BREACH OF CONTRACT

AND CONSEQUENCES
THEREOF
Charles Dulo
 TOPICS TO BE COVERED
• Breach of contract; • Remedies for breach
– Actual breach; of contract;
– Anticipatory breach; – Refusal of further
– Renunciation/ performance;
repudiation – Damages;
– Specific performance;
– Injunction.
READINGS

 Chesire, Fifoot, & Furmston’s Law

of Contract pages 695 to 706 &
741 to 804;
 Treitel, The Law of Contract pages
855 to 923 & 991 to 1100.
Breach of Contract
• A contract may be discharged by breach, that is, the
failure of one of the parties to perform his obligation
under the contract. It must be noticed at this stage
that although every breach of contract provides
remedies to the innocent party, this does not
necessarily discharge the contract. Thus, if a party
breaks a term of contract going to its root, known a
condition, the other party will be released from his
obligations under the contract. But if the term broken
is one which is collateral to the main term of the
contract, known as warranty, the innocent party
without be released from performance and can only
claim damages.
• Breach of contract may occur in any one of three
ways:
1) Failure to perform:
Where a person fails to perform a contract,
when the performance is due, the other party can hold him
liable for the beach, provided the time of performance was
made as the essence of the contact. In all commercial
agreements, time is presumed to be the essence of the
contract, and unless otherwise provided, the failure to
deliver the goods on the due date gives the innocent party
a right to treat the contract discharged and claim damages.
The aggrieved party is allowed to treat the breach of the
condition as a breach of warranty if the other party
expresses his willingness to perform the contract.
• Example: A sells his car to B, and the
delivery date agreed is 1st March. A fails to
deliver the car on 1st March. B is released
of his obligation of receiving the car and
making payment. B can also sue A for
damages. But if A subsequently expresses
his willingness to deliver the car, B can opt
on to accept the car and claim damages for
late delivery.
2) Renunciation:
It may sometimes happen that even
before the time of performance arrives, one party to
the contract repudiates his liabilities. Such a breach
is known as an anticipatory breach. The other party
may either sue for breach of contract immediately
or he may wait until the contract should have been
performed and then enforce his remedy. But where
the party decides to wait and the circumstances
arise under which the contract becomes impossible
to perform, the plaintiff is left with no remedy
against the party responsible for the breach of the
contract.
Avery v. Bovden, 1855
• B chartered the plaintiff’s ship and agreed to provide
a cargo within a specified time of her arrival at
Odessa. The plaintiff was refused cargo but instead
of bringing an immediate action, he kept on waiting
for the time when the contract was to be performed,
hoping that the defendant would provide him cargo
by that time. However, before the expiration of the
specified time, the Crimean War broke out between
England and Russia which rendered the contract
illegal. The plaintiff was entitled to treat the
defendant’s refusal as an anticipatory breach and
would have been successful in recovering damages.
Hochester v. De La Tour, 1853
• H was engaged in April to accompany D on a
tour for three months to commence on June
1. On May 11, D wrote to H that he had
changed his mind and declined his services.
He also refused to pay H any compensation.
On May 22, H brought an action for breach of
contract and D pleaded that there was no
breach before June 1. It was held that H was
entitled to treat the letter of May 11 as
equivalent to a breach of contract and
damages were allowed.
 3) Self-disablement:
A breach occurs by self-disablement when the
defendant disables himself from performing his
contractual obligation, or does some act which makes
the performance of contract impossible.
Frost v. Knight, 1872
K promised to marry F after the death of his father.
But while his father was still alive, K married
someone else. It was held that F had the right to
sue at once. An anticipatory breach of contract may
be sued on where the acts and conduct of the party
evince an intention no longer to be bound by the
contract.
Remedies for Breach of
Contract
• On breach of contract, the innocent party
becomes entitled to any one or more of
the following remedies:
– Refusal of further performance.
– Action for damages.
– Action for specific performance.
– Action for injunction.
Refusal of further
performance
• A party who suffers by a breach of
contract is entitled to treat the contract as
ended and may refuse any further
performance on his own part. But in case
the victim of the breach does not take the
initiative to bring an action for rescission
of contract, and the other party sues for
any sums due to him, he may set up the
breach as a defence.
Damages
• The normal remedy for breach of contract is
damages. The aim of law is to place the injured
party as far as possible in the position he would
have been if the contract had been performed.
• It is not for every kind of damage that the
plaintiff is entitled to recover compensation. In
some cases, the law considers that the loss
sustained from breach of contract is too remote
to merit any compensation. The courts in
ascertaining damages follow a rule which was
laid down in Hadley v Baxendale.
