Chapter 12: Performance and Breach Flashcards
What are the 4 ways that a contract can be discharged?
1) Agreement
- Parties decide to abandon contract (consideration)
- In order to abandon, there must be a mutual agreement by both parties to withdraw from the contract
- Another condition is there must be consideration
2) Operation of law
- Doctrine of Frustration
3) Performance
- Parties fulfil all obligations under contract
4) Breach
- Party has breached the terms of contract
What is the general rule of performance of a contract?
A party can’t recover their payment for a partial performance of an ‘entire obligation contract. The entire contract has to be fulfilled/finished
- Example - if a teacher has a contract to fulfil all 2 months to teach a child of a parent, but withdraws because she didn’t like the environment. She can’t claim payment
What is the case that supports the general rule of performance?
Cutter v Powell (1795)
Cutter v Powell (1795)
performance GR
Facts
- Going on a voyage
- Payment was to be given after completion of the voyage
- 7 weeks into the performance, Cutter dies
- His wife came to sue for payment
Held
- Court denied payment
- On grounds that the contract was not fully performed, can’t recover anything at all
Note
- This is a good precedent/principle as it makes parties have an obligation to complete the performance
What are the 3 ways to mitigate the harshness of the GR of performance?
1) Courts can interpret the contract as not being an entire obligation, making the contract into different ‘sections’ called ‘Series of Entire Obligations’
- Can create mini series to mitigate the harshness
- On grounds that court doesn’t encourage/like to allow unjust enrichment
2) Courts can allow some recovery/benefits if the party in breach has somewhat substantially performed the contract
- This means that if courts see that the party has already committed to so much of the contract, it wouldn’t be right to not award them anything
3) If the innocent party can accept the partial performance of the work that the contract breaker has done. Then might be liable to pay for the work done
What is the case for the 2nd way to mitigate the GR for harshness of performance - allow recovery for substantial performance
Hoenig v Issacs (1952)
Hoenig v Issacs (1952)
recovery for substantial performance of a contract - mititgate harshness
What is the case for the 3rd way to mitigate the harshness of the GR of performance - innocent party accepts partial performance?
Sumpter v Hedges
Sumpter v Hedges
innocent party accepts partial performance - mititgate harsheness
Facts
- Sumpter, a builder (C), entered into a contract to build 2 houses and some stables for a particular amount
- Started building, and mid way abandoned the project
Held
- Can’t sue for partial/part performance
- On grounds that he abandoned the contract
- But can claim the price for the remaining materials that Mr Sumpter had left behind (which the new contractor used)
Takeaway
- Since the builder already did half the work, and the claimant ‘accepted’ the performance by hiring another contractor to build the project
- He was entitled to pay for the remains of the materials that were used during the building
What is the definition for breach of contract?
What case provides this definition?
What authority states the 4 ways when a breach occurs?
Failure to perform the terms of the agreement - Photo Production Ltd v Securicor Transport Ltd
Prof Treitel states a breach occurs when -
- Party without lawful excuse fails to perform or refuses to perform what he is supposed to do; or
- Performs defectively; or
- partial/inadequate performance; or
- Incapacities himself from performance
When does a breach actually occur? (substance of the contract)
Depends on the construction of the terms of contract. Party that alleges/claims there is breach has to actually prove breach
- However, not necessary to prove fault
What are the 2 types of breach?
- Actual breach
- Anticipatory breach
What are the 2 types of Actual Breach?
What statute do these have in relation to?
1) Strict liabilty
- Where terms in contract demands a standard & performance to how they want to carry out the contract specifically
- Does not depend on fault – merely if the specifics of the contract were not fully done properly
- Section 14(2) Sales of Goods Act 1979
2) Standard of reasonable care & skill
- If a party is employed for the duty to exercise reasonable care and skill when performing a contract
- In this category, judges will look at the facts and faults of the case
- Section 13 of the Supply of Goods and Services Act 1982
What is the case for strict liability?
Actual breach
Arcos v Ronaasen (1933)
Arcos v Ronaasen (1933)
Strict liability
Facts
- Contract specifically stated barrel has to be 1/2 an inch
- Barrel turned out to be 9/16 (little more than ½) thick
Held
- Breach
- On grounds that this is a ‘strict liability’ contract, then the performance would be a breach of contract
Takeaway
- If details of a contract is specifically stated
Then required to fulfil perfectly
What action can the injured party take regarding Actual Breach?
