REMEDIES AVAILABLE FOR BREACH OF CONTRACT
l.A party may apply to the court for a number of remedies when the other party is in breach of party contract
(a) Damages – as compensation for loss caused by the breach.
(b)Action for the price – here the breach is failure to pay.
(c)Quantum meruit – payment for the value of what he has done.
(d) Specific performance – a court order to the defendant to perform the contract.
(e) Injunction – a court order for the other party to observe negative restrictions.
(f) Rescission – cancellation of the contract
2 Damages and action for the price ((a) and (b)) are common law remedies and are most frequently .sought when a remedy is needed for breach of contract, since they arise as of right. The other . types are equitable remedies which are only appropriate in specialised circumstances.
1 Damages area common law remedy and are primarily intended to restore the party who has suffered loss to the same position he would have been in if the contract had been performed. They are not meant to be a punishment, which is a criminal , not a civil, measure. In an addition they should not allow the party to whom they are awarded to profit, nor to achieve a better result:- the law will not make up for a bad bargain.
2.in a claim for damages the first issue is remoteness of damage – how far down the sequence of cause and effect should the consequences of breach be traced before they become so indirect that they should be ignored. Secondly, the court must decide how much money (measure of damages) to award in respect of the breach and its relevant consequences.
Remoteness of damage
3.under the rules in hadleyv baxendale (below) damages may only be awarded in respect of loss as follows
(a)( i)The loss must arise naturally, according to the usual course of things, from the breach; or
(ii) the loss must arise in a manner which the parties may reasonably be supposed to have contemplated, in making the contract, as the probable result of the breach of it.
(b)A loss outside the natural course of events will only be ‘compensated if the exceptional circumstances which –cause-the loss ‘are within the defendant's knowledge, actual or constructive, when he made the contract.
case: Hadley v Baxendale 1854
H owned a mill at Gloucester which came to a standstill because the main driving shaft had broken. H made a contract with 8, a carrier, for the transport of the broken shaft to the makers at Greenwich to serve as a pattern for making a new shaft. Delivery was to be made at Greenwich the following day. Owing to neglect by B delivery was delayed and the mill was out of action for a longer period than would have resulted if there had been no delay. B did not know that the mill would be idle during this interval. He was merely aware that he had to transport a broken mill shaft from H's mill. H claimed for loss of profits of the mill during the period of delay.
Held: the claim must fail since B did not know that the, mill would be idle until the new shaft was delivered (ie part (b) of the rule did not apply) and it was not a natural consequence of delay in transport of a broken shaft that the mill would be out of action meanwhile (i.e. part (a) of the rule did not apply). The importance of the shaft was not obvious; the miller might have a spare.
2.Both parts of the rule are concerned with what the defendant must have known. Under the first head of the rule he is deemed to expect any normal consequence which any other person might also expect; such things are natural and ordinary consequences. Under the second head, if the consequence of breach for which damages are claimed is abnormal, or what one would not ordinarily expect, the defendant is liable only if he knew in making the contract of the special circumstances from which the abnormal consequence of- breach could arise.
Case: Victoria Laundry (Windsor) v Newman industries 1949
N contracted to sell a large boiler to V 'for immediate use' in V's business of launderers and dyers. Owing to an accident in dismantling the boiler at its previous site delivery was delayed by a period of four months. V claimed damages for (i) normal loss of profits (£ 16 per week) for the period of delay and(ii) loss of abnormal profits (£ 262 per Week) -from losing 'highly lucrative' dyeing contracts to be undertaken if the boiler had, been delivered on time.
Held: damages for loss of normal profits were recoverable since in the circumstances failure to deliver major industrial equipment ordered for immediate use would be expected to prevent operation of the plant – it was a natural consequence bovered by the first head of the rule. The claim for loss of special profits fell under the second head of the rule; it failed because N
had no knowledge of the dyeing contracts and the abnormal profits which they would yield. The judgement is notable for its analysis of . the first half of the rule -. it is a test of expectation limited to what is foreseeable from knowledge of `the ordinary course of things'.
