Abe Discharge

7/23/2019 Abe Discharge

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CONTRACT LAW 3: PERFORMANCE AND DISCHARGE

LESSON OBJECTIVES

BY THE END OF THIS CHAPTER, STUDENT MUST BE ABLE :

1) TO EXPLAIN THE MEANING OF DISCHARGE OF CONTRACT.

2) TO MENTION THE FOUR METHODS OF DISCHARGE

3) TO DISCUSS THE LEGAL PRINCIPLES APPLICABLE TO DISCHARGE BY PERFORMANCE.

a) GENERAL

b) TIME OF PERFORMANCE

c) PARTIAL PERFORMANCE OF AN ENTIRE CONTRACT

d) PAYMENT

e) TENDER

4) TO DISCUSS THE LEGAL PRINCIPLES APPLICABLE TO DISCHARGE BY AGREEMENT.

a) RELEASE

b) ACCORD AND SATISFACTION

c) RESCISSION

d) PROVISIONS CONTAINED IN THE CONTRACT ITSELF

5) TO DISCUSS THE LEGAL PRINCIPLES APPLICABLE TO DISCHARGE BY BREACH.

a) RENUNCIATION

b) IMPOSSIBILITY CREATED BY ONE PARTY

c) FAILURE OF PERFORMANCE

6) TO DISCUSS THE LEGAL PRINCIPLES APPLICABLE TO DISCHARGE BY FRUSTRATION

a) INTRODUCTION

b) TEST OF FRUSTRATION

c) ILLUSTRATIONS OF FRUSTRATION

d) SELF-INDUCED FRUSTRATION

e) LEGAL CONSEQUENCES OF FRUSTRATION

f) FORCE MAJEURE

7) TO DISTINGUISH EQUITABLE REMEDIES AND COMMON LAW REMEDIES

a) DAMAGES –GENERAL

b) DAMAGES –CAUSATION

c) DAMAGES –CALCULATION

d) LIQUIDATED DAMAGES OR PENALTIES

e) SPECIFIC PERFORMANCE AND INJUNCTIONf) ANTON PILLER ORDER (SEARCH ORDER)



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DISCHARGE

1)

WHAT IS MEANT BY A DISCHARGE OF A CONTRACT?

IT IS THE ENDING OF OBLIGATIONS ON THE CONTRACT,

SO THAT NOTHING MORE NEEDS TO BE DONE

CONTRACTUAL LIABILITY DOES NOT GO ON FOREVER

CONTRACTS ARE BROUGHT TO AN END(DISCHARGED) IN ONE OF FOUR MAIN WAYS

2) HOW MAY A CONTRACT BE DISCHARGED? MENTION THE FOUR(4)WAYS OF TERMINATING A

CONTRACT?

PERFORMANCE

AGREEMENT

FRUSTRATION

BREACH

PERFORMANCE

1) WHAT IS THE GENERAL RULE ABOUT PERFORMANCE?

THE PERFORMANCE MUST BE PRECISE AND EXACT- PARTIAL PERFORMANCE IS NOT GOOD.

2) WHAT WAS CUTTER- V- POWELL (1795) ALL ABOUT?

IT WAS A CASE IN WHICH A SAILOR WHO HAD AGREED TO HELP SAIL A SHIP HOME TO UK DIED

BEFORE THE SHIP REACHED UK

HIS WIFE SOUGHT TO RECOVER FOR THE WORK DONE

HELD: HE HAD NOT FULFILLED THE CONTRACT



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WHAT ARE THE FOUR EXCEPTIONS DEVELOPED TO THE GENERAL RULE ABOUT FULL PERFORMANCE?

1. IF THE CONTRACT IS DIVISIBLE INTO PARTS THE COMPLETION OF A PART WILL ENTITLE THE CONTRACTOR

TO PART PAYMENT

2. IF ONE PARTY PREVENTS THE OTHER FROM COMPLETING THE WORK THAT PARTY CAN CLAIM A

QUANTUM MERUIT(AS MUCH AS IS DESERVED)

3. IF ONE ACCEPTS PARTIAL PERFORMANCE BY THE OTHER A QUANTUM MERUIT WILL APPLY

4. IF ONE PARTY HAS SUBSTANTIALLY PERFORMED THE CONTRACT, THE COURT WILL DECIDE A FAIR

PAYMENT

WHAT ARE THE FOUR GENERAL RULES AFFECTING THE PERFORMANCE OF A CONTRACT?

THERE ARE FOUR RULES AFFECTING THE PERFORMANCE OF A CONTRACT.

1. THE CARDINAL ONE IS THAT A PERSON MUST PERFORM EXACTLY WHAT HE/SHE HAS PROMISED TO DO.

2. DOING SOMETHING DIFFERENT FROM THAT AGREED TO, EVEN THOUGH IT MAY BE COMMERCIALLY

MORE VALUABLE TO THE OTHER PARTY, IS NOT PERFORMANCE IN LAW.

IN RE MOORE & CO. AND LANDAUER & CO. (1921), A CONTRACT WAS FOR THE SUPPLY OF 3,000

TINS OF CANNED FRUIT, TO BE PACKED IN CASES OF 30 TINS EACH. PART OF THE CONSIGNMENT

WAS PACKED IN CASES OF 24 TINS.

HELD: THE ENTIRE CONSIGNMENT WOULD BE REJECTED BY THE BUYERS.

THIS RULE IS, HOWEVER, SUBJECT TO THE "DE MINIMIS" RULE –THAT IS, THE LAW WILL NOT TAKE

NOTE OF TRIVIAL MATTERS OR DIFFERENCES.

3. IF A CONTRACT ENTAILS NO PERSONAL SKILL, A CONTRACTING PARTY MAY GET SOMEONE ELSE TO

PERFORM IT ON HIS/HER BEHALF (ALTHOUGH HE/SHE, OF COURSE, REMAINS LIABLE).

4. HOWEVER, IF IT ENVISAGES THE PERSONAL PERFORMANCE OF THE PROMISOR, WHETHER EXPRESSLY

OR BY IMPLICATION, THEN HE/SHE ALONE MUST PERFORM IT.



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WHAT ARE THE RULES RELATING TO TIME OF PERFORMANCE?

TIME OF PERFORMANCE (WHAT ARE THE RULES RELATING TO TIME OF PERFORMANCE)

1. IF A CONTRACT DOES NOT SPECIFY ANY TIME FOR PERFORMANCE OR, IF VAGUE WORDS ARE USED,

SUCH AS " AS SOON AS POSSIBLE ", OR " AT EARLIEST CONVENIENCE" , THEN AN OBLIGATION IS IMPLIED

BY LAW TO PERFORM WITHIN A REASONABLE TIME.: UNION EAGLE LTD V. GOLDEN ACHIEVEMENT

(1997).

2. IF A CONTRACT STIPULATED A TIME BY WHICH PERFORMANCE MUST BE COMPLETED, AND THAT TIME

IS EXCEEDED, THE INNOCENT PARTY COULD NOT AUTOMATICALLY TREAT THE CONTRACT AS

DISCHARGED.

3. THE GENERAL RULE IS THAT TIME OF PERFORMANCE IS MERELY A WARRANTY, BREACH OF WHICH WILL

GIVE RISE TO A CLAIM FOR DAMAGES ONLY. IT IS NOT A CONDITION, ALLOWING THE INNOCENT PARTY

TO RESCIND(CANCEL CONTRACT).

4. THEREFORE, IT IS IN ONLY THREE CIRCUMSTANCES THAT "TIME IS OF THE ESSENCE" IE A

CONDITION(VITAL TERM)OF A CONTRACT..TIME IS A CONDITION IN THE FOLLOWING SITUATIONS:

i. WHERE THE PARTIES EXPRESSLY STATE IN THE CONTRACT THAT TIME IS OF THE ESSENCE OR MUST

BE STRICTLY COMPLIED WITH. THE FORM OF WORDS USED IS NOT SIGNIFICANT, PROVIDED THE

INTENTION IS CLEAR.

ii. WHERE THE CIRCUMSTANCES OF THE CONTRACT OR OF THE SUBJECT MATTER SHOW THAT STRICT

COMPLIANCE WITH STIPULATIONS AS TO TIME WAS INTENDED OR SHOULD NECESSARILY BE

IMPLIED.

iii. WHERE TIME WAS NOT ORIGINALLY OF THE ESSENCE, BUT BECAUSE OF UNDUE DELAY, ONE PARTY

HAS GIVEN NOTICE THAT THE CONTRACT MUST BE PERFORMED BY A SPECIFIED REASONABLE DATE.



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MENTION THE FACTS AND DECISION OF CLASSIC CASE ILLUSTRATINGTHE RULES RELATING TO TIME OF

PERFORMANCE?

IN CHARLES RICKARDS LTD V. OPPENHEIM (1950), OPPENHEIM ORDERED A ROLLS ROYCE CHASSISIN

EARLY 1947.

IN MID (JULY )1947 , RICKARDS AGREED THAT THE BODY SHOULD BE BUILT FOR IT "WITHIN SIX OR AT

MOST SEVEN MONTHS".

TEN MONTHS LATER, IT WAS NOT COMPLETED; OPPENHEIM SERVED NOTICE ON RICKARDS THAT, IF THE

CAR WAS NOT READY IN FOUR WEEKS, HE WOULD CANCEL THE ORDER. IT WAS NOT –SO HE CANCELLED.

THREE MONTHS LATER, THE FINISHED ROLLS ROYCE WAS TENDERED, BUT OPPENHEIM REFUSED TO

ACCEPT IT.

HELD: HE WAS ENTITLED TO DO SO. TIME WAS NOT, ORIGINALLY, OF THE ESSENCE, BUT BECAUSE OF

RICKARDS' BREACH, THE NOTICE REQUIRING COMPLETION IN FOUR WEEKS SERVED TO MAKE TIME OF

THE ESSENCE.

PARTIAL PERFORMANCE OF AN ENTIRE CONTRACT

THE COMPLETE PERFORMANCE OF AN ENTIRE CONTRACT IS, NORMALLY, A CONDITION PRECEDENT TO

ANY LIABILITY ON THE OTHER PARTY –E.G. TO MAKE PAYMENT. THE COURTS CANNOT APPORTION THE

CONSIDERATION –SO, UNLESS THE CONTRACT IS COMPLETED, NOTHING IS DUE ON ACCOUNT OF IT.

THE CLASSIC EXAMPLE IS CUTTER V. POWELL (1795). A SEAMAN WAS ENGAGED FOR A LUMP SUM ON

COMPLETION OF THE VOYAGE. HE DIED PART WAY THROUGH THE VOYAGE, AND IT WAS HELDTHAT HIS

EXECUTORS COULD NOT CLAIM ANY WAGES FOR THE TIME PRIOR TO HIS DEATH.

THE RULE ON ENTIRE CONTRACTS WAS LARGELY DEVELOPED BY BUILDING OR "WORK AND MATERIALS"

CONTRACTS. SO, UNLESS THE CONTRACT PROVIDED FOR STAGE PAYMENTS, IF A BUILDER FAILED TO

COMPLETE A HOUSE, HE/SHE COULD RECOVER NOTHING, EVEN THOUGH THE OWNER WOULD HAVE

DERIVED SUBSTANTIAL BENEFIT FROM THE WORK THAT HAD BEEN DONE AND MATERIALS PROVIDED

(MODERN BUILDING CONTRACTS ALWAYSPROVIDE FOR STAGE PAYMENTS).

