DATE: 20041108

DOCKET: C38425

COURT OF APPEAL FOR ONTARIO

DOHERTY, MOLDAVER and FELDMAN JJ.A.

B E T W E E N:

ADELA TURCZINSKI, in her personal capacity and as Executor for the ESTATE OF MARIA DOMICELA TURCZINSKI

John M. Burnes for the appellants

Plaintiff (Respondent)

• and -

Douglas P. Morrow

DUPONT HEATING & AIR CONDITIONING LIMITED, DUPONT HEATING/AIR CONDITIONING CO. LTD., and THE CONSUMERS GAS COMPANY LTD.

for the respondent

Defendants (Appellants)

Heard: March 29, 2004

On appeal from the judgment of Justice Jean MacFarland of the Superior Court of Justice dated May 29, 2002.

FELDMAN J.A.:

INTRODUCTION

[1] The appellant heating contractor agreed with the respondent homeowner to replace the heating system in her house. Unfortunately, the respondent suffered from bipolar disorder and obsessive/compulsive personality disorder. Problems arose during the early stages of the contract and after three days the respondent would no longer allow the appellant back onto her premises to continue with the work. The respondent was unable to cope mentally with the consequences of the breakdown of the contract. Her elderly mother, who lived with her, died a few months later, for which she blamed the appellant. The respondent made efforts but was unable to mitigate the damage by having another heating contractor complete the job, and consequently, she was unable to rent out the rooms in her home for several years.

[2] The trial judge found that the appellant had breached its contract and awarded damages under several heads, including structural damages, damages for loss of rental income, and general damages for mental distress in the amount of $35,000. The trial judge also held that because the respondent’s pre-existing mental disorder prevented her from effectively mitigating her damages, the award of damages for loss of rentals would not be reduced by any amount because of the failure to mitigate.

[3] The appeal raises two issues:

(1) In what circumstances will damages for breach of a consumer commercial contract be awarded for mental distress to a contracting party who suffered from a mental disorder, on the basis that it was foreseeable by the contractor that the mental condition would be exacerbated by a breach of the contract? and

(2) Does the rule in tort cases that relieves a thin-skull plaintiff with a pre-existing psychological condition from the duty to mitigate also apply in breach of contract cases?

FACTS

[4] In October 1993, the respondent was 50 or 51 years old and lived with her 84‑year-old mother in a house they had purchased in 1985. Their income came from renting out rooms in their home and from the mother’s pension. When the two women decided to save money by changing the heating system in the house from electric baseboard heating to forced air gas, the respondent refinanced the home, then entered into a contract with the appellant to do the work. The contract price was $11,406.20. Before signing the contract, the respondent had three very lengthy meetings and several telephone conversations with the appellant’s sales manager, Mr. Teeple, whom she found to be very patient and who was able to answer all of her technical questions.

[5] At this time, the respondent had been suffering from bipolar disorder and from obsessive-compulsive personality disorder for at least ten years, although these conditions were yet to be diagnosed. However, these mental conditions manifested themselves in her dealings with people through her intensive focus on detail.

[6] One of the issues involved in the heating replacement project was the integrity of the structural foundation of the house during the conversion process. The trial judge found:

(1) once the respondent realized that the appellant intended to breach the north foundation wall of her house in order to run the heating vents, she made the appellant aware of her structural concerns;

(2) the appellant undertook to do what was necessary to brace and shore that wall;

(3) the appellant was negligent and in breach of contract by failing to ascertain whether the wall was load bearing before breaking it; and

(4) the appellant’s conduct was more problematic because its workers used a sledgehammer that made rough and crude holes in the wall.

[7] The appellant’s workers spent three days on the job at the respondent’s home at the end of October 1993. They placed but did not connect ductwork in the attic, they cut overly large holes for the vents in the second floor ceilings, they broke through the north foundation wall in the basement and at the ceiling level of the second floor, and they brought some materials into the home. The trial judge also found that their work was sloppy, the work site was unprotected and untidy, there was debris, and the floors were scratched.