5 The Victoria Laundry, judgement was confirmed (but slightly reformulated) by the House of Lords in the Heron Case (below). It has also been established in the Parsons Case (below) that if J\ the type of loss caused is not too remote the defendant may be liable for consequences which are much more serious in extent than could reasonably be contemplated.
case: The Heron fl 1969
'Contract for shipment of a bulk cargo of sugar from the Black Sea to Basra in Iraq. K, the ship owner, was aware that C were sugar merchants but he did not know that C intended to sell the cargo as soon as it reached Basra. The ship arrived. nine days late and in that time the price of sugar on. the market in Basra had fallen. C claimed damages for the loss due to the fall in market value of the cargo over the period of delay.
Held: the claim succeeded it is common knowledge that market values of commodities fluctuate so that delay might cause loss. It was sufficiently obvious that a bulk cargo of sugar owned by merchants was destined for sale to which-the market value would be relevant.
Case: H Parsons (Eivestock).v Uttley'Ingham 1978
There was a contract for the supply and installation at a pig farm of a large storage hopper to hold pig foods. Owing to negligence of the supplier the ventilation cowl, sealed during transit to the farm, was left closed. The pig food went mouldy. Young pigs contracted a rare disease from which they .died. The pig farmer claimed damages for
(i) the value of the dead pigs and
(ii) loss of profits from selling the pigs when mature.
Held: illness of the pigs was to be expected as a natural consequence (the first half of the rule applied). Since illness –was to be expected, death from illness (although not a normal consequence) was not too remote.
Measure of damages
6. As a general rule the amount awarded as damages is what is needed to put the plaintiff in the position ,he would have achieved if the contract had been performed.If, for example, there is failure to deliver goods at a contract price of £ 100 per ton and at the due time for delivery similar goods' are obtainable at an available market price of £ 110 per ton, damages are
calculated at the rate of £ 10 per ton (Sale of Goods Acc 1979 s 5,1 ~(3)).
7.Mire complicated questions of assessing damage; can arise.: The general principle is to compensate for actual financial loss
Case: Lazenby Garages v Wright 1976
W agreed to buy a car from L at a price of £ 1,670 (L had previously bought the car for £ 5,325). W refused to accept and pay for the car. Shortly afterwards L sold the car to another buyer for 4 1,770. L claimed £ 345 (£ 1,670 – £ 1,325) from W as the profit which they would have made on a sale to W.
held: L's claim must tail since L had suffered no loss. The argument that L might have sold a different car to the other buyer and so made profits on two sales was rejected.
.8. It is necessary to consider the following points in relation to how damages are measured
(a)Non-financial loss – how far this can be recovered (paragraph 2.9).
(b) Mitigation of loss – the court will look at whether the plaintiff took reasonable measures to reduce a foreseeable loss (paragraphs 2.10-2.11).
(c),Liquidated damages and penalty clauses(paragraphs 2.12-2.13).
9.At one time damages could not be recovered for any non-financial loss arising from breach of contract in some recent cases, however, damages have been recovered for mental distress where that is the main result of the breach. It is uncertain how far the courts will develop this concept. They are unlikely to go as far as the American courts in awarding damages for distress (particularly if distress arises from the defendant's refusal to admit liability or to apologise).
Case: Jarvis v Swan Tours 1973
Contract for holiday accommodation at a winter sports centre. What was provided was much inferior to the description given in the defendant's brochure. Damages on the basis of financial loss only were assessed at f 32.
Held: the damages should be increased to £ 125 to compensate for disappointment and distress v
10.In assessing the amount of damages it is assumed that the plaintiff will take any reasonable steps to reduce or 'mitigate 'his loss.
Case: Payzu v Saurrders 1919
Contract for the supply of goods to be delivered and paid for by installments. The purchaser failed to pay for the first installment when due, one month after delivery. The seller declined to make further deliveries unless the buyer paid cash in advance with their orders. The buyer refused to accept delivery on those terms.
Held: the seller was in breach of contract, he had no right to repudiate the original contract. But the buyer should have mitigated his loss by accepting the seller's offer of delivery against cash payment. Damages were limited to the amount of the buyer's assumed loss . if he had paid in advance, which v.-as interest over the period of pre-payment.