LIKEWISE, A SHIP OWNER CANNOT RECOVER FREIGHT IF THE GOODS ARE NOT CARRIED TO THE AGREED

DESTINATION (BILLS OF LADING, THEREFORE, ALWAYS PROVIDE FOR FREIGHT TO BE PAYABLE, "CARGO

LOST OR NOT LOST").



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FROM THESE TWO EXAMPLES, YOU WILL SEE THAT, BY EXPRESS WORDS, A CONTRACT CAN ALLOW FOR

PARTIAL PAYMENT IN THE EVENT OF INCOMPLETE PERFORMANCE. IN ADDITION, TO ALLEVIATE WHAT

COULD BE AN ABSURDITY.

THE DOCTRINE OF "SUBSTANTIAL PERFORMANCE"HAS EVOLVED. THIS SAYS THAT, IF A PERSON HAS

COMPLETED THE CONTRACT IN ALL BUT AN INSIGNIFICANT OR UNIMPORTANT PART, HE/SHE IS ENTITLED

TO PAYMENT FOR THE WHOLE, LESS ANY AMOUNT FOR THE UNCOMPLETED WORK.

WHAT IS "SUBSTANTIAL PERFORMANCE" IS A QUESTION OF FACT, DEPENDING ON THE CIRCUMSTANCES

AND THE DETAILS OF THE CONTRACT.

"SUBSTANTIAL PERFORMANCE" CAN BE EXCLUDEDBY EXPRESS WORDS IN THE CONTRACT.

HOWEVER, IF A CONTRACT IS ONLY PARTIALLY COMPLETED AND THE CIRCUMSTANCES ARE SUCH THAT

THE COURT CAN REASONABLY IMPLY IT, THEN IT MAY IMPLY A FRESH CONTRACT TO ACCEPT WHAT HAS

BEEN PERFORMED AND PAY ON A "QUANTUM MERUIT ", I.E. FOR WHAT HASBEEN DONE.

THIS IS LIKELY TO OCCUR BY IMPLICATION WHERE THE INNOCENT PARTY HAS ACTUALLY ACCEPTED SOME

BENEFIT UNDER THE CONTRACT. FOR EXAMPLE, IN CONTRACTS FOR SALE OF GOODS, A BUYER IS NOT

COMPELLED TO ACCEPT A DIFFERENT QUANTITY FROM THAT ORDERED. HOWEVER, IF HE/SHE DOES

ACCEPT THEM, THEY MUST BE PAID FOR AT THE CONTRACT RATE FOR WHAT HAS BEEN TAKEN.



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PAYMENT

A CONTRACT MAY PROVIDE FOR PAYMENT IN A CERTAIN MANNER OR AT A CERTAIN TIME AND, IF

COMPLIED WITH, THIS SERVES TO DISCHARGE THE OBLIGATION TO PAY.

IF THERE IS NO SPECIFIC PROVISION, THE STRICT RULE IS THAT PAYMENT MUST BE MADE IN LEGAL

TENDER. IF THE CREDITOR ACCEPTS A CHEQUE, BILL OF EXCHANGE, OR OTHER NEGOTIABLE

INSTRUMENT, HE/SHE IS, IN REALITY, AGREEING TO A VARIATION OF THE CONTRACT.

HOWEVER, IF SUCH A NEGOTIABLE INSTRUMENT IS DISHONOURED, THE CREDITOR HAS TWO REMEDIES:

HE/SHE CAN SUE FOR THE VALUE OF THE DISHONOURED CHEQUE OR OTHER INSTRUMENT; OR

REVERT TO THE ORIGINAL CONTRACT, AND SUE FOR PAYMENT UNDER IT.

IN PRACTICE, IT IS, USUALLY, SIMPLER TO SUE IN RESPECT OF THE INSTRUMENT, AS THEN NO

PROOF IS REQUIRED THAT THE CONTRACT HAS BEEN PERFORMED, AND THE MONEY IS DUE.

SHOULD PAYMENT BE MADE BY A THIRD PARTY WHO IS NOT JOINTLY LIABLE UNDER THE CONTRACT,

THEN THE DEBT IS NOT DISCHARGED, UNLESS THE THIRD PARTY PAYS AS AGENT FOR THE DEBTOR AND

WITH HIS/HER AUTHORITY.

HOWEVER, IF THE CREDITOR REQUESTS THE DEBTOR TO MAKE PAYMENT TO A THIRD PARTY, THIS, WHEN

MADE, DISCHARGES THE DEBT.

THE TIME OF PAYMENT IS A QUESTION OF THE CONSTRUCTION OF THE CONTRACT. IT MAY BE

EXPRESSLY STATED, OR TO BE NECESSARILY INFERRED FROM THE TERMS. HOWEVER, IF NOTHING IS

STATED OR TO BE INFERRED, THE DEBTOR MUST PAY WHEN THE WORK IS COMPLETED AND HE/SHE HAS

HAD A REASONABLE OPPORTUNITY TO INSPECT IT. MONEY WHICH IS STATED TO BE "PAYABLE ON

DEMAND" MUST BE READY AND HANDED OVER WHEN DEMANDED.

THE PLACE OF PAYMENT IS, UNLESS OTHERWISE STATED IN THE CONTRACT, OR TO BE INFERRED FROM

IT, THE PLACE OF BUSINESS OR RESIDENCE OF THE CREDITOR. IT IS THE DEBTOR'S JOB TO SEEK OUT THE

CREDITOR AND PAY HIM/HER.

PROOF OF PAYMENT MAY BE GIVEN IN ANY WAY. A "RECEIPT" IS ONLY PRIMA FACIE EVIDENCE OF

PAYMENT.



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TENDER

"TENDER" IS THE ACT OF ATTEMPTED PERFORMANCE. IT APPLIES TO BOTH PARTIES.

ONE PARTY MAY TENDER WORK IN PERFORMANCE OF HIS/HER PROMISE; THE OTHER MAY TENDERPAYMENT.

IF THE ONE PARTY TENDERS WORK, AND THE OTHER REFUSES TO ACCEPT IT, THE TENDEROR MAY ELECT

TO TREAT THE CONTRACT AS REPUDIATED, AND SUE FOR DAMAGES.

ON THE OTHER HAND, IF A DEBTOR TENDERS PAYMENT, AND THE CREDITOR REFUSES TO ACCEPT IT, THE

DEBT IS NOT DISCHARGED. THE DEBTOR MUST CONTINUE AND REMAIN READY TO PAY THE DEBT.

SHOULD THE CREDITOR SUE, THE DEBTOR CAN PLEAD THAT HE/SHE DULY TENDERED IT –BUT MUST STILL

PAY THE MONEY INTO COURT.

AS WE SAID BEFORE, UNLESS THE CONTRACT PROVIDES OTHERWISE, STRICTLY SPEAKING, TENDER OF

PAYMENT MUST BE IN LEGAL TENDER. THE CREDITOR IS NOT BOUND TO ACCEPT A CHEQUE OR OTHER

INSTRUMENT OF PAYMENT.

THAT IS THE OLD RULE BUT NOWADAYS, IN COMMERCIAL TRANSACTIONS, ANY RECOGNISED METHOD

OF TRANSFERRING MONEY WHICH GIVES THE CREDITOR IMMEDIATE USE OF THE FUNDS WILL

SUFFICE.NOTE: SPECIFIC RULES AS TO PAYMENT AND PERFORMANCE APPLY TO CONTRACTS FOR THE

SALE AND SUPPLY OF GOODS.



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AGREEMENT

WHAT IS THE BASIC RULE ABOUT DISCHARGE BY AGREEMENT?

A CONTRACT WHICH WAS MADE BY AGREEMENT CAN ALSO BE TERMINATED BY AGREEMENT

THE PARTIES CAN JUST AGREE TO END IT

AS A CONTRACT COMES INTO EXISTENCE ONLY BY AGREEMENT, ITS DISCHARGE, OR ENDING, COULD

EQUALLY EASILY BE EFFECTED BY AGREEMENT.

JUST AS THERE ARE VARIOUS TECHNICAL RULES GOVERNING THE VALID FORMATION OF THE CONTRACT,

SO THERE ARE RULES, SOME RATHER ARTIFICIAL, GOVERNING ITS DISCHARGE.

MENTION THE FOUR WAYS IN WHICH A CONTRACT CAN BE ENDED BY DISCHARGE

THERE ARE FOUR WAYS IN WHICH A CONTRACT CAN BE DISCHARGED BY AGREEMENT:

1. BY "RELEASE";

2. BY "ACCORD AND SATISFACTION";

3. BY "RESCISSION"; AND

4. BY SOME PROVISION CONTAINED IN THE CONTRACT ITSELF.

1. RELEASE

WHAT IS MEANT BY “ RELEASE” ?

RELEASE IS THE FORMAL WAY OF BRINGING THE OBLIGATIONS ON THE CONTRCAT TO AN END

RELEASE OCCURS WHERE THE PARTIES ARE AGREED THAT THE ORIGINAL CONTRACT IS FOR SOME

REASON ABORTIVE (FRUITLESS) AND THAT THEY WOULD BE MUTUALLY BETTER OFF IF IT WAS

BROUGHT TO AN END,THE CONTRACT IS THEN TERMINATED BY DRAWING UP A DEED GRANTING EACH

OTHER RELEASE FROM ALL OBLIGATIONS OF THE CONTRACT.

IF ONE PARTY RELEASES ANOTHER FROM HIS/HER OBLIGATIONS, THERE IS, NORMALLY, NO

CONSIDERATION FOR THE ACT.THIS APPLIES WHERE THE PARTY RELEASING THE OTHER HAS FULLYPERFORMED ALL HIS/HER OBLIGATIONS, WHILE THE OTHER HAS NOT.

IF BOTH OF THEM STILL HAVE OBLIGATIONS TO PERFORM, THE CONSIDERATION FOR EACH FOREGOING

HIS/HER RIGHTS IS THE FOREGOING BY THE OTHER. HOWEVER, IF THERE IS NO CONSIDERATION, A

UNILATERAL RELEASE CAN BE EFFECTIVE ONLY IF IT IS UNDER SEAL. YOU WILL REMEMBER THAT A

CONTRACT UNDER SEAL IS VALID EVEN IF NO CONSIDERATION IS PRESENT.



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2. ACCORD AND SATISFACTION

WHAT DO WE CALL WHEN ONE PARTY AGREED NOT TO ENFORCE HIS RIGHTS IN RETURN FOR SOME MONEY

OR OTHER VALUABLE CONSIDERATION?

ACCORD AND SATISFACTION

BRIEFLY EXPLAIN ACCORD AND SATISFACTION

ACCORD-IS THE AGREEMENT BY WHICH THE OBLIGATION IS DISCHARGED.

SATISFACTION-IS THE VALUABLE CONSIDERATION WHICH MAKE THE AGREEMENT EFFECTIVE.

IF A CONTRACT HAS BEEN MADE BUT LATER ONE PARTY WISHES TO BE RELEASED FROM THE

CONTRACTUAL OBLIGATION HE OR SHE HAS UNDERTAKEN IT CAN BE DONE BY ACCORD AND

SATISFACTION.