What are the 2 things that depend on the ambit of action taken?
note terms chapter
A breach doesn’t automatically terminate the contract
1) Depends on the terms breached
* Condition - Can terminate & damages or affirm & damages
* Warranty - Damages only
* Innominate term - Consider the time of the breach and then the consequences of it
2) Depends on the decision of the innocent party
- Decro – Wall SA v International Practitioners in Marketing
What is Anticipatory breach?
Introduction
- Where 1 party informs the other, before the date of performance, that they are not going to perform the contract
Action by injured party
- Innocent party can terminate contract & claim damages immediately
- Don’t need to wait till actual date of performance
Note
- Once the actual date comes - then can sue for actual breach
What are the 4 cases for Anticipatory breach and what are the particulars of each case?
Hochster v De La Tour (1853)
- Claimed damages immediately
White & Carter v McGregor
- Innocent party chooses to affirm the contract and continue
Wvaery v Bowden (1856)
- Later frustration
The Simona
- Later breach
What are the 2 types of remedies possible for breach of contract?
What are the actual remedies gotten from each?
Common law
- As of right > damages
Equitable remedies
- Given at court’s discretion > specific performances or injunction
What are the 2 types of damages under common law?
Unliquidated damages
* Amount of damages not stated
Liquidated damages
* Amount of stated by the parties
What are the 2 types of losses under common law claimable by claimant?
What is the overview for each loss?
Pecuniary losses
* General rule
* Method of assessment
* Remoteness of damages
* Causation
* Mitigation
Non-pecuniary losses
* General rule
* Exception
What is the general rule for pecuniary losses?
- Any breach of any term has the right to claim damages
- Aim is to compensate the injured party for his loss (Bunge SA v Nidera BV (2015))
- Motive of breach is irrelevant, even if D purposely breached the contract
- Punitive damages not allowed, even if party deliberately breaches contract - Kuddus v Chief Constable of Leicestershire Constabulary (2001)
What are the 3 methods of assesment for Pecuniary loss?
- Expectation loss/interest (damages)
- Reliance loss/interest
- Restitutionary interest
What is reliance loss/interest?
What are the aims and the 3 cases for this?
Introduction
- C acted to his detriment by relying on the promise made by the D
Aim/purpose
- To put the C in the position that he would be before the promise was made
- To restore the Claimant
Case
- Mc Rae v CDC
- Anglia TV v Reed (1972)
- Chaplin v Hicks (1911)
Mc Rae v CDC
reliance loss
Facts
- CDC (D) told C that there was a tanker that had oil in a reef
- C hired a ship and crew to go to Jourman Reef
- Oil tanker could not be found
- There had no oil tanker to begin with (did not exist)
- C sued
Held
- Can only rely on reliance loss
- On grounds that there is no expectational loss, as it would be silly to prove/say that he expected & quantified the amount of oil in the tanker ship
Takeaway
- C would be confined to Reliance Loss as cannot prove Expectation Loss would have been
Note
- Judges would consider how the contract was worded
What is restitutionary interest?
What is the aim for this?
What are the 2 grounds/reasons for
What is the case for this?
Introduction
- Not to compensate the Claimant for his loss but to deny/deprive the Defendant of his profits which he got at the Claimants expenses (unjust enrichment)
Aim/purpose
- To disgorge D’s profits that he unjustly obtained
2 grounds -
1) Total failure of consideration
* C must prove that he got no benefit due to D breaching the contract. C received nothing he bargained for
2) Unjust enrichment
* C must prove that the D was enriched at the C’s expense, which allowed D to retain the profits
What are the 2 cases for total failure of consideration?
restitutionary interest
- Whincup v Hughes (1871)
- White Arrow Express Ltd v Lamey’s Distribution Ltd (1996)
What is the case for unjust enrichment?
restituionary interest
AG v Blake
AG v Blake
IMPORTANT
unjust enrichment
Facts
- Blake was a British spy and signed a contract with the Crown to not spill/disclose any confidential information
- He fled to Russia
- After many years decided to write an autobiography
- In this he had mentioned some of the confidential information
- He profited from this
Held
- Court held this was a restitutionary interest
- On grounds that he had unjustly enriched by the expense of the C
- Because it was a matter of national security, there was a breach of fiduciary duty, making exceptional profits, there was no other adequate remedy
Takeaway
- Because the D had benefited off the C’s expenses
What is expectation loss?
What case and authority provides the deifnition?