11.The injured party is not, however, required to take discreditable or risky measures to reduce ~ his loss since these are not `reasonable'. Moreover in a case of anticipatory breach (explained in Chapter 14 on discharge of contracts) if the injured party elects to treat the contract as still in being he may continue with his own performance of it, even though in doing so he increases the loss for which, when actual breach occurs, he will recover damages.
12.To avoid complicated calculations of loss or disputes over the amount the parties may include in their contract a formula (liquidated damages)for determining the damages payable for breach. In construction contracts, for example, it is usual to provide that if the building contractor is in breach of contract by late completion a deduction is to be made from the contract price ( I per cent per week subject to a maximum of !0 per cent in all is a typical example)_ The formula will be enforced by the courts if it is `a genuine pre-estimate of loss' (without enquiring whether the actual loss 'u greater or smaller if it appears to be a bargain to settle in advance what is to be paid).
case: Dunlop v New Garage & Motor Co 1915
The contract (for sale of tyres to a garage) imposed a minimum retail price (re-sale price maintenance was then legal). The contract provided that f S per tyre should be paid to the buyer if he re-sold at less than the prescribed retail price or in four other possible cases of breach of contract. He did sell at a lower price and argued that £ 5 per tyre was a `penalty' (see below) and not a genuine pre-estimate of loss.
Held: as a general rule when a fixed amount is to be paid as damages for breaches of different kinds, some more serious in their Consequences than others, that is not a genuine pre-estimate of loss and so it is void as a `penalty'. But the general rule is merely a presumption which does not always determine the result. In this case the formula was an honest attempt to agree on liquidated damages and would be upheld, even though the consequences of the breach were such as to make precise pre-estimation almost impossible.
13.As indicated above a contract term designed as a penalty clause to discourage breach is void and ,not enforceable. The court will disregard it and require the injured party to prove the amount of his loss. Relief from penalty clauses is an example of the influence of equity in the law of contract.
14.If a clause for liquidated damages is included in the contract it should be highlighted as an onerous term. In the following case, the defendant did not plead that the clause in question was a penalty clause and hence void, but it is probable that they could have done.
Case: Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd 1988
Photographic transparencies were delivered to the defendant together with a delivery note with conditions on the back. Included in small type was a clause stating that for every day late each transparency was held a ‘holding fee' of £ S would be charged. They were returned 14 days late. The plaintiffs sued for the full amount.
Held: the term was onerous and had not been sufficiently brought to the attention of the defendant. The court reduced the fee to reflect more fairly the loss caused to the plaintiffs by the delay. –
ACTION FOR THE PRICE
1.If the breach of contract arises out of one party's failure to pay the contractually agreed price due under the contract, the creditor should bring an action to recover that sum.
2.This is a fairly straightforward procedure but is subject to two specific limitations. The first is that an action for the price under a contract for the safe of goods may only be brought if property has passed to the buyer, unless the price has been agreed to be payable on a specific date (s49 Sale of Goods Act 1979).
.3.secondly,whilst the injured party may recover an agreed sum due at the time of an anticipatory breach whether or not he continues the contract then, sums which become due after the anticipatory breach may not be recovered unless he affirms the contract – that is, he carries on with his side of the bargain. Even where he does affirm the contract; he will be unable to recover the price if:
(a)the other party withholds its cooperation so that he cannot continue with his side in order tc make the price due; or
(b) the injured party had no other, reason or 'legitimate interest' in continuing his obligations than to claim damages. Such a legitimate interest may be obligations which have arisen to third parties.
These points were decided in White & Carter (Councils) v McGregor 1961 (see Chanter 14), where V: the party who affirmed the contract succeeded in an action for the price.
1.In particular situations, a claim may be made on a quantum meruit basis as an alternative to an action for damages for breach of contract.
