Breach
of Contract
• Any breach of contract allows the
injured party to sue for damages.
• Contract damages are designed to
place the party to the position they would have been in had the contract been
performed.
• It therefore follows that if the
injured party has suffered no loss the remedy for the breach will be only
nominal damages
• A failure by a party to a contract
to perform his obligations under it, or
• An indication of his intention not
to do so (repudiation or anticipatory breach)
• May be expressed in words or conduct
• Repudiation of contract entitles the
injured party to treat the contract as discharged and to sue for damages
• A fundamental breach of contract
(breach of a major term)
• Also allows the injured party to
consider the contract discharged and sue for damages
• In either case the injured party may
alternatively affirm the contract
Minor
Breaches
• A breach of a minor term in a
contract will not grant a right to sue in breach
• The injured party may still sue for
damages but must treat the contract as affirmed
Causation
• The plaintiff must show that his
loss was one which resulted from a breach of contract by the defendant (a
direct causal link).
• An act of the defendant in a
sequence of events leading to a loss might not be held to be the cause of the
loss.
• The Monarch SS Co Case [1949] AC 196. a shipowner was not
liable to a charterer when, as a result of delay, the ship ran into a typhoon,
as such a catastrophe may occur anywhere:
• If there are two causes of the state
of affairs resulting in damage, and both causes have equal effect, one will be
sufficient to carry a judgment for damages.
• Smith, Hogg & Co v Black Sea
Insurance [1940] AC
997.
Remedies
• The purpose of an action in breach
of contract is to seek a remedy
• The legal authority in remedies
demonstrates how heavily reliant the law is on individual cases
• Contracts are infinitely variable
but the remedies must fit within the more rigid framework of the law
Damages
• Addis v Gramophone [1909] AC 488 House of Lords
The
claimant was employed as a manager by the defendant. The defendant in breach of
contract dispensed with his services and replaced him with a new manager. The
claimant brought an action for breach of contract claiming that the level of
damages should reflect the circumstances in which he was dismissed damaged his
reputation and ability to find suitable employment
Purpose of Damages
• Contract law seeks to put the
parties in the position they would have been in had the contract been
performed.
• In Addis it was therefore limited to
claiming wages and loss of commission during the contractually agreed
notice period.
• There was no right to exemplary
damages or damage to reputation in contract claims. Such claims would have to
be actioned in the law of tort.
Co-op
Insurance Society v Argyll Stores [1997] 2 WLR 898
• “The purpose of the law of contract
is not to punish wrongdoing but to satisfy the expectations of the party
entitled to performance.
• A remedy which enables him to
secure, in money terms, more than the performance due to him is unjust”.
Duty to
Mitigate Loss
• The claimant is not permitted to
allow their losses to mount up. They are under a duty to take reasonable steps
to reduce their loss:
• Payzu v Saunders [1919] 2 KB 581
Payzu
v Saunders
[1919] 2 KB 581
• By the terms of the contract, the
defendant was to deliver goods to the claimant on a monthly basis and the
claimant was to pay for the goods within one month of delivery. The contract
was to run for nine months. The claimant received the goods at a discounted
price because he had committed to purchase from the supplier over the nine
month period.
• The claimant was late in making the
first installment (a minor breach not entitling the defendant to repudiate the
contract).
• The defendant refused to continue
with the original contract but told the claimant that he would deliver the
goods in future if the claimant paid cash on delivery and would still let him
have the goods at the discounted price.
• The claimant rejected this offer and
purchased the good elsewhere at a higher price. He then sued the defendant
claiming the difference between the contractually agreed price and what he
actually paid for them.
• The claimant was not entitled to
damages. He was given the opportunity to purchase at the discounted price but
rejected this. He was under a duty to take reasonable steps to mitigate his
loss.
• The offer was a reasonable one and
one which the claimant could easily have complied with.
Hadley v Baxendale [1854] 9 Ex 341
• Where a contract is breached
substantial damages can only be claimed in respect of losses which fall within
the two rules in this case:
• Rule One allows damages for a loss
if it arose naturally from the breach of contract, in the usual course of
things
• Rule Two:
• Allows damages for a loss if the
loss can reasonably be supposed to have been within the contemplation of the
parties when they made the contract
Victoria Laundry v Newman Industries [1949] 2 KB 528
• The claimants agreed to buy a second
hand boiler from the defendants. The
defendants knew that the boiler was to be used immediately in the claimants
laundry.
• They also knew there was a large
demand for general laundry services at this time
• The defendants delivered the boiler
20 weeks late, in breach of contract.
• Two claims were made by the claimant
laundry
• Claim One:
• They claimed £16.00 per week which
represented the extra profit thy would have made by doing extra general laundry
work with the new boiler
• Claim Two:
• They claimed £262 per week which had
been lost on account of the claimants not being able to use the boiler to
fulfil a very profitable contract to dye army uniforms
• Held:
• The claimants were entitled to the
£16.00 per week under the 1st rule in Hadley v Baxendale.
