It was not until September, three weeks after the seller obtained property value evaluations from two realtors indicating that the property’s value had dropped by 10 per cent to 20 per cent, that she reduced her asking price to an amount above the range suggested by one realtor and near the top of the range suggested by the second realtor. The hearing to determine the amount of her damages occurred in December 2008. The seller’s property had still not sold and she argued that her damages should be assessed as at the date of the hearing, rather than the April 29, 2008 completion date when her damages would have been less.
In coming to its decision, the court set out the following principles:
- Although the usual rule is that damages for breach of contract are measured as of the date of breach, the rule is not absolute and a court may, in exceptional circumstances, assess damages as of a different date to ensure fair compensation to the seller.
- The court may take into account the seller’s efforts to mitigate (i.e., to minimize loss), as well as the nature of both the property and the market.
- In a falling market, the court should generally award damages equal to the difference between the contract price and the highest price obtainable within a reasonable time after the completion date following the making of reasonable efforts to sell.
In this case, the seller knew the market was falling but failed to account for the downturn by reducing her asking price to a reasonable level in a timely manner. The court concluded that damages were to be assessed as of three months after the breach of contract occurred, and not when she lowered the price (six months after the breach) or at the date of the hearing to assess the damages (nine months after the breach).
The Cassidy decision makes it clear that, in order to fairly compensate a seller in a falling market, the court may deviate from the usual rule and assess damages at a date other than the date of the breach, but that the court will also scrutinize the seller’s sales efforts and penalize a seller that fails to account for a market downturn by lowering the sale price to a reasonable level.