2.The phrase 'quantum meruit' literally means ‘how much it is worth'. It is a measure of the value' of contractual work which has been performed. The aim of such an award is to restore the plaintiff to the position he would have been in if the contract had never been made. It is a restitutory award. By contrast, an award of damages aims to put the plaintiff the position he would have been in if the contract had been performed. It is a compensatory award.
3.Quantum meruit is likely to be sought where one party has already performed part of hi! obligations and the other party then repudiates the contract (anticipatory breach). Provided the injured party elects to treat the contract as terminated, he may claim a reasonable amount for the work done.
case: De Bernard), v Harding 1853
B agreed to advertise and sell tickets for H who was erecting stands for spectators to view the funeral of the Duke of Wellington. H cancelled the arrangement with DB without justification
Held: DB might recover from H the value of services rendered.
4.In most cases, a quantum meruit claim is needed because the other party has unjustifiably prevented performance.
case: Planche v Colburn 1831
P agreed to write a book for C, who published a series, for young people. P completed half of the book but then C abandoned the series, preventing P's completion.
Held: P could recover £ 50 as reasonable remuneration for the work done on a quantum meruit basis.
5. Because it is restitutory, a quantum meruit award is usually for a smaller amount than an award of damages. However where only nominal damages would be awarded (say because the plaintif would not have been able to perform the contract anyway as in The Mihalis Angelos 1971) quantum meruit claim would still be available and would yield a higher amount.
6 .Quantum meruit in the context of quasi-contract is discussed further in Chapter 16.
1.The court may in its discretion order the defendant to perform his part of the contract instead of letting him buy himself out of it by paying damages for breach.
2. specific performance (which is an equitable remedy) will only be ordered in a case where the common law remedy of damages is inadequate An order will be made for specific performance of : contract or t e sale o land since the plaintiff may need the land for a particular purpose an( would not be adequately compensated by damages for the loss of his bargain. He could not obtain
another piece of land which is identical. For this reason specific performance of a contract for sale of goods is unlikely to be ordered unless the goods are unique and therefore no substitute could be obtained.
3.the order will not be made if it would require performance over a period of time and the court could not ensure that the defendant did comply fully with the order. There are specific performance is not ordered for contracts of employment or personal service nor usually for building contracts. By contrast, a contract for the sale of land requires only that the vendor should execute and deliver a transfer and other documents – the order is readily enforceable
4.Only contracts where consideration has passed may be remedied by an order for specific performance, since it is an equitable remedy and equity does not recognise contracts made under seal. This is due to the maxim 'equity will not assist a volunteer'; that is, it will not provide a remedy for someone who has given nothing.
5.Specific performance will be refused unless the plaintiff on his side has behaved fairly and the principle of mutuality is satisfied. This principle has two aspects, positive and negative.
(a) As the purchaser of land may obtain an order for specific performance the same remedy is
available to the vendor, although for him damages might be an adequate remedy.
(b) If the plaintiff could not be ordered to perform the contract, for example, if he is a minor, the defendant will not be ordered to do so.
1.An injunction is (in this context) also a discretionary court order, requiring the defendant to observe a negative restriction of a contract. An injunction may be made even to enforce a contract of personal service for which specific performance would be refused.
Case: Warner Bros v Nelson 1937
(the film star Bette Davis) agreed to work for a year for WB (film producers) and not during 6 the year_2o work for any other film or stage producer nor *to engage many other occupation' without the consent of WB. N came to England during the year to work for a British film producer. WB sued for an injunction to restrain N from this work and N resisted arguing that if the restriction were enforced she must either work for WB (indirectly it would be an order for specific performance of a contract for personal service which should not be made) or abandon her livelihood.
Held: the court would not make an injunction if it would have the result suggested by N. But WB merely asked for an injunction to restrain N from working for a British film producer. This was one part of the restriction accepted by N under her contract and it was fair to hold her to it to that extent. But the court would not have enforced the 'any other occupation' restraint. Moreover, ‘an English court would only have made an injunction restraining N from breaking her contract by taking other work in England.
2.An injunction is an equitable remedy limited to enforcement. of contract terms which a e in i substance negative restraints. It is immaterial that the restraint, if negative in substance, is not so expressed.