THE OTHER PARTY AGREES TO THE ENDING OF OBLIGATIONS (ACCORD) IN RETURN FOR SOME

VALUABLE CONSIDERATION NOT BEING PART OF THE EARLIER CONTRACT (SATISFACTION).

ACCORD WITHOUT SOME NEW VALUABLE CONSIDERATION FOR THE BREACH OF CONTRACT IS NOT A

FULL RELEASE, AND ACTION MAY BE STARTED LATER

FOR, EXAMPLE PAYMENT OF A LESSER SUM TO SATISFY A LARGER DEBT DOES NOT PREVENT A CREDITOR

FROM SUING FOR THE REST OF THE MONEY LATER(FOAKES V BEER (1884))

BUT IF THERE HAS BEEN SOME NEW ELEMENT NOT PREVIOUSLY INCLUDED IN THE BARGAIN- SUCH AS

PAYING BEFORE IT WAS DUE.

PAYING IT BY GOODS INSTEAD OF CASH

THE CHANGED CONSIDERATION WILL REPRESENT VALUABLE CONSIDERATION FOR THE NEW AGREEMENT

THE VERY USE OF THE WORD ACCORD IMPLIES THAT PARTIES AGREE ABOUT THE MATTER, AND SOME

FAIR CONSIDERATION PROVIDES SATISFACTION FOR THE WRONG DONE SO THAT THE MATTER DOES

NOT BECOME A DISPUTE AND IS SETTLED OUT OF COURT.THIS IS CALLED "ACCORD AND

SATISFACTION".

THE "ACCORD" IS THE AGREEMENT; THE "SATISFACTION" IS THE CONSIDERATION. PROVIDED THAT THE

SATISFACTION IS VALUABLE CONSIDERATION , ALL IS WELL.

IN THIS CONTEXT, IT CAN, OF COURSE, BE SOME OTHER PERFORMANCE THAN THAT OF THE ORIGINAL

OBLIGATION.

HIS STATES THAT THE PAYMENT OF A SMALLER SUM IN SATISFACTION OF A LARGER IS NOT A GOOD

DISCHARGE OF A DEBT. HOWEVER, IF THE PAYMENT OF THE SMALLER SUM IS MADE IN A DIFFERENT

WAY, OR AT A DIFFERENT TIME FROM THAT PRESCRIBED FOR THE LARGER SUM, THIS DIFFERENCE

CONSTITUTES ADEQUATE CONSIDERATION TO SUPPORT THE AGREEMENT FOR DISCHARGE OF THE

WHOLE DEBT. THIS IS AN EXAMPLE OF DISCHARGE BY ACCORD AND SATISFACTION.



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3. RESCISSION

WHILE A CONTRACT HAS NOT BEEN FULLY PERFORMED BY BOTHSIDES, IT CAN BE DISCHARGED BY

MUTUAL AGREEMENT, THE CONSIDERATION FOR THE AGREEMENT BEING THE MUTUAL GIVING-UP OFRIGHTSUNDER THE CONTRACT. IN THE COURT CONTEXT, THE REMEDY IS RESCISSION: IT RECOGNISES

AND ENFORCES THE CONTRACT TERMINATION.

WHAT IS MEANT BY RESCISSION?

RESCISSION IS AN EQUITABLE REMEDY

A REMEDY WHICH IS NOT AVAILABLE AS OF RIGHT,

BUT ONLY WITH THE DISCRETION OF THE COURT

BASED ON THE PRINCIPLE OF FAIRNESS

RESCISSION CAN MEAN A FORMAL ORDER OF THE COURT;OR

THE ACT OF ONE PARTY TO THE CONTRACT

IN CANCELLING OR AVOIDING THE CONTRACT

WHAT ARE THE TWO LEGAL EFFECTS OF A RESCISSION?

IT SETS ASIDE THE CONTRACT AS IF THE CONTRCAT HAD NOT EXISTED.

IT RETURNS BOTH PARTIES TO THEIR PRE-CONTRACTUAL POSITION.

THE EFFECT OF JOINT REPUDIATION IS THAT THE CONTRACT IS DISCHARGED AND RIGHTS UNDER IT

CANNOT AFTERWARDS BE REVIVED.

WHAT IS MEANT BY A WAIVER?

A WAIVER IS ANOTHER VARIANT ON THE SAME THEME, AND IT IS AKIN TO A "RELEASE".

THIS APPLIES WHEN ONE PARTY AGREES NOT TO INSIST ON THE EXACT METHOD OF PERFORMANCE BY

THE OTHER FIXED BY THE CONTRACT.

HE/SHE AGREES TO WAIVE HIS/HER RIGHTS TO STRICT CONTRACTUAL PERFORMANCE.

4. PROVISIONS CONTAINED IN THE CONTRACT ITSELF

THIS IS FAIRLY OBVIOUS. IF THE CONTRACT ITSELF PROVIDES FOR ITS DISCHARGE IN CERTAIN CIRCUMSTANCES,

THEN THIS IS AN AGREED CONTRACTUAL TERM. T

WHAT IS A DISCHARGE BY AGREEMENT CLAUSE?

THIS IS WHERE A CONTRACT CONTAINS A CLAUSE WHICH PRESCRIBES SOME METHOD OF BY WHICH THE

CONTRACT WILL BE DISCHARGED,SUCH AS

A CONDITION PRECEDENT;OR

A CONDITION SUBSEQUENT

WHEN THIS EVENT OCCURS,THEN THE CONTRACT WILL BE DISCHARGED



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BREACH

1) WHAT IS MEANT BY BREACH OF CONTRACT?

BREACH OF CONTRACT MEANS THAT ONE PARTY HAS FAILED TO FULFIL HIS PROMISE, DUTY AND

OBLIGATION UNDER THE CONTRACT

WHEN IT DOES OCCUR IT WILL ALWAYS ENTITLE THE DISAPPOINTED PARTY TO SUE FOR DAMAGES

IT MAY ALSO ENTITLE THE DISAPPOINTED PARTY TO TREAT THE CONTRACT AS DISCHARGED, BUT THIS

APPLIES IF EITHER THE WHOLE CONTRACT WHICH GOES TO THE ROOT OF THE WHOLE AFFAIR HAS BEEN

BROKEN.

2) WHAT IS THE EFFECT OF A BREACH OF A MINOR CLAUSE (WARRANTY)?

THE PLAINTIFF IS ENTITLED TO TO DAMAGES FOR BREACH OF WARRANTY-THE CONTRACT CONTINUES

3)

WHAT IS THE EFFECT OF A BREACH OF A CONDITION?

THE AGGRIEVE PARTY HAS TWO OPTIONS TO

a) TREAT CONTRACT AS DISCHARGED BY BREACH AND THEN SUE FOR DAMAGES

b) TO CONTINUE THE CONTRACT AND SUE FOR NON-PERFORMANCE

WHAT IS ANTICIPATORY BREACH/ RENUNCIATION?

IT IS WHERE A PARTY GIVES EXPRESS NOTICE BEFORE THE CONTRACT IS DUE TO START THAT HE OR SHE

WILL NOT BE PERFORMING A CONTRACT.

THE INJURED PARTY HAS THE OPTION OF TREATING THE CONTRACT AS DISCHARGED AND SEEKING

DAMAGES.

IF ONE OF THE PARTIES, BY HIS WORDS OR HIS ACTIONS, MAKES IT PLAIN THAT HE HAS NO INTENTION OF

PERFORMING OR CONTINUING TO PERFORM HIS SIDE OF THE BARGAIN, HE IS SAID TO RENOUNCE THE

CONTRACT.

IN ORDER TO JUSTIFY THE INNOCENT PARTY THEN TREATING THE CONTRACT AS DISCHARGED, THE

RENUNCIATION MUST BE SUBSTANTIALLY COMPLETE. A MERE REFUSAL TO CARRY OUT A PART IS NOT

SUFFICIENT, UNLESS THAT PART IS AN ESSENTIAL ELEMENT OF THE CONTRACT.



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THE TEST IS: "WOULD A REASONABLE PERSON CONCLUDE FROM HIS/HER WORDS OR DEEDS THAT

HE/SHE NO LONGER INTENDED TO BE BOUND BY THE TERMS OF THE CONTRACT?"

RENUNCIATION CAN OCCUR EITHER BEFORE THE TIME FOR PERFORMANCE HAS ARRIVED OR DURING ITS

COURSE. IN THE LATTER EVENT, THE PROBLEM IS STRAIGHTFORWARD.

WHETHER RENUNCIATION HAS OCCURRED SUCH AS TO ENTITLE THE INNOCENT PARTY TO RESCIND IS A

MATTER OF FACT FOR THE COURT. SEE: FERCOMETAL SARL V. MEDITERRANEAN SHIPPING CO. SA (THE

SIMONA) (1989).

5. HOWEVER, IN THE FORMER EVENT, THE INNOCENT PARTY HAS A CHOICE.

(A)HE CAN WAIT FOR THE TIME OF PERFORMANCE TO ARRIVE, THEN SUE FOR DAMAGES AND, IF APPLICABLE,

REFUSE HIMSELF TO PERFORM BY REASON OF THE RENUNCIATION.(B)HE CAN, FORTHWITH, TREAT THE RENUNCIATION AS ABSOLVING HIM FROM THE NECESSITY TO PERFORM,

AND SUE FOR DAMAGES.

THIS IS CALLED "ANTICIPATORY BREACH". IF ONE PARTY, BY WORDS OR CONDUCT, LEADS THE OTHER TO

REASONABLY BELIEVE THAT HE DOES NOT INTEND TO BE BOUND BY HIS AGREEMENT, THE LAW DOES NOT

REQUIRE THAT OTHER PARTY TO AWAIT THE INEVITABLE. TO PROTECT HIMSELFOR TO MITIGATE HIS LOSS, HE

IS QUITE ENTITLED TO ANTICIPATE THE INEVITABLE EVENT AND ACT ACCORDINGLY.

IN HOCHSTER V. DE LA TOUR (1853),A TRAVELLING COURIER WAS APPOINTED FOR A JOURNEY. BEFORE THE TIME

FOR THE START, THE EMPLOYER WROTE TO SAY HE NO LONGER REQUIRED THE SERVICES OF THE COURIER. THE

COURIER IMMEDIATELY SUED FOR DAMAGES.

HELD: HE WAS ENTITLED TO DO SO. HE NEED NOT AWAIT THE INEVITABLE.

IMPOSSIBILITY CREATED BY ONE PARTY

IF ONE PARTY, BY HIS/HER OWN ACTIONS (OR LACK OF THEM) CREATES A SITUATION WHEREBY IT IS

IMPOSSIBLE FOR HIM/HER TO PERFORM, HE/SHE IS NOT ALLOWED TO RELY ON THE IMPOSSIBILITY AS

BEING AN EXCUSE FOR NOT PERFORMING. THE OTHER PARTY IS ENTITLED TO TREAT THE CONTRACT AS

DISCHARGED. IF THE IMPOSSIBILITY IS CREATED BEFORE THE TIME OF PERFORMANCE, IT WILL OFTEN,

BUT NOT NECESSARILY, GIVE RISE TO ANTICIPATORY BREACH.

IN UNIVERSAL CARGO CARRIERS CORPORATION V. CITATI (1957), THE CHARTERER OF A SHIP CONTRACTED TO

NOMINATE A BERTH, PROVIDE A CARGO AND LOAD IT; ALL BEFORE A GIVEN DATE. THREE DAYS BEFORE THIS

DATE, HE HAD DONE NONE OF THESE THINGS.