[8] On the third day, a Friday, after the respondent became upset by the hole in the wall and raised the issue of bracing it, her general contractor and the appellant took some measurements and a steel brace was obtained to support the opening in the basement. But ultimately, the respondent refused to have the brace cemented in. The appellant’s workers did not return to the job site on Monday or afterwards, although the trial judge found that had the respondent allowed them to return, they would have.

[9] The trial judge found that the appellant breached the contract with the respondent in the following ways:

(1) it did not obtain a building permit before commencing the work as required by the Ontario Building Code;

(2) its workers used a sledge hammer to open the north foundation wall in two places;

(3) they failed to support the north foundation wall as required by the Ontario Building Code and in accordance with their undertaking;

(4) they failed to protect the floors and furnishings;

(5) the holes they cut were crudely done and overly large; and

(6) they failed to carry out the work in a proper and workmanlike manner.

[10] Months of negotiation followed between the respondent, the appellant and Consumers Gas, which had recommended the appellant for the job, regarding what was going to be done to correct the problems and compensate the respondent for the damage and her other losses. By March 1994, it was decided that the appellant would not complete the contract, but it eventually agreed to return the respondent’s deposit of $700, discharge any lien registered against her property, and its workers cleaned up some ductwork that had been left in her back yard. The respondent’s negotiations with Consumers Gas continued into 1995. Consumers was willing to pay to repair the holes made by the appellant and to pay some incidental costs upon production of copies of invoices, which the respondent never produced. It also paid $1,000 to Hydro on the respondent’s behalf and persuaded Hydro to forgo $200 in late charges.

[11] In March 1994, the respondent’s mother, who had been frail for some time, passed away. The respondent blamed the appellant for her mother’s death. In November 1994, the respondent was admitted to Mount Sinai Hospital under the care of a psychiatrist, Dr. Cardish. She was found to be very depressed and an acute suicide risk. It was at that time that the doctor diagnosed her psychoses. The respondent referred to the appellant’s personnel as murderers and even said she wanted to kill them. She was preoccupied with the appellant’s actions and their consequences, including the structural problems with the house, the expense of heating the house in the state in which it was left, and obtaining justice for her mother.

[12] Dr. Cardish testified that the respondent’s perfectionism and controlling personality interfered with her efforts to retain a new contractor to correct the problems with the house, either because the contractors refused to deal with her or vice versa. She also had serious financial problems, but she was unable to obtain a new mortgage on her home because of difficulties dealing with the necessary people and preparing the house for appraisal. Dr. Cardish described the respondent as having the most severe case of obsessive-compulsive disorder that he had seen in his practice and said that the effect of her disability on her functions was enormous.

[13] The respondent was in hospital for thirteen days, and she was still being treated by Dr. Cardish at the time of trial. He considered her to be chronically depressed, a condition aggravated by her reluctance to take medication and reinforced both by the condition of her house and by her mother’s death. The trial judge summarized that: “In short, her obsessive/compulsive disorder, her preoccupation with details and her perfectionism severely impaired her ability to deal with the problems that arose. She would lose sight of the problem/objective, get bogged down in detail and simply be unable to cope.” The trial judge also concluded that the respondent’s disabilities were greatly exacerbated following the events of October 1993 but existed long before then.

[14] The respondent claimed the following damages:

(1) her heating costs for eight years (up to trial) following the breach of contract in excess of $1,000 per year, the amount the appellant estimated she would pay following the conversion of the heating system ($24,991);

(2) miscellaneous expenses incurred in connection with the contract including the cost of her general contractor, the cost of the steel support beam, and the cost to remove the ducts left behind in the attic ($1,630.54);

(3) loss of rental income for the three rooms she rented out in the home, two for thirty-two months and one for seventy-seven months ($69,600), plus the cost of advertising the rooms for rent over those time periods ($4,160.17);

(4) the cost to fix the damage to the home ($11,412.54); and

(5) general damages for the exacerbation of the respondent’s mental disorders.

[15] The respondent originally claimed damages under the Family Law Act for the death of her mother, but that claim was withdrawn at trial. She also claimed damages from Consumers Gas for its role in recommending the appellant and in the subsequent failed attempts to resolve the problems. The trial judge dismissed that claim.