Case: metropolitan Electric Supply' Co v Ginder– 1901
G contracted to Take all the electricity which he required from MES. MES sued for an injunction to restrain G from obtaining electricity from another supplier.
Held: the contract term (electricity only from MES) implied a negative restriction (no supplies from any other source) and to that extent it could be enforced by injunction
3.But there must be a clear negative implication. An injunction would not be made merely to restrain the defendant from acts inconsistent with his positive obligations.
case: Whitwood Chemical Co v Hardman 1891
H treed to give the whole of his time to his employers, WC. In fact H occasionally worked for: others. WC sued for an injunction to restrain him.
Held: by his contract H merely stated what he would do. This did not imply an undertaking o abstain from doing other things (NB in Nelson's Case above there was an express negative covenant; in Ginder's Case it was an implied negative term of a commercial agreement. But the courts are wary over implying a negative restraint in a service agreement)
4.Because the plaintiff may not be ultimately successful in the case, he must give an undertaking to pay damages to the defendant if he fails. This is to compensate the defendant for the prejudice caused by an interlocutory injunction.
5.A development in this field is the Mareva injunction. A successful plaintiff may be frustrated from enforcing judgement if the defendant's assets have been transferred outside e jurisdiction of the court or otherwise dissipated. If the plaintiff can convince the court that he has a good case and that there is a danger of the defendant's assets being exported dissipated, he may be awarded an injunction which restricts the defendant's dealings with t assets.
6.The Mareva injunction is so named after the case of Mareva Compania Naviera SA v International Bulkcarriers SA 1975. but it has now been given statutory effect by s37 of the Supreme Court A 1981. The terms which the court .v ill impose in granting such an injunction may vary, but th will not be so restrictive as to prevent the defendant from the ordinary running of t business, from paying ordinary business debts or from having an ordinary way of life.
The injunction is designed to prevent the defendant's assets from being exported or dissipated; it does not attempt to give the plaintiff any charge over the assets or to place the plaintiff in a preferential position compared with other creditors who may have claims on the assets.
7. The court will not grant a An injunction unless:
(a) there is a 'good arguable case' on the part of– the plaintiff;
(b) the court has jurisdiction over the case, and the defendant has available assets within that jurisdiction;
(c) there exists a genuine risk that if the injunction is not granted then
(i) the assets will be removed or dissipated; or
(ii) the defendant will not satisfy the plaintiff's claim; and
(d) the balance of convenience is in favour of the injunction
Anton Piller' orders
8.Another recently developed procedural aid for plaintiffs who suspect their products (usually tape, film, video or computer goods) are being copied is the Anion Piller order, named after the case of Anton Piller KG v Manufacturing Processes Ltd 1976.4n this case a German manufacturer feared that his English agent would pass on details of a new range of computer equipment to a competitor. The German company applied for an ex parte injunction authorising its solicitor to enter the agent's premises in order to inspect, and if necessary remove, the relevant documents.
9.The great benefit of the Anion Piller order is that it is granted ex parte – on the application / ` of the plaintiff alone and without reference to the defendant. Ordinary inter partes injunctions are often inadequate because with notice of the plaintiff's intentions the defendant has the opportunity to destroy the evidence. It can be applied for before either issue or service of a writ.
10. It is normal for the plaintiff's agent (normally a solicitor) to execute the order on the defendant's premises.-If necessary the agent will be accompanied by police. As well as admitting the plaint if l to premises, the order often also requires the defendant to reveal the names and address of anybody else engaged in the copying scheme. In addition, the plaintiff could obtain `! an Injunction restraining him from warning those persons.
1.Strictly speaking the equitable right to rescind an agreement is not a remedy for breach of contract, it is a right which exists in certain circumstances, such as where a contract is voidable or misrepresentation, duress and undue influence.
2.Rescindir,b a contract means that it is cancelled or rejected and the parties are restored to their pre-contract condition, as if it had never been entered into. For this order to be made therefore, the following conditions must be met.
(a)It must be possible for each party to be returned to the pre-contract condition (restitutio in integrum). If the situation has altered so much that either or both parties are prevented front going back, equity will not allow rescission.