HELD: THE SHIP OWNER COULD TREAT THE CONTRACT AS DISCHARGED, AS IT WOULD BE IMPOSSIBLE TO

PERFORM, OWING TO THE CHARTERER'S OWN NEGLECT.



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FAILURE OF PERFORMANCE

IN THE EVENT THAT ONE PARTY FAILS TO PERFORM, WHETHER WHOLLY OR PARTIALLY, THIS MAY ENTITLE

THE OTHER TO TREAT THE CONTRACT AS DISCHARGED.

WHETHER OR NOT HE/SHE CAN DEPENDS ON THE EXTENT AND IMPORTANCE OF THE FAILURE. ONCE

AGAIN, THE QUESTION IS: "DID THE FAILURE TO PERFORM AMOUNT TO A BREACH OF A CONDITION OR A

WARRANTY?"

THIS IS THE CLASSIC VIEW BUT, NOWADAYS, COURTS OFTEN TRY TO ESCAPE FROM THE RIGID DEFINITION

OF "CONDITION" OR "WARRANTY", AND THEY SEEK TO EQUATE THE TERM TO THE COMMERCIAL REALITY

OR IMPORTANCE OF THE BREACH WITH REGARD TO THE COMMERCIAL INTENTIONSOF THE PARTIES ATTHE TIME THEY MADE THEIR BARGAIN.



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FRUSTRATION

DISCHARGE BY FRUSTRATION

INTRODUCTION

THE LAST CATEGORY IN WHICH A CONTRACT CAN BE DISCHARGED ARISES BY OPERATION OF LAW AND NOT BY

ANY VOLITION(FREE WILL) OF EITHER PARTY. IT IS CALLED "FRUSTRATION".

WHAT IS FRUSTRATION?

IT IS THE DOCTRINE WHICH HOLDS THAT A CONTRACT NEED NOT BE PERFORMED IF :

a) SOMETHING HAS HAPPENED WHICH WAS NOT ENVISAGED (FORESEEN) BY EITHER PARTY.

b) IT IS NOT THE FAULT OF EITHER PARTY; AND

c) TO PERFORM THE CONTRACT NOW WOULD BE SUBSTANTIALLY DIFFERENT FROM WHAT WAS

ORIGINALLY INTENDED

IF SOME EVENT OCCURS

a) WHICH IS NOT THE FAULT OF EITHER PARTY; AND

b) WHICH COULD NOT REASONABLY HAVE BEEN FORESEEN,

c) WHICH SO ALTERS THE WHOLE CHARACTER OF THE BARGAIN AS TO MAKE IT A TOTALLY

DIFFERENT THING FROM THAT INTENDED,

d) THE CONTRACT MAY BE DISCHARGED BY FRUSTRATION.

IT IS ESSENTIAL TO APPRECIATE THAT THE FRUSTRATING EVENT

MUST BE SOMETHING EXTRANEOUS(EXTERNAL) TO THE CONTRACT AND THAT IT

MUST BE SUCH AS TO FRUSTRATE THE COMMERCIAL PURPOSE OF THE CONTRACT.

IT IS NOT UP TO THE PARTIES TO AGREE ON WHETHER OR NOT AN EVENT, WHEN IT

OCCURS, HAS FRUSTRATED THE CONTRACT.

IT IS STRICTLY A QUESTION OF LAW TO DECIDE IF THAT EVENT DID SERVE TO FRUSTRATE. THEY CAN,

OF COURSE, CARRY ON WITH THEIR BARGAIN, ON THE SAME OR ALTERED TERMS, BUT THAT HAS THE

EFFECT OF MAKING A FRESH CONTRACT AFTER THE OLD ONE HAS BEEN DISCHARGED BY OPERATION

OF LAW.



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GIVE EXAMPLES WHERE THE DOCTRINE OF FRUSTRATION HAS BEEN HELD TO APPLY? PLEASE, CITE A CASE FOR

EACH EXAMPLE

WHERE SUBJECT MATTER HAS BEEN DESTROYED AS IN TAYLOR V CADWELL(1863),WHERE A

MUSIC HALL WAS HIRED BUT WAS BURNT DOWN BEFORE HIRE DATE.

NON-OCCURENCE OF AN EVENT ON WHICH CONTRACT WAS BASED-AS WHERE THE

CORONATION OF KING EDWARD VII WAS CANCELLED(KRELL V HENRY(1903))

PERSOANL INCAPACITY WHERE THE CONTRCAT IMPLIES PERSONAL PERFORMACE OR

SERVICES,(EG INSANITY OR SERIOUS ILLNESS OR DEATH WHICH PREVENTS THE PARTIES

HONOURING THE CONTRACT

SUPERVENING ILLEGALITY: IMPOSSIBILITY CAUSED BY SOME CHANGE IN THE LAW OR BY

ACTION TAKEN UNDER STATUTORY AUTHORITY(RE SHIPTON, ANDERSON& CO(1915))IN WHICH

A CONTRACT FOR THE SALE OF WHEAT STORED IN A WAREHOUSE WAS FRUSTRATED BWHEN

GOVERNMENT REQUISITIONED IT UNDER IT S EMERGENY WARTIME POWERS.

ADMINISTRATIVE INTERFERENCE:AN EXTENSIVE INTERRUPTION WHICH ALTERS PERFORMANCE

MAY MAKE FURTHER EXECUTION OF THE CONTRACT FUNDAMENTALLY IMPRACTICABLE OR

ESSENTIALLY DIFFERENT TO PERFORMANCE AS ORIGINALLY CONTEMPLATED BY THE

CONTRCATING PARTIES(METROPOLITAN WATER BOARD V DICK KERR & CO LTD 1918)

MENTION THREE INSTANCES WHERE FRUSTRATION WILL NOT APPLY . PLEASE, CITE A CASE FOR EACH

EXAMPLE.

A CONTRACT IS NOT FRUSTRATED IF IT MERELY BECOMES MORE DIFFICULT OR EXPENSIVE TO

PERFORM IN A DIFFERENT WAY.

TSAKITOGLOU V NOBLEE THORL(1960)

DAVIS CONTRCATORS V FARENHAM UDC( 1956)

A CONTRACT IS NOT FRUSTRATED MERELY BECAUSE ONE PARTY HAS EXPRESSLY UNDERTAKEN TO

DO SOMETHING WHICH HE LATER FINDS HE CANNOT ACHIEVE

CASSIDY V OSUUSTUKKUKAUPPA (1957)

NOR IS A CONTRACT FRUSTRATES IF A PARTY BY HIS OWN CHOICE INDUCES IMPOSSIBILITY WHICH

COULD HAVE BEEN AVOIDED.SELF-INDUCED/SELF-INFLICTED FRUSTRATION IS NO FRUSTRATION

MARITIME NATIONAL FISH V OCEAN TRAWLERS (1935)S



17

1) WHAT IS THE LEGAL EFFECT OF FRUSTRATION?

THE CONTRACT IS ENDED ONCE AND FOR THE FUTURE

THE FINANCIAL ARRANGEMENT ARE THOSE LAID DOWN LAW REFORM(FRUSTRATED CONTRACTS ).

AT COMMON LAW, IF A CONTRACT IS FRUSTRATED, IT IS NOT THEREBY MADE VOID AB INITIO. ALL THAT

FRUSTRATION DOES IS FORTHWITH TO RELEASE BOTH PARTIES FROM ANY FURTHER PERFORMANCE.

ORIGINALLY, THE LOSS LAY WHERE IT FELL. FOR INSTANCE, IN ONE OF THE "CORONATION CASES" WE

REFERRED TO PREVIOUSLY, CHANDLER V. WEBSTER (1904), THE MONEY PAID BECAME IRRECOVERABLE.

OUTSTANDING BALANCE DUE DID NOT HAVE TO BE PAID.

THE HARSHNESS OF THIS RULE WAS LATER APPRECIATED AND PARTIALLY CORRECTED BY THE HOUSE OFLORDS IN FIBROSA SPOLKA AKCYJMA V. FAIRBAIRN LAWSON COMBE BARBOUR LTD (1943).

2) WHAT DOES THE LAW REFORM (FRUSTRATED CONTRACTS )SAY

THE RESULT WAS THAT PARLIAMENT STEPPED IN WITH THE LAW REFORM (FRUSTRATED CONTRACTS) ACT

1943.THIS ACT APPLIES TO ANY CONTRACT WHICH HAS BEEN FRUSTRATED OR RENDERED IMPOSSIBLE OF

PERFORMANCE. IT DOES NOT SPECIFY WHAT CONSTITUTES FRUSTRATION; IT MERELY ALTERS THE LEGAL

CONSEQUENCES, WHICH ARE THAT:

ALL SUMS PAID BEFORE THE DATE THE CONTRACT IS DISCHARGED BECOME REPAYABLE AND ALL FUTURESUMS CEASE TO BE PAYABLE.

ALL SUMS PAID UNDER THE CONTRACT MUST BE REPAID.ANY SUMS PAYABLE(WHETHER

OVERDUE OR DUE IN THE FUTURE )CEASE TO BE PAYABLE

THE PAYER CAN RECOVER ANY MONEY ALREADY PAID AND IS NO LONGER LIABLE TO PAY

ANYMORE

HOWEVER, THE COURT HAS POWER TO APPORTION SUCH PAYMENTS BETWEEN THE PARTIES IF IT IS JUST

AND EQUITABLE SO TO DO.

IF ANY PARTY HAS RECEIVED A VALUABLE BENEFIT, OTHER THAN THE RECEIPT OF MONEY, BEFORE THE

DATE OF DISCHARGE, THEN THE COURT CAN ORDER HIM/HER TO PAY SUCH AMOUNT AS MAY BE JUST

AND EQUITABLE. WHERE ONE PARTY HAS RECEIVED A BENEFIT UNDER THE CONTRACT HE MUST PAY FOR

THAT BENEFIT



18

SO, WHAT THE ACT DOES IS TO ENSURE, AS FAR AS POSSIBLE, THAT THE LOSS FROM A FRUSTRATED

CONTRACT FALLS TO BOTH PARTIES FAIRLY.

THE PAYER CAN RECOVER ANY MONEY ALREADY PAID AND IS NO LONGER LIABLE TO PAY ANYMORE.

IF THE PAYEE HAS INCURRED EXPENSES THE COURT MAY DECIDE HOW MUCH OF THE PREPAID MONEY

THE PAYEE SHOULD KEEP. IF THE PAYEE HAS INCURRED EXPENSES UNDER THE CONTRACT HE CAN

DEDUCT THEM FROM ANY SUMS THAT HAVE TO BE REPAID.

IF NO MONEY HAS BEEN PAID AND EXPENSES HAVE BEEN INCURRED,THE COURT MAY ALLOW THE PAYEE

TO CLAIM SOME OR ALL, OF THE AMOUNT.

WHAT IS THE POSITION OF A PARTY WHO HAS INCURRED EXPENSES UNDER A FRUSTRATED CONTRACT?

IF THE PAYEE HAS INCURRED EXPENSES UNDER THE CONTRACT HE CAN DEDUCT THEM FROM ANY SUMS

THAT HAVE TO BE REPAID.