[16] The trial judge rejected the respondent’s claim against the appellant for her additional heating expense for several reasons. First she concluded that the appellant had not guaranteed a particular amount of savings from conversion of the heating system but only estimated them. Second, although the appellant breached the contract, the respondent terminated the appellant abruptly and refused to allow it to complete the job. Finally, the trial judge held that a party cannot continue to claim an ongoing loss indefinitely.

[17] The trial judge allowed $8,972.54 for repairs to the damage to the home and $1,630.54 for the miscellaneous amounts. These two awards are not under appeal.

[18] For advertising and loss of rent, the trial judge awarded $2,080 and $28,000, which represented compensation for half the advertising expense and for thirty-two months of loss of rental for all three rooms, discounted for natural vacancies. Importantly, the trial judge found that the respondent was a thin-skull plaintiff whose condition excused her from the ordinary duty to mitigate her damage.

[19] Finally, the trial judge awarded the respondent $35,000 in general damages on the basis that the appellant’s representative knew when he entered into the contract, that if the appellant were to breach the contract, the respondent would suffer as she ultimately did, and that her condition would be exacerbated.

[20] It is from the awards under these last two heads of damage that the appellant appeals.

ISSUES

(1) Was the respondent entitled to receive general damages for exacerbation of her mental condition due to the breach of contract?

(2) Was the respondent relieved from the ordinary duty to mitigate her damage because of her pre-existing mental condition?

ANALYSIS

(1) Did the trial judge err in awarding the respondent general damages for exacerbation of her mental condition due to the breach of contract?

[21] The trial judge relied on this court’s 1983 decision in Brown v. Waterloo Regional Board of Commissioners of Police (1983), 43 O.R. (2d) 113 for the principle ­ stated at p. 120 ­ that damages for mental distress are available for breach of contract where there is a “wanton or reckless breach” of such a character that “the promisor had reason to know when the contract was made that a breach would cause such suffering, for reasons other than pecuniary loss.”

[22] Applying this principle to the facts of the case, the trial judge made four critical factual findings at paras. 167, 168, 177 and 178 of the reasons:

167. I have found that Mr. Teeple of Dupont Heating met with Ms. Turczinski and her late mother on three occasions for many hours. The fact that she was a person suffering from a mental disability would be apparent as would the fact that she would be a difficult person to deal with on Dr. Cardish’s evidence which I accept. I find Mr. Teeple would have been minimally aware generally that this was a woman with difficulties.

168. There is no question on the evidence that Ms. Turczinski made Mr. Teeple very aware of her concerns for her mother’s frail health through the duration of the project. She particularly emphasized the need that her mother not be upset or exposed to stress. He had to know – certainly before the contract was ever signed – that if things did not run smoothly, Ms. Turczinski was going to be very upset.

169. In my view, on the evidence I have accepted Dupont through their Mr. Teeple knew when they entered this contract, that if things did not go as they had promised Ms. Turczinski they would, that she would suffer in the manner that she ultimately did.

170. He knew, I find, she suffered a disability and if she became upset as the result of his workers’ actions, he had to know and appreciate her condition would be exacerbated.

[23] The Brown case was a wrongful dismissal action. The Supreme Court of Canada has addressed the issue of mental distress damages for breach of contract in two wrongful dismissal cases since Brown, Vorvis v. Insurance Corporation of British Columbia, [1989] 1 S.C.R. 1085 and Wallace v. United Grain Growers, [1997] 3 S.C.R. 701.

[24] In Vorvis, the majority judgment stated that mental distress damages are a form of aggravated damages which are intended to compensate the plaintiff for intangible injuries. The court concluded that aggravated damages could be awarded for breach of contract in appropriate cases, but in wrongful dismissal cases damages for the dismissal were limited to damage arising from the failure to give reasonable notice unless the conduct complained of was independently actionable. In Wallace, the majority of the Supreme Court confirmed the rule from Vorvis in wrongful dismissal actions but held that, where the manner of dismissal causes mental distress but is not separately actionable, the court may compensate the employee by increasing the notice period.