• The £262 was not available under
either rule (it would have nee available under the 2nd rule if the
claimants had told the defendants that a valuable contact would be lost if the
boiler was not delivered on time.
Heads of Damage
• Reliance loss
• Discomfort, disappointment
• Inconvenience
• Diminution of future prospects
• Speculative damages
Reliance Loss
• Anglia Television v Reed [1971] 3 All ER 690
• Anglia Television, engaged Oliver
Reed to play the leading role in a television play. Subsequently Reed pulled
out and Anglia was unable to find a replacement. They abandoned the play but
had incurred expenses amounting to £2,750.
Anglia Television v Reed [1971] 3 All ER 690
• Whilst damages generally seek to put
the parties in the position they would have been in had the contract been
performed, the parties may elect to claim reliance loss and recover expenses
incurred in an abortive transaction. Thus Anglia was able to recover their
expenses from the defendant.
Discomfort and Disapointment
• Damages to reflect discomfort and
disappointment can only be claimed where enjoyment was part of the bargain of
the contract e.g. holidays or a meal out or entertainment.
• This most commonly seen in holidays
which fail to meet the standard the holiday maker was lead to believe would be
enjoyed:
Jarvis
v Swan Tours
[1972] 3 WLR 954
• Mr Jarvis, a solicitor, booked a 15
day ski-ing holiday over the Christmas period with Swan Tours. The brochure in
which the holiday was advertised made several claims about the provision of
enjoyment relating to house parties, a friendly welcome from English speaking
hotel owner, a variety of ski–runs, afternoon tea and cakes and a Yodler
evening
• Where a contract is entered for the
specific purpose of the provision of enjoyment or entertainment, damages may be
awarded for the disappointment, distress, upset and frustration caused by a
breach of contract in failing to provide the enjoyment or entertainment.
• See also: Jackson v Horizon
Holidays [1975] 1 WLR 1468
Inconvenience
• Where the claimant has been put to
physical inconvenience rather than anger or disappointment that the defendant
has not met his contractual obligation.
• The court may award a sum to reflect
such inconvenience:
• Bailey v Bullock [1950] 2 All ER 1167
Bailey v Bullock [1950] 2 All ER 1167
• A solicitor failed to take action to
recover the claimant’s house.
• As a consequence (direct chain of
causation) the claimant and his wife had to move in with his in-laws for two
years.
• Held:
• He was entitled to recover damages
to reflect the inconvenience of having to live in overcrowded circumstances.
• There is a distinction between mere
annoyance or disappointment at the failure of the other party to carry out his
contractual obligation and actual physical inconvenience and discomfort caused
by the breach.
Diminution of Future Prospects
• Where a breach of
contract adversely affects the claimant's future prospects, for example a
contract promising training and qualifications, a sum can be awarded to reflect
the loss:
• Dunk
v George Waller
[1970] 2 QB 163
Dunk v George Waller [1970] 2 QB 163
• The defendant engaged the claimant
under a four year apprenticeship to train him as an engineer.
• The defendant terminated the
contract before the completion of the contractually agreed time.
• The claimant bought an action for
wrongful dismissal.
• The claimant had been wrongfully
dismissed. He was entitled not only to his wages for the remainder of the
contractually agreed period, but also a sum to reflect his lack of training and
the loss of opportunities that the completion of the contract would confer
• Widgery LJ: “ a contract of
apprenticeship secures three things for the apprentice: it secures him, first,
a money payment during the period of apprenticeship, the training programme
will allow him or her to acquire valuable skills; and will provide employment
opportunities in the labour market following the successful completion of the
training.”
Specific Performance
• Specific performance is an equitable
remedy where the court orders a person to fulfill their contractual obligations
• The remedy is not a legal right but
at the discretion of the judge
• The remedy is not available where
damages would be a sufficient remedy
Damages not Sufficient
• Nutbrown v Thornton (1805) 10 Ves 159
• The claimant entered a contract to
purchase some machinery from the defendant.
• The defendant, in breach of
contract, refused to deliver the machines.
• The defendant was the only
manufacturer of this type of machinery.
• The claimant bought an action for
breach of contract seeking specific performance of the contract.
Nutbrown
v Thornton
(1805) 10 Ves 159
• Specific performance of the contract
was granted.
• An award of damages would ordinarily
be given for non-delivery of goods but damages would be inadequate to
compensate the claimant
• He was not be able to buy the
machines elsewhere.
Cohen v Roche [1927] 1 KB 169
• The claimant owned a furniture shop
and entered an agreement to purchase a quantity of Hepplewhite chairs to sell
in his shop.
• The defendant refused to deliver the
chairs. The claimant sued for breach of contract and sought specific
performance for delivery of the chairs.
• The court refused to grant specific
performance.
• The claimant would be adequately
compensated by an award of damages.
• The chairs were considered 'ordinary
articles of commerce and of no special value or interest'.
• The claimant could have purchased
the chairs elsewhere.