IF NO MONEY HAS BEEN PAID AND EXPENSES HAVE BEEN INCURRED,THE COURT MAY ALLOW THE PAYEE

TO CLAIM SOME OR ALL, OF THE AMOUNT

TEST OF FRUSTRATION

BRIEFLY DESCRIBE THE TEST OF FRUSTRATION

THE MOST HELPFUL TEST IS THAT GIVEN BY THE HOUSE OF LORDS IN DAVIS CONTRACTORS LTD V.

FAREHAM UDC (1956).

FRUSTRATION OCCURS WHENEVER THE LAW RECOGNISES THAT:

WITHOUT DEFAULT OF EITHER PARTY,

A CONTRACTUAL OBLIGATION HAS BECOME INCAPABLE OF BEING PERFORMED,

BECAUSE THE CIRCUMSTANCES IN WHICH PERFORMANCE IS CALLED FOR

WOULD RENDER IT A THING RADICALLY DIFFERENT FROM THAT WHICH WAS UNDERTAKEN BY THE

CONTRACT.

"IT WAS NOT THIS THAT I PROMISED TO DO. THERE MUST BE SUCH A CHANGE IN THE SIGNIFICANCE

OF THE OBLIGATION THAT THE THING UNDERTAKEN WOULD, IF PERFORMED, BE A DIFFERENT THING

FROM THAT CONTRACTED FOR."



19

IN GAMERCO SA V. ICM/FAIR WARNING (AGENCY) LTD (1995), THE CLAIMANTS, POP CONCERT

PROMOTERS, AGREED TO PROMOTE A CONCERT TO BE PERFORMED BY THE DEFENDANT POP GROUP AT

A STADIUM IN MADRID. HOWEVER, THE STADIUM WAS FOUND TO BE UNSAFE AND THE AUTHORITIES

BANNED ITS USE. THE 1943 ACT,SECTION 1, ENTITLED THE CLAIMANTS TO RECOVER THE ADVANCE

PAYMENT MADE TO THE DEFENDANTS AND, IN ALL THE CIRCUMSTANCES OF THE CASE, THE COURT'S

DISCRETION WOULD BE EXERCISED IN FAVOUR OF THE CLAIMANTS. ACCORDINGLY, THE CLAIMANTS'

CLAIM WOULD SUCCEED AND THE COUNTER-CLAIM WOULD BE DISMISSED.

"FORCE MAJEURE " IS AKIN TO, BUT PERHAPS LESS DRACONIAN THAN, THE ENGLISH DOCTRINE OF

FRUSTRATION.

HOWEVER, THE TERM IS RECOGNISED AND COMMONLY APPLIED, ESPECIALLY IN BUILDING AND

ENGINEERING CONTRACTS. THE PARTIES AGREE IN THEIR CONTRACT TO HAVE WHAT IS KNOWN AS A

"FORCE MAJEURE " CLAUSE.

THIS MEANS THEY AGREE THAT, IN THE EVENT OF EITHER OR BOTH OF CERTAIN SPECIFIED EVENTS

OCCURRING, AND ANY CIRCUMSTANCES BEYOND THE CONTROL OF EITHER PARTY ARISING, THEY WILL

ACT IN A SPECIFIED MANNER.

IT IS, THEREFORE, A CONTRACTUAL TERM AND SHOULD ONE OF THE FRUSTRATING EVENTS OCCUR, THE

REMEDY IS AGREED UPON BEFOREHAND. THE QUESTION, THEREFORE, OF FRUSTRATION ARISING BY

OPERATION OF LAW DOES NOT OCCUR. PROVIDED THE EVENT IS COVERED BY THE FORCE

MAJEURE CLAUSE, THE AGREED REMEDY IS ENFORCEABLE. IF THE EVENT IS, HOWEVER, OUTSIDE THE

TERMS OF THE FORCE MAJEURE CLAUSE, THE DOCTRINE OF FRUSTRATION CAN COME INTO PLAY IN THE

NORMAL WAY



20

REMEDIES FOR A BREACH OF CONTRACT

1)

WHAT IS THE ESSENTIAL POINT ABOUT LEGALLY BINDING CONTRACTS?

THAT IF ONE OF THE PARTIES FAILS TO LIVE UP TO HIS OR HER SIDE OF THE BARGAIN THE COURTS

WILL FORCE HI M OR HER TO DO SO BY ONE OR MORE OF A VARIETY OF CONSTRAINTS

CONRACTS ARE ENFORCEABLE AT LAW

2) WHAT IS THE METHOD OF ENFORCEMENT?

THE AGGRIEVED PARTY(THE PLAINTIFF) SUES THE OFFENDING PARTY,WHO IS THUS SUMMONED

INTO COURT TO SHOW WHY THE PLAINTIFF SHOULD NOT HAVE THE JUSTICE HE OR SHE SEEKS

3)

WHAT IS THE COURT’S AIM IN CONTRACTUAL CASE?

TO PROVIDE A REMEDY FOR THE PLAINTIFF,NOT PUNISHMENT FOR THE

DEFAULTING(BREACHING)PARTY

4) WHAT ARE THE VARIOUS REMEDIES AVAILABLE UNDER COMMON LAW?

DAMAGES

QUANTUM MERUIT

REPUDIATION OF CONTRACT

EXPLAIN DAMAGES. WHAT IS THE PURPOSE OF DAMAGES?

DAMAGES IS MONEY PAYMENT DESIGNED TO PUT THE INJURED PARTY IN THE POSITION HE WOULD

HAVE BEEN IN HAD THE CONTRACT HAD BEEN HONORED AND PROPERLY PERFORMED

DAMAGES WILL NOT BRING HIM TO A BETTER POSITION

HE OR SHE RECOVERS HIS OR HER LOSSES ONLY

IF THE INJURED PARTY HAS NOT SUFFERED A LOSS,NOMINAL DAMAGES ONLY WILL BE PAYABLE

DAMAGES ARE COMPENSATORY AND NOT PUNITIVE.THUS DAMAGES ARE NOT AFFECTED BY THE

MOTIVE BEHIND THE BREACH OF CONTRACT WHETHER GOOD OR BAD



21

1) MENTION THE TWO TYPES OF DAMAGES

LIQUIDATED DAMAGES

UNLIQUIDATED DAMAGES

2) WHAT ARE LIQUIDATED DAMAGES?

DAMAGES IN MONETARY TERMS.

THEY ARE PRE-DETERMINED BY THE PARTIES AND ARE SUPPOSED TO BE A REALISTIC ESTIMATE OF THE

LIKELY DAMAGES RESULTING FROM A BREACH OF CONTRACT.

WHERE THE CONTRACT EXPRESLY PROVIDES FOR THE PAYMENT OF A FIXED SUM ON BREACH,AND IF

THE CLAUSE IS A FAIR GENUINE ATTEMPT AT ESTIMATING THE LOSS IN ADVANCE OF THE BREACH THIS

KNOWN AS LIQUIDATED DAMAGES

THE PARTIES TO A CONTRACT WRITE INTO THE CONTRACT A CLAUSE SPECIFYING THE AMOUNT OF

DAMAGES PAYABLE SHOULD THE CONTRACT NOT BE FULFILLED.

THUS $ 1000 A DAY FOR KEEPING A SHIP IN PORT AWAITING CARGO WOULD BE LIQUIDATED DAMAGES

IF THE CLAUSE IS A GENUINE ATTEMPT AT ESTIMATING THE LOSS IN ADVANCE OF THE BREACH IT IS A

LIQUIDATED DAMAGES AND WILL BE VALID AND ENFORCEABLE BY EITHER PARTY TO THE CONTRACT

IF THE ACTUAL DAMAGES SUFFERED BY THE INNOCENT PARTY ARE GREATER THAN THE LIQUIDATED

DAMAGES PROVIDED,HE CAN ONLY CLAIM THE LIQUIDATED DAMAGES

THE AMOUNT MUST BE REASONABLE IN THE CIRCUMSTANCES-IF NOT , IT IS VOID AS A PENALTY

WHAT ARE UNLIQUIDATED DAMAGES?

WHERE THE CONTRACT DOES NOT MAKE ANY PROVISION FOR DAMAGES THE COURT WILL DETERMINE

THE DAMAGES.

THESE ARE UNLIQUIDATED DAMAGES.



22

3) WHAT IS A PENALTY?

IT IS A SUM OF DAMAGES DESIGNED TO FRIGHTEN THE OTHER PARTY(IN TERROREM)

THE IDEA IS TO COMPEL PERFORMANCE OF A CONTRACT BY PROVIDING A VERY SEVERE

PUNISHMENT IF THE CONTRCAT IS BROKEN.

IF THE DAMAGES STATED ARE NOT A REALISTIC APPRAISAL OF THE LIKELY LOSS FOLLOWING

FROM THE BREACH OF Contract IS VOID.

THUS $1M A DAY FOR KEEPING A SHIP IN PORT WOULD BE MANIFESTLY UNREASOANBLE AND

VOID

LIQUIDATED DAMAGES OR PENALTIES

AS WE HAVE SEEN, LIQUIDATED DAMAGES ARE PERMISSIBLE; PENALTIES ARE NOT. LIQUIDATED

DAMAGES CAN BE DEFINED AS "A GENUINE PRE-ESTIMATE OF THE DAMAGE LIKELY TO OCCUR IN THE

EVENT OF BREACH OF CONTRACT OR A SPECIFIC BREACH OF CONTRACT". THE ESSENTIAL THING IS THAT

THEY MUST BE A GENUINE PRE-ESTIMATE. THESE WILL BE ENFORCED.

IF, ON THE OTHER HAND, THE AGREED SUM IS, IN FACT, A PENALTY TO TERRORISE THE OTHER PARTY

INTO PERFORMING, THEN IT IS UNENFORCEABLE. THIS DOES NOT MEAN THAT THE GUILTY PARTY GETS

OFF SCOT-FREE. ALL IT MEANS IS THAT THE SO-CALLED "LIQUIDATED DAMAGES CLAUSE" WILL BE STRUCK

OUT, AND THE INNOCENT PARTY HAS TO PROVE HIS/HER ACTUALLOSS. THIS COULD WELL BE MORE

THAN THE SUPPOSED LIQUIDATED DAMAGES OR PENALTY.

THE DISTINCTION BETWEEN LIQUIDATED DAMAGES AND PENALTIES WAS EXPLAINED IN DUNLOP

PNEUMATIC TYRE CO. LTD V. NEW GARAGE & MOTOR LTD (1915). HERE, A CONTRACT BETWEEN THE

PARTIES REQUIRED THE DEFENDANTS TO OBSERVE DUNLOP'S PRICE LIST FOR CERTAIN PRODUCTS. THE

CONTRACT STATED THAT, FOR EVERY SALE OTHER THAN AT A LISTED PRICE, THE DEFENDANTS WOULD BE

REQUIRED TO PAY £5 BY WAY OF LIQUIDATED DAMAGES AND NOT AS A PENALTY.

THE COURT HELD: THE SUM WAS LIQUIDATED DAMAGES AND SO WAS RECOVERABLE.

THE HOUSE OF LORDS, IN THIS CASE, MADE A NUMBER OF GENERAL POINTS WHICH HELP TO

DISTINGUISH THE TWO CATEGORIES.