[25] In Warrington v. Great West Life Assurance Company, [1996] B.C.J. No. 1944 (C.A.), after reviewing Vorvis, as well as the Brown case and the Manitoba Court of Appeal decision in Wallace (1995 6262 (MB CA), [1995] 9 W.W.R. 153) Newbury J.A. concluded at para. 19:

In what circumstances, then, will aggravated damages be properly awarded where the claim is one in breach of contract? In contract, unlike tort, the purpose of damages is to compensate the wronged party for the loss of benefits that were within the reasonable contemplation of the parties when the contract was made: Hadley v. Baxendale, supra. Whereas mental suffering is often the foreseeable consequence of tortious conduct, its avoidance is not commonly a benefit contemplated by the contract. Still, the “peace of mind” decisions are proof that this is not always the case and that recovery for mental distress can be contained within reasonable limits. I read Vorvis to mean not that “damages for mental distress, properly characterized as aggravated damages” will be awarded only where there is an independent wrong in addition to the breach of contract (which is the result suggested by the Court in Wallace v. United Grain Growers, supra), but to leave it open to the courts to develop guidelines as to the limited circumstances that will justify such awards. I for one am content to adopt the suggestion made in Hayes v. Dodd, ([1990] 2 All E.R. 815 (C.A.)) that damages of this kind should be recoverable “when the subject of the contract … is to provide peace of mind or freedom from distress.”

[26] In Wallace, supra at para. 73, the Supreme Court confirmed the line of jurisprudence that holds that normally mental distress damages will only be awarded for breach of contract where “peace of mind is the very matter contracted for (see e.g. Jarvis v. Swan Tours Ltd., [1973] Q.B. 233 (C.A.))”. The very nature of the subject of the contract in those cases makes it foreseeable or contemplated by the parties that some mental distress will likely result from a breach and that it would be compensable, although generally by a relatively modest award.

[27] Therefore, generally before damages for mental distress can be awarded for breach of contract, the contract must be one where peace of mind is what is being contracted for, such as a contract for a holiday: Jarvis v. Swan Tours Ltd., supra; Jackson v. Horizon Holidays Ltd., [1975] 3 All E.R. 92 (C.A.), or for insurance: McIsaac v. Sun Life Assurance Co. of Canada (1999), 1999 BCCA 299, 65 B.C.L.R. (3d) 60 (C.A.); Leblanc v. London Life Insurance Co., [1999] O.J. No. 3199 (S.C.J.); Warrington v. Great-West Life Assurance Co., supra.

[28] Certainly, when a homeowner contracts for repairs or renovation to the home, one of the main issues for the homeowner is that the contract be carried out on time and with as little disruption and aggravation as possible. In that sense one could say that one element of every consumer contract is peace of mind. But in my view, that is not the intent of the rule. A good example is Baid v. Aliments Rinag Foods Inc, [2003] O.J. No. 2153 (S.C.J.) where mental distress damages were denied when a wedding caterer delivered the wedding dinner five hours late and the host suffered severe mental distress throughout the evening. The contract to cater the wedding was not considered to be a peace of mind contract.

[29] In a contract for home improvements, the matter being purchased is the installation of the improvements. Although they will be enjoyed eventually and give pleasure to the homeowner, realistically one expects some disruptions during renovations, not a stress-free time. Despite some pre-Wallace decisions[^1] that may have appeared to broaden the scope of peace of mind contracts, the contract in this case for home improvements is not such a contract.

[30] However, where mental distress is specifically contemplated by the parties as a likely consequence of a breach of the contract, such as, for example, where one contracting party knew or ought to have known that the other suffered from a mental disorder that would be affected by a breach of the contract, and mental distress would therefore be a reasonably foreseeable loss flowing from the breach, then under the ordinary rule from Hadley v. Baxendale (1854) 9 Ex. 341 such damages may be recoverable: see for another example, Kempling v. Hearthstone (1996), 1996 ABCA 254, 137 D.L.R. (4th) 12 (Alta. C.A.).

[31] That was the finding of the trial judge in this case. The appellant submits that in making that finding, the trial judge misconstrued the evidence and therefore made a palpable and overriding error. With respect to the trial judge, I agree.