(b)An innocent third party who has acquired rights in the subject-matter of the contract will prevent the original transaction being rescinded (e.g. an innocent purchaser of property acquired following a misrepresentation).
(c) The right to rescission must be exercised within a reasonable time of it arising otherwise the equitable doctrine of laches' comes into effect.
(d)Where a person affirms a contract expressly or by conduct it may not then be rescinded
LIMITATION TO ACTION' FOR BREACH
1.The right to sue for breach of contract becomes statute-barred after six years from the date which the cause of action accrued, which is usually the date of the breach- not the date on which damage is suffered: s5. The period is, twelve years–if the contract is by deed: s8. both time periods are set by the Limitation Act 1980. The plaintiff's rights merely cease to enforceable at law.
2. An action consisting of or including damages for personal injuries is limited after three years. s11. The latent Damage Act 1986 provides that in non-personal injury claims where damage is latent (undiscoverable), the limitation period will be either the usual six-year period (if longer) three years from the date that the plaintiff discovered or should have discover the damage. The Act also provides for a 'long-stop' – a bar on all claims (except personal injury claims) brought more than fifteen years from the act or omission alleged to constitute, the negligence.
3. In two situations the six year period begins not at the date of the breach but later.
(a)If the plaintiff is a minor or under some other contractual disability (e.g. of unsound mind) at the time of the breach of contract, the six year period begins to, run only when disability ceases or he dies, whichever is the earlier. if it has once begun to run,, not suspended by a subsequent disability: s28.
(b)If the defendant or his agent conceals the right of action by fraud (which here denotes conduct judged to be unfair by equitable standards) or if the action is for relief from results of a mistake. the six year period begins to run only when the plaintiff discovered or could byreasonable diligence have discovered the fraud , concealment or mistake:s32
case: Applegate v Moss 1970
In 1951 A bought a house built for M (a developer) by builders employed by M. In 1965 discovered that the foundations were defective and not in accordance with specification. .A M who pleaded that A's claim was statute-barred.
Held: the builders, as agents of M, had concealed the state of the foundations and therefore the right of action in respects of the defects of them. Time only began to run when the relevant facts were discoverable when the bad foundations became evident by the damage resulting from them.
4.an innocent third party who acquired property which is affected by the rules; in paragraph 8.3 above is protected against any action in respect of them: s32(4).
5.Where the claim, can only be for the equitable reliefs of specific performance or injunction, the Limitation act 1980 does not apply Instead, the claim may be limited by the equitable doctrine of delay (see Allcard v Skinner 1887 in Chapter 11, where a claim to avoid a gift for undue influence was debarred by laches).
6.The Imitation period may be extended if the debt, or any other certain monetary amount, is either acknowledged or paid in part before the original six (or twelve) years has expired: s29. Hence if a debt accrues on 1.1.81, the original! limitation period expires on 31.12.86. But if part payment is received on 11.1.85. the debt is reinstated and does not then become 'statute barred' until ;31.12.90.
(a) Acknowledgement. The claim must be acknowledged as existing, not just as possible, but it need not be quantified. It must be in writing, signed by the debtor and addressed to the creditor: s30.
(b)Part-payment. To be effective, the part-payment must be identifiable with the particular debt, not just a payment on a running account.
Where a person is sued in tort and is found liable, it is possible for the defendant to reduce the damages he has to pay by claiming that the plaintiff's contributory negligence means that some blame for his loss rests with him. Under the Law Reform (Contributory Negligence) Act 1945 such a claim can only be raised in a contract case where the claims in contract and tort coexist.
in 1990 the Law Commission published a working paper on 'contributory negligence as a defence in contract'. Broadly speaking it proposes that the plaintiff will recover nothing in contract where his or her acts are the predominant cause of the loss.
this is a very important chapter since it cover the effect of a breach of a contract and the ways in which those effects can be mitigated for the party not in breach. In most cases the common law remedies of damages and action for the price are sought but the equitable remedies of specific performance, injunction and quantum meruit are also worthy of note.