23

WHAT ARE THE GUIDELINES FOR DETERMINING WHETHER A PARTICULAR SUM IS LIQUIDATED DAMAGES OR A

PENALTY?HOW CAN WE DISCOVER WHETHER A A PARTICULAR SUM IS LIQUIDATED DAMAGES OR A PENALTY?

1. THE TERMS USED BY THE PARTIES ARE NOT CONCLUSIVE, SINCE THE DISTINCTION IS A MATTER OF

LAW.

2. IF A LARGER SUM IS PAYABLE FOR NON-PAYMENT OF A SMALLER SUM, IT IS A PENALTY

IT WILL BE A PENALTY IF THE AMOUNT PAYABLE ON BREACH CONSISTS OF PAYING A

STIPULATED SUM OF MONEY WHICH IS FAR GREATER THAN THE SUM WHICH OUGHT TO

HAVE BEEN PAID.

3.

IF THE SUM IS GREATER THAN THE GREATEST LOSS POSSIBLE THAT COULD BE SUFFERED UNDER

THE CONTRACT,IT IS A PENALTY

A SUM WILL BE TREATED AS A PENALTY IF IT IS "EXTRAVAGANT AND UNCONSCIONABLE IN

AMOUNT" IN COMPARISON WITH THE GREATEST LOSS THAT COULD CONCEIVABLY BE

PROVED TO HAVE FOLLOWED FROM THE BREACH.

4. IF THE SAME SUM IS PAYABLE FOR BOTH LARGE AND SMALL BREACHES IT IS PRIMA FACIE A

PENALTY

THERE IS A PRESUMPTION THAT IT IS A PENALTY WHEN A SINGLE LUMP SUM IS PAYABLE BY

WAY OF COMPENSATION ON THE OCCURRENCE OF ONE OR MORE OF SEVERAL EVENTS,

SOME OF WHICH MAY OCCASION SERIOUS AND OTHERS TRIFLING DAMAGE.



24

ASSESSMENT OF UNLIQUIDATED DAMAGES

WHAT ARE THE TWO QUESTIONS WHICH ARISE WHEN THE COURT IS ASSESSING THE A CLAIM OF

UNLIQUIDATED DAMAGES:

WHAT LOSSES MUST BE INCLUDED IN THE CLAIM? THIS IS THE QUESTION OF REMOTENESS OF

DAMAGE/OR ASSESSMENT OF CONSEQUENTIAL LOSS.

WHAT LEVEL OF DAMAGES WILL COMPENSATE THE PARTY CLAIMING?THIS QUESTION CONCERNS THE

MEASURE OF DAMAGES

ASSESSMENT OF CONSEQUENTIAL LOSS

WHAT IS THE GENERAL RULE ABOUT DAMAGES

THE GENERAL RULE IS THAT DAMAGES ARE AWARDED TO PUT THE INNOCENT PARTY IN THE POSITION

HE WOULD HAVE BEEN IN HAD THE CONTRACT BEEN PROPERLY PERFORMED.

HOWEVER,SOME LOSSES ALTHOUGH FLOWING FROM THE BREACH ARE NEVERTHELESS TOO DISTANT,

TOO REMOTE AND THUS NOT RECOVERABLE

MENTION THE CLASSIC CASE WHICH LAID DOWN SOME IMPORTANT PRINCIPLES RELATING TO THE QUESTION OF

WHAT LOSSES MUST BE INCLUDED IN THE CLAIM? THIS IS THE QUESTION OF REMOTENESS OF DAMAGE/OR

ASSESSMENT OF CONSEQUENTIAL LOSS.

HADLEY V BAXENDALE(1854)

WHAT WAS IT ABOUT?

A MILL OWNER ASKED A CARRIER HOW SOON HE WOULD GET A BROKEN CRANKSHAFT TO LONDON FOR

THE MANUFACTURE TO COPY IT AND MAKE A REPLACEMENT

HE PROMISED TO DELIVER IT THE NEXT DAY,BUT, IN FACT, IT TOOK SEVEN DAYS

MEANWHILE THEMILL WAS IDLE AND THEY SUED FOR LOSS OF PROFIT WHILE THE MILL WAS IDLE

FOR SEVEN DAYS

5)

WHAT WAS THE DECISION?

THE COURT HELD THAT THE CARRIER COULD NOT BE HELD LIABLE(RESPONSIBLE) FOR A GREATER

LOSS THAN WAS IN HIS MIND’S EYE AT THE TIME THE CONTRACT WAS MADE HE DID NOT KNOW THAT THE MILL WAS IDLE,OR THAT THIS WAS THE ONLY CRANKSHAFT

HE THOUGHT THAT HE WAS CARRYING A SPARE PART-NOT A UNIQUE ITEM

DAMAGES SHOULD BE SET AT ALEVEL THAT IN THE REASONABLE CONTEMPLATION OF BOTH PARTIES

AT THE TIME THEY MADE THE CONTRACT

THE CARRIER WAS NOT LIABLE FOR THE LOSS OF PROFIT



25

6) WHAT ARE THE TWO RULES THAT WERE DEVELOPED BY BAXENDALE’S CASE?

IN GIVING ITS DECISION THE COURT LAID TWO RULES/GENERAL PRINCIPLES

WHERE TWO PARTIES HAVE MADE A CONTRACT WHICH ONE OF THEM HAS BROKEN,THE DAMAGES

WHICH THE OTHER PARTY OUGHT TO RECEIVE SHOULD BE:

SUCH AS FAIRLY AND REASONABLY BE CONSIDERED AS ARISING NATURALLY (ACCORDING TO

THE USUAL COURSE OF THINGS )FROM THE BREACH ;(GENERAL DAMAGES)OR

SUCH AS MAY REASONABLY HAVE BEEN IN CONTEMPLATION OF BOTH PARTIES AS ARISING

NATURALLY FROM THE BREACH(SPECIAL DAMAGES)

THE DAMAGES TO BE AWARDED TO THE PLAINTIFF FOR BREACH OF CONTRACT SHOULD COVER SUCH

LOSSES AS MAY BE FAIRLY CONSIDERED TO ARISE NATURALLY-I.E IN THE USUAL COURSE OF EVENTS-

FROM BREACH OF CONTRACT(GENERAL DAMAGES/NORMAL LOSS)

WHERE THE PLAINTIFF SUFFERS SOME UNUSUAL LOSS,WHICH DOES NOT OCCUR NATURALLY IN THE

COURSE OF THINGS, HE WILL ONLY BE ABLE TO RECOVER DAMAGES FOR THIS LOSS ONLY IF IT WAS IN

THE REASONABLE CONTEMPLATION OF THE PARTIES-

I.E IF THE PARTIES ENTERED INTO THE CONTRACT FORESSING THE POSSIBILITY OF THIS LOSS

IF THE CONTRACT IS BROKEN

THESE ARE SPECIAL DAMAGES/ABNORMAL LOSS

YOU CANNOT RECOVER LOSSES THAT ARE TOO DISTANT ,FANCIFUL,FAR-FETCHED AND REMOTE FROM

THE CONTEMPLATION OF THE PARTIES WHEN THEY MADE THE CONTRACT

THE PRINCIPLES TO BE APPLIED IN DETERMINING WHETHER DAMAGE IS TOO REMOTE WERE SET OUT BY

THE COURT IN HADLEY V. BAXENDALE (1854): THE PLAINTIFF MAY RECOVER DAMAGES:

FOR LOSS ARISING NATURALLY, IN THE “USUAL COURSE OF THINGS”, AS A PROBABLE RESULT OF THE

BREACH (KNOWN AS “NORMAL LOSS”)

FOR LOSS WHICH WAS IN THE “REASONABLE CONTEMPLATION” OF BOTH PARTIES AT THE TIME THE

CONTRACT WAS MADE, AS A PROBABLE RESULT OF THE BREACH (KNOWN AS “ ABNORMAL LOSS”).



26

AS A CONSEQUENCE OF THE FIRST LIMBOF THE RULE INHADLEY V. BAXENDALE,THE PARTY IN BREACH IS

DEEMED TO EXPECT THE NORMAL CONSEQUENCES OF THE BREACH, WHETHER THEY ACTUALLY

EXPECTED THEM OR NOT, I.E. IT DOES NOT MATTER THAT THEY DID NOT ACTUALLY THINK OF THE

CONSEQUENCES, IF THOSE CONSEQUENCES WERE THE NATURAL OUTCOME OF THEIR BREACH.

NORMAL LOSSES ARE THOSE LOSSES WHICH CAN BE RECOVERED WITHOUT RECOURSE TO WHAT EITHER

PARTY THOUGHT WOULD HAPPEN IF THE CONTRACT WAS BREACHED:

THE PHRASE USED BY THE COURTS IS "IN THE CONTEMPLATION OF THE PARTIES". THEREFORE, ONLY

LOSSES WHICH ARE IN THE USUAL COURSE OF THINGS CAN NORMALLY BE RECOVERED, NOT ANYTHING

UNUSUAL.

HOWEVER, UNUSUAL LOSSES WILL BE RECOVERABLE IF THE OTHER PARTY HAS NOTICE OF THEM AT THE

TIME OF ENTERING INTO THE CONTRACT.

MENTION OTHER CASES ON ASSESSMENT OF CONSEQUENTIAL LOSS/REMOTENESS OF DAMAGES

VICTORIA LAUNDRY -V- NEWMAN INDUSTRIES(1949)

H PARSONS LIVESTOCK –V-UTTLEY INGHAM(1978)

BRIEFLY EXPLAIN THE FACTS AND DECISION IN THE TWO CASES

VICTORIA LAUNDRY -V- NEWMAN INDUSTRIES(1949)

IN VICTORIA LAUNDRY -V- NEWMAN INDUSTRIES , A LAUNDRY REQUIRED A NEW BOILER TO EXPAND

AND ENLARGE IT SPLANT

THERE WAS A DELAY IN THE DELIVERY OF THE BOILER AND AS A RESULT THE LAUNDRY LOST BOTH

NORMAL TRADING PROFITS FROM THE DELAY ,AS WELL AS ABIG PROFIT FROM A GOVERNMENT

CONTRACT

HELD:THE BOILER MANUFACTURE WAS LIABLE FOR LOSS OF NORMAL PROFITS;UNDER THE FIRST

BRANCH OF BAXENDALE RULE,HE OR ANYONE WOULD HAVE FORESEEN AND KNOWN THAT AN

INDUSTRIAL BOILER IS ESSENTIAL TO THE OPERATION OF THE PLANT,AND THEREFORE TO EARNING OF

PROFITS

HE WAS NOT HELD LIABLE FOR THE LOSS OF PROFITS ON THE GOVERNMENT CONTRCAT,OF WHICH HE

HAD NO INFORMATION.(OF COURSE HAD HE KNOWN HE WOULD HAVE BEEN LIABLE UNDRER THE

SECOND RULE)



27

H PARSONS LIVESTOCK –V-UTTLEY INGHAM(1978)

WHERE PARTIES CONTEMPLATE THE TYPE OF LOSS/DAMAGE WHICH MAY FOLLOW A BREACH OF

CONTRACT THEY WILL BE LIABLE FO THAT TYPE OF DAMAGE EVEN IF THE EXTENT WAS NOT

FORESEEN.

D HAD SUPPLIED A “FEED STORAGE HOOPER”TO P,WHO WAS A PIG BREEDER AND WHO NEEDED A

HOOPER TO STORE NUTS FOR HIS PIGS.