Hadley v. Baxendale, 1854
• H, a mill owner, delivered a broken crankshaft to
the defendants, who were common carriers, and
they promised delivery on the following day to the
maker for using it as a sample. The defendants took
several days to make delivery with the result that
the mill remained idle longer than it would have
been had delivery been made as promised. The
plaintiff claimed damages for loss of profits arising
from extra delay. The plaintiff did not make it
known to the defendant that the delay would result
in a loss of profits. It was held that defendants were
not liable to pay H damages for loss of profits.
• The loss did not arise naturally and the
defendants were not aware that H did not
have a spare crankshaft. Judge B. Alderman
said damages for breach of contract should
be such as may fairly and reasonably be
considered either arising naturally i.e.
according to usual course of things, from
such breach of contract itself or such as may
reasonably be supposed to have been in
contemplation of both parties at the time
they made the contract as the probable
result of the breach of it.
• Where profits have been lost to the plaintiff by the
fault of the defendant in delaying delivery, and if
the other party knew at the time of forming the
contract that the special loss was likely to result
from the breach of contract, he will be liable for
such loss.
Victoria Laundry v. Newman Industries, 1949
• N contracted to deliver a new boiler to the plaintiffs
on June 5, but in fact it was delivered on November
8. The plaintiffs claimed for loss of profits which
would have been earned had the boiler been
delivered on time, and loss of profits on certain
exceptionally remunerative dyeing contracts.
• It was held that the plaintiffs could recover
damages for the loss of laundry profits as
the defendants must have foreseen their
loss if there was delay, but the loss of the
highly lucrative dyeing contract which
could not have been contemplated, was not
recoverable.
• The test of remoteness was formulated by L.J.
Asquith in the above case in which it was said
that to make the party in breach of contract
liable “it suffices that if he had considered the
question, he would as a reasonable man have
concluded that the loss in question was likely
to result... or foresee it was likely to result”.
Thus when the defendants delayed in the
delivery of the boiler, the loss of normal profits
was likely to result. But what the defendants
could not foresee as a likely result was the
loss of highly remunerative dyeing contracts.
Mitigation of Loss
• When a breach of contract takes place, the party
suffering from the breach must make all reasonable
efforts to minimize his loss and he is not entitled to
recover those damages which he could easily have
eliminated had he tried. If a buyer refuses to accept
the delivery, the seller must try to sell those goods in
the market available and claim damages not more
than the difference between the contract price and
the market price plus any incidental charges.
Similarly where an employee loses his job as a result
of breach of contract of his employment, he must not
sit idle but should try to find other alternative
employment.
Brace v. Calder, 1895
• B was wrongfully dismissed from his
service, but was immediately offered
employment on his previous terms. B
declined re-employment and sued for
wrongful dismissal. It was held that
although the dismissal was irregular and
was technically a breach of contract, B was
entitled to nominal damages only.
Classification of Damages
• Damages may be classified under the following
headings: ordinary damages, special damages,
exemplary damages, nominal damages,
contemptuous damages, unliquidated damages,
liquidated damages, the penalty clause and a claim
on quantum merit.
Ordinary Damages:
• Ordinary or general damages are restricted to the
proximate consequences of breach of contract and
remote consequences are not generally regarded. The
measure of damages is the estimated loss directly
and naturally resulting in the ordinary course of
events from breach of contract.
• These damages are ascertained by the court
having regards to all the circumstances intending
to compensate the injured party as far as
possible.
Special Damages:
• Special damages are those which do not arise
naturally from the breach of contract, but are
those resulting from some peculiar
circumstances. These damages must be specially
proved if the plaintiff intends to claim. Here again,
the damages are what a reasonable man would
contemplate as the likely result of breach if he
had directed his mind to it.
Exemplary Damages:
• We have stated that the purpose of
awarding damages is to compensate the
innocent party for the loss he has sustained
from the breach of contract. The object of
exemplary damages, however, is to punish.
These damages are not as a rule granted
except in the following cases:
① Exemplary damages used to be allowed in
breach of promise of marriage to compensate
the plaintiff for her injured feelings, but they
are seldom granted now in contractual actions.
 ② Where a banker, having sufficient funds of his
customer, does not honour a properly drawn
cheque on him. It may lead to awarding of
exemplary damages if the customer’s reputation
has been affected, particularly as a trader.
Nominal Damages:
• Nominal damages are awarded where the
plaintiff has proved a breach of contract
without suffering any actual loss. The sum
awarded is usually very nominal, but is
nevertheless awarded as an acknowledgement
that the plaintiff has proved his claim.