The rule of the common law is, that where a party sustains loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to the damages, as if the contract had been performed” - Parke B in Robinson v Harman (1848)
- A contract creates legal expectations - remedies protect those expectations
What are the 2 issues for expectation loss?
- Identification of loss
- Measurement of damages
What are the 2 possible losses of the Claimant regarding expectation loss?
What was the case that laid down the traditional view regarding breach of contracts?
What is case that shares the current view today?
2 possible losses suffered
1. Financial loss
2. Non-financial losses
Tradtionally
- Robinson v Harman believes that breach of contract only causes financial loss
- If cannot show that there was financial loss, then can only recover nominal damages
However
- Contract could also be to enhance leisure time or service/benefit for a 3rd party
- Lord Mustill in Ruxley v Forsyth: “The law must cater for those occasions where the value of the promise to the promise exceeds the financial enhancement of his position which full performance will secure”
- Consumer Surplus - A broader perspective that there are other purposes to enter into contracts
What are 2 measurement of damages for expectation loss?
Diminutive value
- Difference between what the C received and what he expected to receive
Cost of cure
- The cost of putting the C in the position if the contract was performed
What are the 3 cases for measurement of damages?
expectation loss
- Ruxley v Forsyth (1996)
- CCC Films (London) Ltd v Impact Quadrant Films Ltd (1985)
- C & P Haulage v Middleton (1983)
Ruxley v Forsyth (1996)
measurement of damages - expectation loss
Facts
- Builders (C) agreed to build swimming pool for D
- Specifications were that pool be 7’ 6’ deep
- Builders bult 6’
- D refused to pay and C sued for contract price
Issue
- Trial judge had to consider whether to award the full amount (£21,560) to the house owner (cost of cure)
- Or to not award anything (£0) and release the builders (diminutive value)
Held
- Judges held that the actual loss suffered by the homeowner was the loss of amenity (the disappointment of not getting the specifications he desired)
- Courts held that the builders had to pay £2,500
Note
- Here, the courts failed to protect the performance interest of the houseowner
- On the facts of the case, all the academics agree that it was correctly decided
- But the principle they came up with has been debated upon
What is remoteness of damages for pecuniary losses?
C can only claim losses that were in reasonable contemplation of both parties at the time of entry
- (if the breach was not thought possible - no recovery)
What are the 4 cases for remoteness of damages?
Pecuniary losses
- Hadley v Baxendale (1854)
- Victoria Laundry v Newman Industries (1949)
- Achilleas (2009)
- The Sylvia (2010)
Hadley v Baxendale (1854)
IMPORTANT - starting precedent
Remoteness of damages - pecuniary losses
Facts
- C’s shaft was broken, they were owners of a Mill
- Hired Baxendale (D), which they agreed to take shaft to Greenwich to make a new shaft
- D delayed in bringing back the shaft
- C shutdown/halted the production of the mill to wait for the shaft
- C sued to loss of profits
Held - Alderson B
- Can only claim natural losses and special losses
- Natural losses - losses that arise from the normal causes of things
Takeaway
- Can only claim if the losses were normal (not remote)
Note
- Must be given notice at the time of entry of the contract
note the timeline of cases
Victoria Laundry v Newman Industries (1949)
Remoteness of damages - pecuniary losses
Facts
- D contracted to sell and deliver a boiler to C
- D knew that C was going to use it immediately for his laundry business
- Boiler was delivered 5 months late
- C sued for the loss of profits that the business would have had
Held
- Can only recover natural loss of profits, not for loss of profits for the lucrative contract
- On grounds that D did not know - did not have reasonable contemplation of the parties
note the timeline of cases
Achilleas (2009)
remoteness of damages - pecuniary losses
Facts
- Achilleas was chartered for a voyage
- Specified that the ship should be returned on 2 May
- Ship was delivered late by 9 days
- Owners sued charterer, and claim £1,364,584
- Loss from the delay was actually £158,000
- D argued that they would only pay for the loss from the delay caused
Held
- 5 judges unanimously stated that they can only claim £158,000
Note
- Lord Hoffman & Lord Hope didn’t want to use the Hedley v Baxendale test for remoteness, they came up with a new test
Test of assumed responsibility - looking at it objectively (facts of each case), what are the losses that the contract breaker should have assumed responsibility for? - Lord Roger & Baroness Hale affirmed, and stated they were satisfied with the old test in Baxendale
- Lord Walker (5th judge) was the tie breaker, but seemed to agree on both sides
note the timeline of cases
The Sylvia (2010)
Remoteness of Damages - Pecuniary Losses
Context
- Solution for The Achilleas for which test to use
Held
- To use to old test from Hedley v Baxendale, where specific lost can only be claimed if given notice at the time of entry of the contract
- However, they stated that if there is not a clear cut answer, then they can use the Test for Assumed Responsibility
Takeaway
- For specifics use Baxendale test
- For vague then use Achilleas test
This was the last case for remoteness
What is causation for Pecuniary losses?