THE HOPPER PROVED DEFECTIVE,THE NUTS WENT MOULDY AND A NUMBER OF PIGS DIED FROM A

STOMACH DISEASE A S ARESULT OF EATING THOSE NUTS.

P CLAIMED

a) DAMAGES FOR DEATH OF PIGS,AND ALSO FOR

b) CONSEQUENT FINANCIAL LOSS FROM THE LOST SALES.

HELD , DAMAGES UNDER A WERE RECOVERABLE, BECAUSE THE PARTIES WOULD HAVE

CONTEMPLATED AT LEASTTHE “SERIOUS POSSIBILITY” OF SOME HARM COMING TO THE PIGS IF THE

HOPPER FAILED TO KEEP THE PIGS’ FOOD IN A SATISFACTORY CONDITION

DAMAGES UNDER B WERE NOT RECOVERABLE, BEING TOO REMOTE UNDER THE GUIDELINE OF

BAXENDALE’S CASE



28

WHAT IS MEANT BY MITIGATION OF LOSS/ THE DUTY OF MITIGATION

IT IS THE PRINCIPLE WHICH HOLDS THAT IT IS THE DUTY OF THE PLAINTIFF TO MITIGATE(MINIMISE-KEEP

AS SMALL AS POSSIBLE) THE POSSIBLE DAMAGES FOLLOWING FROMM THE BREACH OF CONTRACTBY

TAKING SUCH ACTION AS IS OPEN TO THE PLAINTIFF

THE AGGRIEVED PARTY HAS A DUTY TO MITIGATE DAMAGES IF THAT IS POSSIBLE AND IF THEY FAIL TO DO

SO IT WILL REDUCE THE DAMAGES PAYABLE

THE INNOCENT PARTY IN A BREACH OF CONTRACT CASE HAS A DUTY TO TAKE ALL REASONABLE STEPS TO

REDUCE THEIR LOSSES. HOWEVER, THERE IS NO DUTY TO TAKE EXTRAORDINARY STEPS TO MITIGATE.

IF YOU DO NOT MITIGATE, THE COURT WILL REDUCE YOUR DAMAGES BY THE AMOUNT YOU COULD HAVE

MITIGATED.

ANOTHER WAY OF EXPRESSING THIS IS TO SAY THAT THE PLAINTIFF MAY NOT RECOVER DAMAGES FOR

LOSSES WHICH COULD HAVE BEEN AVOIDED.

MITIGATION CAN BE DIVIDED INTO THREE RULES:

1. THE PLAINTIFF CANNOT RECOVER FOR LOSS BECAUSE OF THE DEFENDANT'S BREACH OF CONTRACT

WHERE HE/SHE COULD HAVE AVOIDED IT BY TAKING REASONABLE STEPS

2. THE PLAINTIFF CANNOT RECOVER FOR ANY LOSS HE HAS ACTUALLY AVOIDED, EVEN THOUGH HE/SHE

TOOK MORE STEPS TO MITIGATE THAN WERE ACTUALLY NECESSARY.

3. THE PLAINTIFF MAY RECOVER LOSS INCURRED IN ATTEMPTING TO MITIGATE, EVEN THOUGH HE/SHE

DID NOT SUCCEED. THE PLAINTIFF CANNOT RECOVER FOR LOSS BECAUSE OF THE DEFENDANT'S

BREACH OF CONTRACT WHERE HE/SHE COULD HAVE AVOIDED IT BY TAKING REASONABLE STEPS TO

MINIMISE THEIR LOSS SUSTAINED AS A NATURAL CONSEQUENCE OF THE DEFENDANT'S BREACH:

Brace v. Calder (1895).



29

BRIEFLY EXPLAIN THE LEGAL PRINCIPLES THAT APPLY TO DAMAGES

DAMAGES ARE TO COMPENSATE THE AGGRIEVE PARTY FOR LOSS.IF THERE IS NO LOSS ONLY NOMINAL

DAMAGES ARE PAYABLE

THE DAMAGES ARE DESIGNED TO LEAVE THE AGGRIEVED PARTY IN THE SAME POSITION AS IF THE

CONTRACT HAD BEEN PERFORMED-RESTITUTIO IN INTEGRUM

DAMAGES SHOULD BE SUCH AS ARISE NATURALLY FROM BREACH OF CONTRACT AND SHOULD COVER

THE LEVEL OF DAMAGE WHIC WAS IN THE CONTEMPLATION OF THE PARTIES AT THE TIME THEY ENTERED

INTO THE CONTRACT.

DAMAGES FOR LOSSES WHICH WERE REMOTE AND DISTANT FROM THE CONTEMPLATION OF THE

PARTIES ARE NOT ALLOWABLE

THE AGGRIEVED PARTY HAS A DUTY TO MITIGATE DAMAGES IF THAT IS POSSIBLE AND IF THEY FAIL TO DO

SO IT WILL REDUCE THE DAMAGES PAYABLE

THE PRINCIPAL REMEDY FOR BREACH OF CONTRACT IS AN AWARD OF DAMAGES. HENCE, AN

APPRECIATION OF THE NATURE AND PURPOSES OF DAMAGES IS IMPORTANT.

THE ESSENTIAL POINT IS THAT DAMAGES ARE COMPENSATIONTO THE INJURED PARTY FOR THE LOSS

HE/SHE HAS SUFFERED AS A RESULT OF THE OTHER PARTY'S BREACH OF CONTRACT, THE OBJECT BEING

TO PLACE HIM/HER IN THE SAME POSITION AS HE/SHE WOULD HAVE BEEN IN HAD THE CONTRACT BEEN

PROPERLY PERFORMED.

DAMAGES ARE NOT A PUNISHMENT, NOR ARE THEY A MEANS OF INTIMIDATING A PARTY INTO

PROPERLY PERFORMING BY FEAR OF A PENALTY.

A DUTY TO MITIGATE OR MINIMISE THE LOSS IS OFTEN PRESUMED BY THE COURTS, ALTHOUGH THE

BURDEN OF PROVING THAT THE CLAIMANT HAS NOT DONE SO IS PLACED ON THE DEFENDANT. THE

EMPHASIS, HOWEVER, IS ON WHAT IS "REASONABLE" IN THE CIRCUMSTANCES. IF, FOR EXAMPLE, A

CLAIMANT, IN REASONABLY ATTEMPTING TO MITIGATE HER LOSS, ACTUALLY MAKES IT WORSE, SHE WILL

NOT BE PENALISED FOR HER ACTIONS. SHE WILL BE ABLE TO RECOVER HER ACTUAL LOSS, EVEN THOUGH

SHE HERSELF HAS INCREASED IT.



30

THERE ARE VARIOUS TERMS USED TO DESCRIBE THE DIFFERENT CATEGORIES OF DAMAGES.

NOMINAL DAMAGES

THESE ARE AWARDED WHERE A CLAIMANT'S LEGAL RIGHTS HAVE BEEN INFRINGED, AND HE/SHE ISENTITLED TO DAMAGES, BUT HE/SHE HAS, IN FACT, SUFFERED NO ACTUAL LOSS.

THEY ARE, OFTEN, REALLY ONLY TO ESTABLISH THE FACT THAT A RIGHT HAS BEEN INFRINGED AND THEY

CAN BE AS LITTLE AS 1P.

LIQUIDATED AND UNLIQUIDATED DAMAGES

IF THE PARTIES HAVE MADE NO MENTION OF THE SUBJECT IN THEIR CONTRACT, THEN, IN THE EVENT OF

ANY BREACH, THE INJURED PARTY MUST PROVE HIS/HER LOSS. THE RESULTING AWARD IS CALLED

"UNLIQUIDATED" DAMAGES.

HOWEVER, FOR A VARIETY OF REASONS, THE PARTIES MAY DECIDE BEFOREHAND THAT, IN THE EVENT OF

A SPECIFIC BREACH, THE LOSS SUFFERED WILL BE ASSUMED TO BE A CERTAIN FIGURE, OR IN

ACCORDANCE WITH A CERTAIN SCALE.

IT MAY BE DIFFICULT OR EXPENSIVE AND TIME CONSUMING TO HAVE TO CALCULATE THE EXACT FIGURE,

SO THE PARTIES MAKE A PRE-ESTIMATE OF THE LIKELY LOSS AND INSERT THIS IN THE CONTRACT AS THE

SUM PAYABLE IF THAT BREACH DOES OCCUR. THESE ARE CALLED "LIQUIDATED" DAMAGES. IF THE

PARTICULAR BREACH DOES OCCUR, THE AGREED SUM BECOMES DUE, QUITE REGARDLESS OF THE

ACTUAL LOSS SUSTAINED OR INDEED IF ANY LOSS AT ALL. THE DISTINCTION BETWEEN LIQUIDATED

DAMAGES AND PENALTIES (OR PUNISHMENTS) CAN BE FINE AND WE SHALL DISCUSS IT LATER IN THIS

CHAPTER.

DAMAGES –CAUSATION

IT IS ESSENTIAL THAT THE LOSS SUFFERED MUST HAVE BEEN CAUSED BY THE BREACH OF CONTRACT. THERE MUST

BE A DIRECT CHAIN OF CAUSATION BETWEEN THE BREACH OF CONTRACT AND THE LOSS SUFFERED. IF

SOMETHING OR SOMEONE INTERVENES TO BREAK THIS CHAIN, IT CANNOT BE SAID THAT THE BREACH CAUSED

THE LOSS.

DAMAGES WILL NOT BE AWARDED IF A CLAIMANT'S LOSS IS REGARDED AS TOO REMOTE.

ONLY DAMAGES WHICH WERE IN THE CONTEMPLATION OF THE PARTIES AT THE TIME OF ENTERING INTO

THE CONTRACT ARE RECOVERABLE.

THE PARTIES MUST HAVE CONSIDERED THE POSSIBILITY OF THOSE DAMAGES ARISING IF THEY WERE IN

BREACH OF CONTRACT.

DAMAGES WILL NOT BE AWARDED FOR SOMETHING WHICH WAS UNLIKELY TO HAPPEN, I.E.

SOMETHING WHICH IS TOO REMOTE A CONSEQUENCE OF THE BREACH WILL NOT BE COMPENSATED.



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DAMAGES –CALCULATION

MENTION THE TWO DIFFERENT MEASURES THAT CAN BE USED BY THE COURTS TO CALCULATE DAMAGES

AWARDS IN BREACH OF CONTRACT CASES

TWO DIFFERENT MEASURES CAN BE USED BY THE COURTS TO CALCULATE DAMAGES AWARDS IN BREACH OF

CONTRACT CASES:

EXPECTED LOSS MEASURE(PROSPECTIVE)

LOSS INCURRED BECAUSE OF RELIANCE ON CONTRACT(RETROSPECTVE)

THE SUCCESSFUL PLAINTIFF HAS THE RIGHT TO CHOOSE WHICH MEASURE HE WOULD LIKE THE COURT TO APPLY

IN CALCULATING HIS UNLIQUIDATED DAMAGES AWARD.

(A)THE EXPECTATION LOSS MEASURE

IF YOU DID NOT EXPECT TO MAKE A PROFIT FROM THE CONTRACT, THIS MEASURE WILL NOT AWARD

YOU DAMAGES, AS IN ORDER TO CLAIM CONTRACT DAMAGES, THE PLAINTIFF MUST HAVE SUFFERED A

LOSS.