Typical Cases
•
Specific
performance is most commonly ordered for contracts for the sale of land or for
things for which there in no alternative supplier
•
The
courts are unlikely to order specific performance for contracts for personal
service.
Unlikely Remedy
• C makes contract with builder to
replace front door
• D, in breach of contract refuses to
fit door
• Specific performance is an unlikely
outcome of any action in breach of contract, but
• Where it was a ‘very special front
door’ there may be no alternative
Sale of Goods Act 1979 s.52
• In any action for breach of contract
to deliver specific or ascertained goods
the court may, if it thinks fit on the claimants application, by its judgement
or decree direct that the contract shall be performed specifically, without
giving the defendant the option of retaining the goods on payment of damages
Injunctions
• Injunctions are another form of
discretionary (equitable) remedies
• Three types
• Interlocutory or interim (temporary
injunction until a court hearing)
• Prohibitory (a court order that a
party must not do something)
• Mandatory (an order that a party
must do something)
• The courts will not grant an
injunction in circumstances that would in effect be an order for specific
performance where it would not generally be allowed:
• Page One Records v Britton [1968] 1 WLR 157
Page One Records v Britton [1968] 1 WLR 157
• The claimant record company, owned
by Larry Page, was the manager of the pop group, The Troggs. By contract
• The Troggs agreed that Page One Records would
be their manager and sole agent for 5 years in return for 20% of their
profits. By a term of the contract
• The Troggs agreed not to
appoint anyone else for the duration. However, their relationship with Larry
Page broke down and
• The Troggs wrote a letter to the
claimant seeking to terminate the contract.
• The claimant sought an injunction to
prevent The Troggs appointing a new manager.
• The injunction was refused.
• To grant an injunction would be akin
to ordering specific performance of a contract for personal services since the
effect of the injunction would be to compel The Troggs to continue to employ
the claimant or not work at all.
Prohibitory Injunction
• A court may however order by a
prohibitory injunction which may be an indirect way of ensuring compliance with
contract:
• Lumley v Wagner (1852) 42 ER 687
Lumley
v Wagner
(1852) 42 ER 687
• The defendant Johanna Wagner, an
opera singer, was engaged by the claimant to perform in his theatre for a
period of three months.
• There was a term in the contract
preventing her from singing for anyone else for the duration of the contract.
She was then approached by the manager of Covent Garden Theatre, Frederick Gye,
who offered her more money to sing for him.
• The claimant sought an injunction
preventing her from singing at Covent Garden Theatre. The defendant argued that
to allow an injunction would in effect amount to specific performance of the
contract in circumstances where specific performance would not be available.
• The injunction was granted despite
it having the effect of forcing the defendant to sing for the claimant.
• “Wherever this Court has not proper
jurisdiction to enforce specific performance, it operates to bind men's
consciences, as far as they can be bound, to a true and literal performance of
their agreements; and it will not suffer them to depart from their contracts at
their pleasure, leaving the party with whom they have contracted to the mere
chance of any damages which a jury may give.”
Equitable Remedies
• The courts will only grant specific
performance where it is fair and equitable to do so
• Stickney v Keeble [1915] AC 386
Fair and Equitable
• Delay defeats equity so a claimant
who delays bringing a claim may be denied specific performance
• Millward v Earl of Thanet (1801) 5 Ves 720
• He who comes to equity must come
with clean hands
• Walters v Morgan (1861) 3 DF & J 718
• Lamare v Dixon (1873) LR 6 HL 414
• "The conduct of the party
applying for relief is always an important element for consideration."
Walters v Morgan (1861) 3 DF & J 718
• The defendant purchased some land.
• The claimant wished to mine the land
and produced a draft lease and pressured the defendant into signing the lease
before he realised the value of the land.
• Once the defendant had discovered
the true value, he refused to allow the defendant to mine the land.
• The claimant sued for breach of
contract and sought specific performance. The defendant sought to have the
contract rescinded for misrepresentation.
• There was no misrepresentation since
the claimant had not said anything to mislead the defendant as to the value of
the land. Silence cannot amount to misrepresentation. However, the court
refused an (equitable) order of specific performance as the claimant had sought
to take advantage of the defendant’s ignorance by rushing him into signing the
lease.
Hardship
• The defendant may resist specific
performance if it would cause extreme hardship
• Patel v Ali [1984] 1 All ER 978
Patel v Ali [1984] 1 All ER 978
• Mr and Mrs Patel contracted to sell
their house to Mr Ali. Completion of the sale was delayed by Mr Patel’s
bankruptcy.
• At the time that they agreed to
sell, Mrs Patel was healthy and had one child. However, during the delay, Mrs
Patel contracted bone cancer and had to have a leg amputated.
• She became heavily reliant on
friends and neighbours to assist her with day to day activities. Mr Ali sought
specific performance of the contract.
• Specific performance was denied on
the grounds that it would cause hardship on Mrs Patel if she was required to
move out. Whilst the hardship was not the fault of Mr Ali, Goulding J held that
it would be ‘hardship amounting to injustice’ if specific performance was
ordered.
No comments:
Post a Comment