[32] Dr. Cardish was asked in chief whether a person who met and dealt with the respondent would detect that she had a personality disorder. He responded that they would be aware that something was wrong and concluded: “I mean within that first interaction it wouldn’t be hard for an average person to realize that they are dealing with someone who had difficulty. They may not label it as a mental disorder, of course, but they would certainly see this is a difficult person.” He did not testify that such a person would be able to anticipate any exacerbation of her difficulties if a contract was not performed as expected, or a nervous breakdown, as the doctor at one point characterized what she had in November 1994. In cross-examination he confirmed that he would have no idea whether a contractor who met the respondent would be able to anticipate her difficulties.

[33] Furthermore, Dr. Cardish’s evidence was that the breach of contract by the appellant was not the only cause of the exacerbation of the respondent’s mental disorder. The death of her mother and the fact that the two events were intertwined in her mind were very significant reasons for her distress. The doctor also was clear that the appellant’s actions did not cause the mother’s death. Consequently, the exacerbation of the respondent’s mental condition was not caused solely by the breach of contract, and the conclusion that it should or could have been anticipated by Mr. Teeple is not borne out by the expert evidence.

[34] Furthermore, the respondent testified that she saw her family doctor in August 1994 after receiving a letter from Consumers Gas which upset her so much that she could not function. But the family doctor refused to send her to a psychiatrist initially, telling her that her problems would pass. It was only after she had been back to see him several times that he referred her to Dr. Cardish. In other words, even a trained family doctor who knew the respondent was not able to assess the severity of her illness as late as August 1994.

[35] Although Mr. Teeple agreed that during the three meetings he had with the respondent they did discuss her mother’s condition, that he knew her mother was elderly and on oxygen, and that he knew that the respondent wanted the contract performed in a way that would minimize the stress on her mother and the disruption in the home, he also stated that the latter request was normal for all homeowners.

[36] Again, from the evidence of what transpired between the respondent and Mr. Teeple before the contract was signed, although it was open to the trial judge to conclude that Mr. Teeple would know that if the contract did not run smoothly the respondent would be upset, there was no evidence that he knew or should have known or appreciated that the respondent had a mental condition that would be exacerbated or that she would suffer the way she did.

[37] I conclude that the trial judge erred in her finding that the appellant’s representative knew from his dealings with the respondent before entering into the contract that she would suffer the type of mental distress that she did, an exacerbation of her mental illness, if the appellant were to breach the contract. There is no basis to award damages for mental distress when the appellant did not have reason to know that a breach of the contract would cause such suffering.

[38] Before leaving this issue, I observe that there are persuasive reasons to confine within narrow limits the circumstances when damages will be awarded for exacerbation of mental illness for breach of a consumer contract. As in this case, it is very difficult for a lay person to assess the mental state of a stranger, particularly to the extent of predicting with any degree of certainty how a breach of contract might affect the person. An extension of the circumstances when such damages are awarded could cause businesspeople to be wary of dealing with persons with mental disabilities for fear of exposure to claims for damages much higher than the value of the contract.

[39] Furthermore, although one could argue that when parties are negotiating a contract and are aware of a risk, they can explicitly define and therefore limit the extent of any exposure, particularly for consequential damages, that is rarely done in consumer contracts. Nor can contracting parties necessarily rely on a standard form limitation of liability or damages clause in a consumer contract, unless the specific clause has been brought to the attention of the consumer: Tilden Rent-A-Car v. Clendenning (1978), 18 O.R. (2d) 601 (C.A.). Interestingly, in this case the general conditions on the back of the contract contain such a limitation of liability and damages clause, but neither the trial judge nor the parties adverted to it, probably for that reason.

[40] Therefore, in order to protect both parties, it should take clear evidence that the contracting parties were specifically aware of the potential for consequential damages, such as for significant mental distress, before such damages are awarded for breach of the contract. It can then be taken that, subject to any negotiated or other effective terms of the contract that limit liability for such damages, the parties have effectively agreed that if the contemplated consequences arise, there will be compensation.

(2) Did the trial judge err in concluding that the respondent was a thin-skull plaintiff who did not have a duty to mitigate her loss of rental damages?

