Remedies For Breach Of Contract.ppt

Lecture 7 Remedies for Breach of Contract

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Lecturer: Dr. R.S.Mlinga

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E-mail: [email protected] @ rsm

Consequences of breach 

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Parties to a contract are expected to carry out their respective promises under the contract. When one of the parties to a contract refuses to carry out his part of the promise, he is said to have breached the contract.

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Consequences of breach 

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Thus a breach of contract occurs when a party thereto renounces his liability under it, or by his own act makes it impossible that he should perform his obligations under it or totally or partially fails to perform such obligations.

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Different reliefs 

When a breach of contract occurs, the injured or aggrieved party becomes entitled to the following reliefs:  Rescission

of the contract  Suit for damages

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Rescission 

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Rescission means termination and cancellation of the terms of the contract. It may take place in any one of the following manners: If the parties to a contract agrees to rescind the contract, the original contract need not be performed;  When a contract is broken by one party, the other party may sue him and treat the contract as rescinded and refuse further performance; and 

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Rescission  When

a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is a promisor.

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Rescission 

Consequences of rescission  In

case of rescission without prejudice to the injured party’s right to receive compensation for its breach, he is absolved from all his obligations under the contract, and need not perform any promise.  When a contract is rescinded, any person who has received any advantage under such agreement or contract is bound to restore it or to make compensation for it, to the party from whom he received it.

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Rescission 

Example: A

pays to B $ 1,000 in consideration of marrying B’s daughter. The daughter is dead at the time of promise. The agreement is void but B must repay A $ 1,000.

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Rescission 

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The party rescinding a voidable contract, if he has received any benefit there under from another party to such contract restore such benefit, so far as may be, to the person from whom it was received. Example: 

A contracts to sing for B for $ 1,000 which is paid in advance. A is too ill to sing. A is not bound to make compensation to B for the loss of profits which B would have made if A had been able to sing but must refund to B the $ 1,000 paid in advance.

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Rescission 

If a person rightfully rescinds his contract he is entitled to compensation for any damages which he has sustained through the non-fulfilment of the contract by the other party.

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Rescission 

Example: 

A, a singer contracts with B, the manager of a theatre to sing at his theatre for two nights every week during the next two months and B engages to pay her $ 100 for each night’s performance. On the sixth night, A wilfully absents herself from the theatre, and B, in consequence, rescinds the contract. B is entitled to claim compensation for damages which he has sustained through the non-fulfilment of the contract.

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Damages  

Nature The party who is injured by the breach of contract may bring an action for damages. According to Asquith J: 

“It is well settled that governing purpose of damages is to put the party whose rights has been violated in the same position, so far as money can do, as if his rights has been observed”

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Damages 

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From above, the aim principle for paying damages for a breach of a contract is to place the plaintiff in the same position he would be in if the contract had been fulfilled, or to place the plaintiff in the position he would have occupied had the breach of the contract not occurred. Thus, damages are given by way of compensation for the loss suffered by the injured person and not for the purpose of punishing the wrongdoer for the breach.

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Damages 

Types of damages  

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Ordinary or Compensatory Damages Special Damages Exemplary or Vindictive Damages Nominal or Token Damages

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Damages 

Ordinary Damages 

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Damages which arise in the ordinary course of events from the breach of contract are called “Ordinary or Compensatory Damages”. They are calculated in such a way as to compensate or make up the loss suffered by the parties.

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Damages 

Ordinary Damages 

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Ordinary damages are restricted to the proximate consequences of the breach of contract and the remote consequences are not generally regarded. The damage must be something immediately flowing out of the breach of contract complained of, and not merely connected with the breach by means of an intervening cause.

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Damages 

Special Damages  

Ordinarily, the Court shall award such damages that arise in the ordinary course of events from the breach. But under special circumstances, the Court may allow damages not arising entirely from the breach provided such damages may reasonably be supposed to have been in contemplation of the parties at the time they made the contract.

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Damages 

Special Damages 

Thus, special damages are those resulting from a breach of contract under some special circumstances known to the parties at the time of making the contract.

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Damages 

Example:  

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P sends some specimen of his goods for exhibition at an agricultural show. After the show, he entrusts some of his samples to an agent of Railway Company for carriage to another show ground at place N. On the consignment he writes, “must be at place N Monday certain” Owing to the fault of the Railway Company, the samples arrived late for the show. P can claim damages for the loss of profit of the show. @ rsm

Damages 

Vindictive or exemplary Damages 

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Generally speaking, exemplary or vindictive damages are not awarded in ordinary cases of breach of contract. Where a contract is broken, the injured feelings of disappointment which a person entirely suffers, are not taken into account in assessing damages. Similarly, where a contract is broken under circumstances which may reflect upon the character of the plaintiff, he will not be allowed vindictive damages.