Must D’s action be the sole cause of the breach?
Introduction
- Must have a causal link between C’s loss and D’s breach
Note
- D’s action doesn’t have to be the sole cause but must be a cause of the loss
What are the 3 situations where there may be a break in causal link?
What are the relevant cases for each?
1) Natural events
- Monarch Steamship Co. v Karlshamns Oljefabriker
2) Where claimant acted so unreasonably
- Lambert v Lewis (1982)
3) Claimant’s own negligence
- Law Reform (Contributory Negligence) Act 1945
Lambert v Lewis (1982)
Causation - C acted so unreasonably
Facts
- Farmer used trailer coupling (device to link machine) after it was broken
- Coupling gave way and accident happened causing injury to people
- Farmer sought to recover damages from supplier of coupling
Held
- Farmer could not recover from supplier
- On grounds that he continued to use the coupling with the knowledge it was damaged
- His actions broke the chain in causation for the suppliers breach and loss suffered
What is mitigation regarding pecuniary losses?
What is the aim of this?
C must take all reasonable steps to try to reduce/minimize his losses - British Westinghouse v Underground Electric Railway (1912)
- On grounds that the C must not unreasonably incur expenses subsequent to the breach (should not deliberately cause the expenses)
- If C does not mitigate his losses, C won’t be able to recover portion which attributed his failure to mitigate
Aim/purpose
- To prevent avoidable waste of resources
- Thus, the C should act reasonably to reduce as much losses as possible
What are Non-Pecuniary Losses?
How is this assessed?
Damages are generally assessed by referent to Market value of the contracted performance
- Loss is objectively assessed
What is the general rule regarding non-pecuniary losses?
What is the case that supports this?
Introduction
* C is not entitled to be compensated for injury to his feelings
GR cases
* Addis v Gramophone (1909) HL
What are the 3 exceptional cases that changed the GR for non-pecuniary losses?
- Watts v Morrow (1991)
- Ruxley v Forsyth (1995)
- Farley v Skinner [2001]
Ruxley v Forsyth (1995)
IMPORTANT
Exception - non-pecuniary losses
Facts
- Contract had been entered into for construction of a swimming pool for £70,000
- C specified for pool to be 7’6’ deep
- Builder made it 6’9’ deep
Held
- Mr Forysth contracted a swimming pool for reasons of pleasure, and in this sense his expectation had not been fulfilled
- Trial judge awarded D £2,500 for loss of amenity and pleasure
Farley v Skinner [2001]
IMPORTANT
Exception - non-pecuniary losses
Facts
- Farley (C) was thinking of buying a house in the Sussex countryside where he would spend his retirement
- Paid chartered surveyor, Skinner, to look at the property
- He specifically instructed him to assess the impact of aircraft noise on the property
- House was 15 miles from Gatwick airport
- Surveyor was negligent in carrying out his word and advised Farley that it was ‘unlikely the property will suffer greatly from such noise’
- After moving in, the house was badly affected by aircraft noises
- Sued for difference in the value of the house, between what he paid and what it was worth
- This part of his claim was unsuccessful as the price was the correct market price, even taking into account the aircraft noises
- Additionally, he included a claim for non-pecuniary damages for the loss of amenity caused by aircraft noises
Held
- C was awarded £10,000 for distress and inconvenience
- HOL upheld the award
Note
- It didn’t matter that the contract was not entirely for pleasure/relaxation/peace of mind, since this was nonetheless a major & specific object of the contract
Takeaway
- The C had specifically stated how he wanted the contract to be performed
What are the 5 exceptional circumstances for allowing non-pecuniary losses?
What are the relevant cases for each?