[41] The respondent was unable to rent out the three rooms in her house for a considerable time after the breach of contract, two not until August 1997 and one not until October 2000. The main reason for the delay was the respondent’s inability to repair the rooms because of her mental condition together with the fact that she would advise prospective tenants that they might have to vacate at any time if she decided to proceed with the conversion of the heating system. As a result, none were willing to rent the rooms.

[42] The trial judge was satisfied that the respondent should receive some compensation for the loss of rent and considered the issue to be whether the respondent had a duty to mitigate her damage by making the rooms habitable and available to rent. The trial judge viewed the respondent as a thin-skull plaintiff, applying the Supreme Court of Canada decision in Janiak v. Ippolito (1985), 16 D.L.R. (4th) 1. In that case, the plaintiff suffered a serious spinal injury in a motor vehicle accident. The plaintiff refused to have corrective surgery that had a 70 per cent chance of enabling him to resume his former employment. The issue was the extent of a tort victim’s duty to mitigate his damages for loss of income.

[43] The court held that if a tort victim has a pre-existing psychological infirmity that makes him incapable of making a decision regarding surgery, then he is a thin-skull plaintiff who does not bear the burden of his incapacity. Otherwise, a tort plaintiff is obliged to mitigate his or her damages by acting reasonably.

[44] In this case the trial judge held that the efforts the respondent made to mitigate, although ineffective, were reasonable for her, given her pre-existing mental condition, and therefore her damages for loss of rental income should not be reduced by the failure to mitigate. The trial judge went on to assess the extent of the damages that reasonably arose as a result of the breach of contract and determined that a thirty-two month vacancy period was not unreasonable. She then reduced the resulting figure by 40 per cent to account for normal vacancies.

[45] I agree with the appellant that the principles that apply to thin-skull plaintiffs in tort cases are not applicable in contract cases. In tort cases the defendant wrongdoer takes the plaintiff as found, but in a contract case the parties make a bargain with each other and are made aware of and agree to the obligations and risks that they are undertaking. Therefore both the type and extent of the damages for breach of contract are based on what was within the reasonable contemplation of the parties.

[46] In this case, following the conclusion on the first issue, there was no basis for the appellant to believe that if it breached the contract, the respondent would not be able to mitigate the damage by having the work done by another heating contractor.

[47] Having said that, in my view this is not a case that turns on the duty to mitigate. The respondent can claim for loss of rental damages that flowed naturally from the breach if they were within the reasonable contemplation of the parties. In this case, the appellant knew that the tenants were initially required to leave the premises for the heating conversion to take place, so that it knew there would be a loss of rental income if the contract was not properly completed in a timely manner.

[48] The issue is what would be a reasonable time for the respondent to have the contract completed and to rent out the rooms. In other words, mitigation of the damage is built into the rule that governs the extent of the damages that are recoverable. To the extent that a plaintiff is able to move faster than the objectively reasonable time, the defendant gets the benefit of the plaintiff’s expedition. If the plaintiff moves more slowly, as in this case, unless that delay was within the reasonable contemplation of the parties at the time of the contract, the plaintiff cannot recover for it.

[49] The appellant accepts the figure of $28,000 for loss of rent arrived at by the trial judge as an acceptable base but argues the amount should be reduced because of the respondent’s failure to mitigate. As I have said, the respondent was entitled to the amount that would reasonably have been within the contemplation of the parties at the time of the contract as the amount of time it would take the respondent to rent the rooms following a breach of contract by the appellant. I would reduce the figure chosen by the trial judge from thirty-two months to twelve months as an objectively reasonable amount of time. The award for loss of rental income is therefore reduced to $10,800. I would not interfere with the award of advertising costs.

CONCLUSION

[50] I would allow the appeal on both issues, set aside the award for general damages, and reduce the award for loss of rental income to $10,800. At the conclusion of oral argument, counsel agreed that costs of the appeal in the amount of $10,600 would be payable to the winner on the appeal. However, as the appellant was not wholly successful on the second issue, having modified its position in argument, I would award costs in the amount of $7,500.

Signed: “K. Feldman J.A.”

“I agree D. Doherty J.A.”

“I agree M.J. Moldaver J.A.”

Released: “DD” November 8, 2004

[^1]: See e.g., Perry v. Sidney Phillips & Son, [1982] 3 All E.R. 705 (C.A.).