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Damages 

If the circumstances show cause of action in libel or slander, he should frame his action in tort and not as a breach of contract. But to this general principle, there are two exemptions: 

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Firstly, in cases of breach of promise to marry, the Courts awards special damages taking into consideration the injured feeling of the party. Secondly, where a Banker refuses to honour the cheque of a customer while having his money in his hands, and the customer thereby suffers in his business reputation, exemplary damages are awarded. @ rsm

Damages 

Nominal or token damages 

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Where the Courts find that the party has suffered no pecuniary loss or when the Court is of the opinion that the breach complained of is too insignificant, the Court may award nominal amount or token amount as damages. These are normally granted in view of the right of the aggrieved party to claim damages for the breach of contract.

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Damages 

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By nominal damages is means as a sum of money that may be spoken of, but has no existence in point of quantity. This is awarded in cases where the plaintiff is able to prove a breach of contract but has not suffered any real damage.

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Damages 

Rules regarding amount of damage  The foundation of modern law of damages in English Law is to be found in the celebrated judgment in the case of Hadley V. Baxendale: the facts of that important case are as under: 

“X, a carrier, was entrusted with the delivery of machine part to Y, a manufacturer. The delivery was delayed. Y claimed from X   

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compensation for the wages of workers and depreciation charges which were incurred during the period the factory was idle, for the delayed delivery and for loss of profits which might have been made if the factory was working.

The first two items were allowed because they were natural consequences of the breach. The last item, loss of profit, was disallowed because it was a remote consequence. @ rsm

Damages 

Anderson B observed in this case:  “ Where two parties have made a contract which one of them has broken, the damages which the other party ought to have received in respect of such breach of contract should be as may be fairly and reasonably be considered either arising naturally i.e. according to the usual course of things, from such breach of contract itself, or such as reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract as the probable result of the breach of it”.

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Damages 

HOWEVER 

Any estimated loss or damage arising from breach of contract, the means of which it existed of remedying the inconvenience caused by non-performance of the contract must be taken into account

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Damages 

Actual loss: Ordinary Damages  

Ordinarily, the injured party is entitled to recover by way of damages only the actual loss suffered by the party. The principle underlying the award of damages is that where a party sustains a loss by reason of breach of contract, he is, so far as money can do, to be placed in the same situation with respect to the dames, as if the contract had been performed.

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Damages  

Under Section 73 a party suffering by a breach is entitled to compensation for loss or damage: which naturally arose in the usual course of things from such breach; 

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which the parties knew to be likely to result from the breach In both cases, however, the damage must not be remote or indirect. Moreover, in estimating the loss or damage, the means existed of remedying the inconvenience caused by nonperformance must be taken into account

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Damages 

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The amount of damages to be awarded can never exceed the loss actually suffered by the claimant or which he is likely to suffer. If the government commits a breach by improperly rescinding the contract, the contractor is held to be entitled to damages for loss of expected profits on the remaining work.

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Damages 

Example: 

A contracts to sell and deliver 100 tons of rise to B at $ 50 per ton, the price to be paid at the time of delivery. The price rises to $ 75 per ton. A refuses to sell rice. B can claim damages at $ 15 per ton

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Damages 

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For estimating the amount of damages, the Court should make broad evaluation instead of going into minute details. In calculating actual loss the Court will take into account such losses:  

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as may be fairly and reasonably considered; as arising naturally, and in the usual course of things from breach

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Damages 

Example 

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A contracts to buy from B, as stated, 50 tons of rice, no time being fixed for delivery. A afterwards informs B that he will not accept the rice tendered to him. B is entitled to receive from A, the amount, if any, by which the contract price exceeds that which B can obtain for rice at the time when A informs B that he will not accept it

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Damages 

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Also compensation is not to be given for any remote or indirect loss or damage: Examples   

A contracts to pay a sum of money to B on a day specified. A does not pay the money on that day; B, in consequence of not receiving money on that day, is unable to pay his debt and is totally ruined. A is not liable to make good to B anything except the principal sum he contracted to pay, together with interest up to the date of payment. @ rsm

Damages 

The plaintiff were manufacturing bricks on a plot of land were restrained from continuing the work by a STOP ORDER made at the instance of the defendants. While the proceedings were pending the bricks and fuel stored on the spot were damaged by heavy fall of rain. In an action for damages on this account it was held that the damage due to the rain was too remote.

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Damages 

Special Loss: Special Damages 

In order to claim special damages as previously described, it is important to bring to the notice of the other party, any special circumstances which would result in a special loss in case of a breach of contract.