1) Holiday contracts - mental satisfaction
- Jarvis v Swan Tours (1973)
- Jackson v Horizon Holidays
- Milner v Carnival plc (2010)
2) Mental distress was an important but not sole aspect of the contract
- No longer the predominant test
3) C suffered “physical inconvenience and distress”
- Watts v Morrow [1991]
- Farley v Skinner (2001)
- Hamilton Jones v David & Snape (2003)
4) Loss of Amenity
- Ruxley v Forsyth (1995)
5) Damage to commercial reputation
- Malik v BCCI [1998]
Jarvis v Swan Tours (1973)
holiday contracts - non-pecuniary losses
Facts
1. Provision of damages for non-pecuniary loss was breached
2. C, a solicitor booked a 2 week tripped, stated in the brochure
3. Brochure stated there would be a welcoming party and afternoon tea
4. Holiday costed £63
Held
1. COA raised damages to £125
2. On the basis that merely giving him back the cost of the holiday would be insufficient to compensate his loss
Lord Denning explained
* Similarly with a case with to go to an opera performance
* If the C hired a company for a car, and it breaks down
* The C can claim extra damages, not only for the cost of the ticket, but also for disappointment for missing the concert
Malik v BCCI [1998]
Commercal reputation - non-pecuniary losses
Facts
1. C worked for BCCI, which was a fraudulent bank and whose collapse was disastrous
2. They sued for compensation claiming that they couldn’t get work and their future prospects were worsened due to the knowing of D’s bank
3. They argued that their contracts contained an implied term of ‘mutual trust and confidence’
4. And that D breached this term by running a fraudulent company
Held
1. Lord Nicholls stated - Addis only applied to “injured feelings”. Whereas Malik was a case of financial loss caused by the company
2. Lord steyn - distinguished Addis, on grounds that her situation was in the “manner” in which an employee is sacked cannot give rise to damages
3. Loss of reputation is generally compensable where it is caused by breach (not by manner of the breach)
Takeaway
* Must have actual breach to claim compensation
* Can’t be by what the other extremities caused by the beach
What are the 2 types of equitable remedies?
- Specific performance
- Injunction
What is an order for Specific Performance?
Order which compels the contract breaker to perform a certain task to perform the contract (positive obligation)
- Recent cases stated that a SP obligation sometimes need be made immediately, or the possibility of ever doing so might be lost
When do courts allow an order for SP?
What are the 4 cases for this?
Behnke v Bede (1927)
- SP granted when ship was sold was ‘of peculiar and practically unique value’ to the C
Societe des Industries Metallurgiques SA v The Bronx Engineering Co Ltd (1975)
- Refused due to a contract to build a complicated piece of machinery weighed 220 tons and took 9-12 months to complete
Johnson v Agnew (1979)
- Damages for breach of contract to sell land is usually an order for SP
Sky Petroleum v VIP Petroleum [1974]
- Granted, force D to maintain fuel supplies to C
- Fuel market was really bad so if the order was refused the C could not get a substitute
What are the 5 limitations and 2 requirements of Specific Performance?
Limitations
- If the order requires ‘constant supervision’ of the courts (Argyll’s case)
- If the party claiming the order performed the contract in an unfair manner
- If the order for SP would result in severe hardship for the D
- If the SP is impossible for D to comply with the order
- Courts won’t give SP for important contracts like personal services (or employment) (Giles v Morris (1972))
Requirements
- C’s conduct has to be pure and in real need for the SP, ‘he who comes to equity must come with clean hands’
- There must be a mutuality of remedy - if one party could not order it at the request of the other party
What is an injunction?
What are the 2 limitations to this?
equitable remedies
Introduction
- Order which prohibits a party from doing certain actions (negative obligation)
Note
- Also discretionary and only ordered where just to do so
Limitations
- Where it would cause a particular hardship to a defendant as to be oppressive to him - Insurance Co v Lloyd’s Syndicate [1995]
- Where to order an injunction would be to indirectly order a SP (Page One Records v Britton (1968))
What are liquidated damages?
What is good about liquidated damages?
Introduction
- an exact amount of money, or a set formula to calculate the amount of money, a party will owe if it breaches a contract, in order to compensate the injured party for its losses
Note
- Because the C bares the burden to prove the amount of his loss, it is convenient to allow them to state the sum when suing them
- However, this might be abused as the amount sued for might be higher than the actual loss suffered
What are the 3 devices are outlined in McKendrick (22.6 ‘Evading the penalty clause rule’)
- Penalty clause rule doesn’t apply to clauses that accelerate an existing liability
- As the penalty only applies to breach of contract, the parties can stipulate the amount thats payable which isn’t a breach
- Parties can stipulate that a term is a condition with the effect of breaching it allows the injured party to terminate the contract and claim damages