Contemptuous Damages:
• Contemptuous damages are the damages
awarded by the court when satisfied that
the action should not have been brought by
the plaintiff. The court may award five
cents to the plaintiff as damages to express
its contempt of his conduct in bringing his
action.
Unliquidated Damages:
• Unliquidated damages are damages
assessed by the courts when breach of
contract takes place and the innocent party
sues the defendant. In such cases, the onus
lies on the plaintiff to produce evidence of
the loss he has incurred. The courts usually
follow the principle laid down in Hadley v.
Baxendale in ascertaining the appropriate
damages.
Liquidated damages:
• Sometimes the parties may themselves, in
their contract, fix the damages to be paid
in case either party commits the breach of
contract. If the amount so fixed reflects a
genuine pre-estimate of loss likely to result
by breach, the innocent party can claim the
fixed amount, and this is known as
liquidated damages.
Penalty clause:
• A penalty is a sum agreed in a contract to
be forfeited on breach of contract. It differs
from the liquidated damages in that these
are an attempt to value the financial
damage suffered as a result of breach of
contract, whereas penalty is used as a
deterrent or security for the performance of
the contract.
• The test of the two is that where the amount
fixed is a genuine pre-estimate of loss in case of
breach, it is liquidated damages that will be
allowed and if the amount fixed does not truly
reflect the probable loss, and then it is a penalty
and will not be allowed. The court will not be
influenced by the fact that the sum payable on
breach is called liquidated damages if it is in fact
a penalty. The court will look at the essence of
the matter and not the form. The court will not
enforce a penalty, but will award damages to
compensate the plaintiff on normal principles.
Ford Motor Co Ltd v. Armstrong, 1915
• The defendant, a retailer, in consideration of
receiving supplies from the Ford Company,
agreed not to sell any car or parts below the
listed prices, not to sell Ford cars to other
motor dealers and not to exhibit any car
supplied by the company without their
permission. He also agreed that for every
breach of this agreement, he would pay
£250 as being “the agreed damages which
the manufacturer will sustain”.
• It was held by the court of Appeal that
£250 was a penalty and not liquidated
damages. The same sum was payable for
different kinds of breaches which were not
likely to produce the same loss. Further its
size prevented it being a reasonable pre-
estimate of the probable loss.
Quantum meruit:
• A claim on a quantum meruit in fact is a claim for
the value of work done by a party to a contract,
whereas a claim for damages is for compensation
in respect of loss suffered by a breach of contract.
The general rule is that if a contract provides for
the services to be rendered in return for payment
of a lump sum, nothing can be claimed unless the
work has been precisely performed. However, a
claim can be made under quantum meruit if:
a. A party to an entire contract is prevented from
perform of the contract by the fault of the other party.
(See Planche v. Colburn);
b. A party has only partially fulfilled his
obligations but the other party has voluntarily
accepted the benefit of the work or goods
supplied;
c. The contract is divisible as opposed to entire.
Specific Performance
• Both specific performance and injunction are
equitable remedies which may be awarded at
the discretion of the court to a person who has
suffered a legal injury where damages would
not be an adequate remedy. Specific
performance is an order requiring a person to
carry out a contractual obligation. Specific
performance is usually granted in the following
cases:
 Where a contract is for the sale of land;
 Where the contract is for taking debentures in a
company;
 Where the contract is for the sale of rare goods
which are not easily available in the market or
the value of such could not be measured in
money.
• Specific performance is not granted in the
following cases:
 Where damages would provide an adequate
remedy;
 Where the contract is to render personal
services;
 Where one party to the contract is an infant;
 Where the contract is to lend money.
• Damages may be claimed in lieu of or in
addition to specific performance which, as a
rule, will not be granted where damages
would provide an adequate remedy.
Injunction
• An injunction is an order of the court restraining the
doing, continuance or repetition of a wrongful act. It
may be obtained to enforce a negative contractual
term where an order of specific performance would
not be available, where a singer agreed to work only
for a certain employer and then, in breach of
contract, worked for a rival company. Although her
employer would not have been able to obtain an
order for specific performance of the original
contract for personal services, he was successful in
obtaining an injunction restraining the singer from
singing for anyone else.
• The court will not, however, enforce a contract
by injunction if damages are a more suitable
remedy since it can always award damages in
lieu of an injunction.
Warner Brothers v. Nelson, 1937
• N, a film actress, contracted to work for the
plaintiff for one year, agreeing not to work for
anyone else during that period. She made a
breach of contract and worked for a rival
company. The court refused to force N to work
for the plaintiff, but an injunction was granted
to prevent her from working with someone else.
Q & A
 Thank
you
Presenter Name: Charles Dulo
Designation: Senior Lecturer
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