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Damages 

Examples 

A delivers to B, a common carrier, a machine to be conveyed without delay to A’s mill informing B that his mill is stopped for want of the machine. B unreasonably delays the delivery of the machine, and A, inconsequence, loses a profitable contract with the Government. A is entitled to receive from B, by way of compensation, the average amount of profits which would have been made by the working of the mill during the time that the delivery of it was delayed, but not the loss sustained through the loss of the Government contract. @ rsm

Damages 

Examples 

A, a builder, contracts to erect and finish a house by the 1st January in order that B may give possession of it at that time to C to whom B was contracted to let it. A is informed of the contract between B and C. A builds the house so badly, that, before the 1st of January it falls down and has to be rebuilt by B, who, in consequence, loses the rent which he would have received from C and is obliged to make compensation to B for the breach of contract. A must make compensation to B for the cost of rebuilding the house, for the rent lost and for the compensation made to C. @ rsm

Damages 

Restitution 

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Courts will normally give damages for breach of contract only by way of compensation for loss suffered and not by way of punishment. Thus the amount, of damages that shall be awarded is no case to exceed the loss actually suffered by the aggrieved party.

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Damages 

While affecting, restitution, the Court follows the following guidelines: 

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In case of sale and purchase, the measure of damage would be assessed on the difference between the contract rate and the market rate on the date of breach. The market rate prevailing on the date of delivery fixed in the contract should afford the basis of ascertaining damages. Where the extent of actual loss or damages is not proved discretion is given to the Court to fix the amount @ rsm

Damages 

Other rules 

Duty to mitigate damages suffered 

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A party to a contract is bound to use all reasonable means of mitigating the damages consequent upon the breach of the other party. He cannot recover any part of damage, traceable to his own neglect to mitigate to the person to whim it is made, so as to be out of the power of the person who makes it.

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Damages 

Example: 

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A took a shop on lease and gave an advance to B. B, thereafter, could not give A the possession of the shop. A chose to do no business for eight months though there were other shops available in the vicinity. Held, A entitled only to a refund of his advance as his duty was to minimise damages and he could have done so by taking another shop. Thus, in a case of sale of goods, if the vendee refuses to take delivery, the vendor should wait a reasonable time and then resell the goods. If he makes as unreasonable delay, and loses much because of a falling market, he can yet recover only difference between the contract rate and the rate on the date of breach. @ rsm

Damages 

Difficulty of assessment 

The fact that damages are difficult to asses does not prevent the injured party from recovering them.

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Damages 

Example: 

In a beauty competition held by H, 50 ladies were to be selected by voters of readers of certain newspapers. Out of 50, H would select 12 and procure theatrical jobs for them. C was on of the 50. At the time of final selection C could was not present owing to the breach of contract by H. Held; C was entitled to damages even though the calculation of damages was difficult to fix the amount

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Damages 

Damages for loss of reputation 

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Loss of reputation is normally not accepted as a valid ground for claiming damages. But to this rule one exception has been recognised in case of customer – a tradesman whose cheque has been dishonoured wrongfully by a banker. In that case, the trader-customer can claim losses of his trade reputation by such a breach by the banker. In awarding damages, the rule that is normally applied is “the smaller the amount of cheque dishonoured, the larger the amount of damages awarded”. @ rsm

Damages 

Damages for mental pain, inconveniences and discomfort 

In ordinary cases, damages for mental pain suffered or discomfort caused by the breach are not allowed. But they may be allowed in special cases. One such illustrative case, where Lord Atkinson explained the principle, thus:

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Damages 

The facts were: “The plaintiff was employed by the defendant company at a certain salary and commission on trade done. He could be dismissed by six month’s notice. He was given six month’s notice and at the same time another person was appointed to his place, thus preventing him from acting as Manager even for the notice period and earning his commission.

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Damages 

Held, the damages the plaintiff sustained by his illegal dismissal were  

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the wages for the period of six months the profits on commission which would in all probability been earned by him and possibly damages in respect of time which may have reasonably elapsed before he could obtain other employment.

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Damages 

Damages for personal inconvenience 

Damages are also awarded for the personal inconvenience suffered by a party by reason of a breach of contract

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Damages 

Example 

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When a train pulled its passengers to a wrong direction and consequently the plaintiff and his wife, finding neither other conveyance, nor a place to stay, had to walk home at midnight. The Jury allowed $ 8 as the damages for the inconvenience suffered by the plaintiff in being obliged to walk home and $ 20 in respect of wife’s illness caused by catching cold. On appeal, the appeal Court held that $ 8 was properly awarded, but not $20. Arguing the Court said” The inconvenience of walking must be taken to have been within reasonable contemplation of the parties. But the wife’s cold was not necessary or even the probable consequence of the breach”. @ rsm

Damages 

Liquidated Damages and Penalty 

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The contracting parties may stipulate in the contract a sum of money to be paid in case either party breaks the contract. In such cases, the important question is whether the Court of Law will accept the figure as a true measure of damages. According to English Law, the sum so stipulated in the contract amounts to either liquidated damages or penalty.

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Damages 

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Liquidated Damages are sums agreed on by the parties to the contract as an assessment of the damage or loss which will result from a breach of contract. Thus, it is a fair and genuine pre-estimation of the loss likely to because by the breach of a contract.

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Damages 

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Penalty on the other hand, is a sum which has no relation to the probable loss which may arise and which has been stipulated by the parties for the purpose of penalising the party for not performing the contract. A penalty is a sum, therefore, which is disproportionate to the damages likely to accrue as a result of the breach.

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Damages 

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The English Law gives effect to “liquidated damages”, but relieves a party against penalty. In England, “liquidated damages” specified in the contract can be recovered irrespective of whether the sum so specified is greater or less than the actual damage suffered. Penalty clauses, however, are treated as invalid. The Court in such cases allow only a reasonable compensation by way of damages.

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Damages 

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The distinction between liquidated damages and penalties depends on the intention of the parties to be gathered from the whole of contract. If the intention is to secure performance of the contract by the imposition of a fine or penalty, then the sum specified is a penalty, but if on the other hand, the intention is assess the damages for breach of the contract, it is liquidated damages.

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Quantum Meruit 

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The expression “Quantum meruit” means “as much as merited” or “as much as earned”. The expression is often used where the plaintiff claims reasonable remuneration for the services rendered by him when there is no enforceable contract or expressed promise as to the amount of remuneration.

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Quantum Meruit 

Where a party has in the performance of his contract done some work or rendered some service and further performance has been made useless by the other party, he may recover reasonable compensation for the work or service. This is known as the “doctrine of quantum meruit”.

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Quantum Meruit 

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A quantum meruit claim arises where work is done or services performed by one person for another in circumstances which entitled the person doing the work or performing the services to receive a reasonable remuneration therefor. The right to claim quantum meruit does not arise out of a contract as the right to damages does. It is a claim which is quasi-contractual obligation which the law implies in the circumstances.

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Quantum Meruit 

Where the price of work is not fixed, reasonable compensation therefor (quantum meruit) can be awarded. If a term in the contract fixes the price of the work, quantum meruit is excluded

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Quantum Meruit 

Rules 

About five rules govern the quantum meruit doctrine: 

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In case of breach of contract, the aggrieved party is entitled to claim reasonable compensation for what has done so far under the contract

Example: 

P agreed to erect certain buildings but failed to complete the contract. D completed the building himself, using the material left on the site by P. Held P could not recover for the work done but was entitled to recover the value of the materials used. @ rsm

Quantum Meruit 

When a contract is discovered to be void, any person who has received any advantage under such agreement or contract is bound to restore it or to make compensation for it, to the person from whom he received it

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Quantum Meruit 

Example 

P was appointed Managing Director of a Company. The appointment was made by the other Directors who were disqualified by reason of having not taken their qualification shares. P also did not take his qualification shares. But he continued to act as Managing Director and sued the Company for his agreed remuneration and for a reasonable remuneration on the basis of quantum meruit. Held, P was entitled to recover on the basis of quantum meruit.

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Quantum Meruit 

When a work is lawfully done or goods are supplied by a person without any intention to do so gratuitoisly to another person and such other person enjoys the benefit thereof, he is bound to make compensation to the former in respect of, or to restore thing so done or delivered.

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Quantum Meruit 

Example 

A, a trader leaves certain goods with B by mistake not intending to do so gratuitously. B uses the goods. He must pay for them.

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Quantum Meruit 

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If the contract is divisible, part performance will also entittle the defaulting party to claim compensation on the basis of quantum meruit, if the other party has taken the advantage of what he has already done. Example 

P agreed to supply 100 tons of rice at the rate of $ 30 per ton to B, deliveries to be made in two equal instalments. P supplies 50 tons but fails to supply the second instalment. B must pay for 50 tons. @ rsm

Quantum Meruit 

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If a lumpsum is to be paid for the completion of the entire work and the work has been completed in full, though badly, the person who has performed the contract can claim the lumpsum; but the other party can also claim a deduction for bad work. Example 

A agreed to decorate B’s flat and fit a wardrobe for a lump sum of $ 600. The work was done but B complained of defective and faulty workmanship. It was held that this could have been rectified by spending $ 300. Held, that A could recover $ 300 from B. @ rsm

Quantum Meruit 

Limitations to the doctrine 

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In a contract which is not divisible into parts and a lumpsum of money is promised to be paid for the complete work, part performance will not entitle the party to claim any payment

Example 

A sailor was appointed on a ship for a voyage from one part on a lumpsum payment of $ 30. He died when only two-thirds of the voyage was completed. His legal representaive could not recover anything. @ rsm