EXPECTATION LOSS COMPENSATES THE INNOCENT PARTY FOR WHAT HE EXPECTED TO GAIN FROM THE

CONTRACT.

OBVIOUSLY THIS WILL NORMALLY BE LOSS OF PROFIT, ESPECIALLY IN COMMERCIAL CONTRACTS.

HOWEVER, IT CAN BE THE COST OF SUBSTITUTE PERFORMANCE.

FOR EXAMPLE, IF WHAT YOU EXPECTED TO GAIN FROM THE CONTRACT WAS NOT A BUSINESS PROFIT

BUT, FOR EXAMPLE, A PROPERLY BUILT SWIMMING POOL, THEN EXPECTATION LOSS WOULD BE THE

COST OF BUILDING THE SWIMMING POOL OR OF REMEDYING THE DEFECTS IN THE SWIMMING POOL:

RUXLEY V FORSYTH .

THIS IS CALLED COST OF CURE, WHICH MAY BE VERY DIFFERENT FROM THE ACTUAL LOSS OF VALUE

SUFFERED BECAUSE OF THE BREACH OF CONTRACT. IF THE COST OF CURE IS OUT OF ALL PROPORTION

TO THE BENEFIT OBTAINED, IT WILL NOT NORMALLY BE AWARDED.

GENERALLY SPEAKING, IF THE PLAINTIFF HAS CONTRACTED FOR A PARTICULAR KIND OF BENEFIT, HE MAY

B*E AWARDED THE COST OF CURE FOR THAT PARTICULAR BENEFIT, EVEN THOUGH IT IS MORE EXPENSIVE

THAN IS ABSOLUTELY NECESSARY, AS THE RULE IS THAT THE PLAINTIFF IS ALLOWED TO INSIST ON HIS OR

HER FULL RIGHTS UNDER THE CONTRACT



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(B)THE RELIANCE LOSS MEASURE

SOMETIMES RELIANCE LOSS IS A BETTER MEASURE OF THE LOSS SUFFERED THAN EXPECTATION LOSS,

BECAUSE IT CAN BE VERY DIFFICULT TO ESTABLISH THE EXACT AMOUNT OF EXPECTATION LOSS.

THIS COMMONLY OCCURS WHERE THE POTENTIAL PROFIT, WHICH HAS BEEN LOST, WAS SPECULATIVE

AND IS THEREFORE VERY DIFFICULT TO QUANTIFY.

IF SOMEONE HAS ACTED IN RELIANCE ON THE CONTRACT, IT IS CALLED RELIANCE LOSS IF THEY HAVE

SUFFERED A LOSS BECAUSE THEY RELIED ON THE CONTRACT.

USUALLY THEY HAVE SPENT MONEY PREPARING THEIR SIDE OF THE BARGAIN OR THEY HAVE LOST THE

OPPORTUNITY OF ENTERING INTO ANOTHER CONTRACT BECAUSE OF THE EXISTING AGREEMENT. FOR

EXAMPLE, A PRINTER HAS AGREED TO DO A PRINT RUN, AND THERE IS A BREACH OF CONTRACT BY THE

OTHER PARTY, WHICH MEANS THAT THE PRINTER HAS LOST THE OPPORTUNITY TO PRINT SOMEBODY

ELSE'S PRINTING JOB. THIS CAN BE CLAIMED AS CONTRACT DAMAGES.

RELIANCE LOSSES CAN BE CLAIMED WHERE THE PLAINTIFF HAS INCURRED SUBSTANTIAL EXPENDITURE IN

RELIANCE UPON THE CONTRACT. DAMAGES MAY BE RECOVERED UNDER THIS HEAD EVEN FOR

EXPENDITURE INCURRED BEFORE THE TIME THE CONTRACT CAME INTO EXISTENCE.

IN ANGLIA TELEVISION V. REED (1972),THE PLAINTIFFS, A TELEVISION COMPANY, INCURRED VARIOUS

EXPENSES IN PREPARING A TV PLAY AND CONTRACTED WITH OLIVER REED TO PLAY THE LEADING ROLE.

THE DEFENDANT THEN REPUDIATED THE CONTRACT AND THE PLAINTIFFS WERE UNABLE TO FIND A

SUITABLE SUBSTITUTE AND SO CANCELLED THE PLAY. THE COURT OF APPEAL SAID THE PLAINTIFFS

COULD RECOVER ALL THEIR PRIOR WASTED COSTS BECAUSE IT MUST HAVE BEEN WITHINTHE

DEFENDANT'S CONTEMPLATION THAT THERE WOULD HAVE BEEN SUCH COSTS AND THAT REPUDIATION

MIGHT LEAD TO ABANDONMENT.

THESE WERE RELIANCE DAMAGES; ANY CALCULATION OF EXPECTATION DAMAGES WOULD, OF COURSE,

HAVE BEEN HIGHLY SPECULATIVE. LORD DENNING MR MADE IT CLEAR, HOWEVER, THAT AN INJURED

PARTY CANNOT HAVE BOTH EXPECTATION AND RELIANCE DAMAGES –THAT WOULD COMPENSATE HIM

TWICE FOR THE SAME LOSS.



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EQUITABLE REMEDIES

1)

WHAT IS AN EQUITABLE REMEDY?

IT IS A REMEDY ALLOWABLE EQUITY(AS DISTINCT FROM COMMON LAW)

ON THE GROUND THAT COMMON LAW DOES NOT DO COMPLETE JUSTICE PARTIES.

2) WHAT ARE THE EQUITY REMEDIES?

SPECIFIC PERFORMANCE

INJUNCTION

RESCISSION

3)

WHAT IS SPECIFIC PERFORMANCE?

SPECIFIC PERFORMANCE AND INJUNCTION

1. THESE TWO ORDERS ARE EQUITABLE REMEDIES WHICH CAN BE SOUGHT IF DAMAGES WOULD NOT

PROVIDE AN ADEQUATE REMEDY:SPECIFIC PERFORMANCE AND INJUNCTION.

2. "SPECIFIC PERFORMANCE" IS AN ORDER BY THE COURT COMPELLING ONE PARTY TO PERFORM THE

CONTRACT IN ACCORDANCE WITH ITS TERMS. IT IS A POSITIVE REMEDY. AN INJUNCTION IS NEGATIVE.

IT COMMANDS A PARTY NOT TO COMMIT A THREATENED BREACH OF CONTRACT.

3. BOTH OF THESE ARE DISCRETIONARY, WHEREAS DAMAGES ARE AN ABSOLUTE RIGHT.

NEITHER WILL BE GRANTED IF THE CLAIMANT IS HIM-/HERSELF AT FAULT FOR THE BREACH OF

CONTRACT, OR IF IT WOULD BE UNFAIR TO GRANT THEM.

NOR WILL THEY BE GRANTED IF DAMAGES WOULD PROVE AN ADEQUATE REMEDY, OR IF THE

EFFECT OF SUCH AN ORDER WOULD BE DISPROPORTIONATE TO THE DAMAGE CAUSED BY A

BREACH OF THE CONTRACT.

PERFORMANCE OF THE ACTUAL THING AGREED BETWEEN THE PARTIES AND PROMISED BY THE

PARTY AT FAULT.

IT TAKES THE FORM OF A DECREE/ORDER BY THE COOURT WHICH MUST BE OBEYED BY THE PARTY

CONCERNED



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4) WHAT IS AN INJUNCTION?

AN ORDER OF THE COURT TO PERFORM A SPECIFIC ACT(A MANDATORY INJUCTION);OR

AN ORDER TO REFRAIN FROM PERFORMING A SPECIFIC ACT (PROHIBITORY INJUCTION)

5)

WHAT IS RESCISSION?

IT MEANS UNDOING THE CONTRACT AND PUTTING THE PARTIES TO THE CONTRCAT AS FAR AS

POSSIBLE BACK TO THEIR PRE-CONTRACTUAL POSITION.

6) QUANTUM MERUIT

WHERE PERFORMANCE IS REWARDED ACCORDING TO WORTH-AS MUCH AS HAS BEEN EARNED



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MAREVA INJUNCTION

WHAT IS A MAREVA INJUNCTION?

A MAREVA INJUNCTION (NOW KNOWN AS A FREEZE ORDER) IS A SPECIAL TYPE OF INJUNCTION WHICH

HAS DEVELOPED SUBSTANTIALLY OVER THE LAST DECADE OR SO, WHICH IS GRANTED

TO PREVENT DEFENDANTS IN PROCEEDINGS BEFORE THE HIGH COURT

FROM REMOVING ASSETS OUT OF THE JURISDICTION of court

WITH THE AIM OF AVOIDING OR FRUSTRATING THE ENFORCEMENT OF ANY JUDGMENT AGAINST

THEM.

IN "THE MAREVA" CASE (1980), THE COURT OF APPEAL UPHELD AN INJUNCTION TO RESTRAIN THE

DEFENDANTS FROM REMOVING OR DISPOSING OUT OF THE JURISDICTION MONEY STANDING TO THE

CREDIT OF THE DEFENDANTS IN A LONDON BANK

THE CLAIMANTS WERE SHIP OWNERS AND THE DEFENDANTS WERE CHARTERERS UNDER A

VOYAGE CHARTER.

THE DEFENDANTS HAD RECEIVED PAYMENTS FOR THE FREIGHT IN THAT BANK ACCOUNT, BUT

THEY HAD FAILED TO PAY THE HIRE CHARGES DUE TO THE CLAIMANTS.

(THE TERM MAREVA INJUNCTION DERIVES FROM THE NAME OF THE SHIP IN THIS CASE.)

SUCH AN INJUNCTION WILL NORMALLY BE GRANTED WHERE IT SEEMS LIKELY THAT

THE CLAIMANT WILL OBTAIN JUDGMENT AGAINST THE DEFENDANT,

BUT THERE IS GOOD REASON TO BELIEVE THAT ASSETS OF THE DEFENDANT WILL BE DISPOSED

OF OR DEALT WITH IN SUCH A WAY AS

TO PREVENT ENFORCEMENT OF THE JUDGMENT.

HOWEVER, A MAREVA INJUNCTION WILL NOT BE GRANTED IF ITS EFFECT WOULD BE SOME

CONSIDERABLE INTERFERENCE WITH THE RIGHTS OF THIRD PARTIES. ANY PERSON WHO HAS NOTICE OR

KNOWLEDGE OF A MAREVA INJUNCTION MUST DO ALL THAT IS REASONABLE TO SAFEGUARD THE ASSETS

IN QUESTION.

IF HE/SHE AIDS AND ABETS THE DEFENDANT TO DISPOSE OF THEM, HE/SHE WILL BE LIABLE FOR

CONTEMPT OF COURT AND PUNISHED ACCORDINGLY. FOR EXAMPLE, IF A BANK IS GIVEN NOTICE OF THE

INJUNCTION, IT MAY ACT IMMEDIATELY AND AUTOMATICALLY TO RESCIND ANY INSTRUCTIONS GIVEN BY

THE BANK'S CUSTOMER CONCERNING HIS/HER ACCOUNT.

THIS TYPE OF INJUNCTION MAY BE GRANTED IN REGARD TO CLAIMS FOR DEBTS OR OTHER LIQUIDATED

SUMS. IT MAY BE GRANTED IN ANY COMMERCIAL ACTION AND IN ACTIONS FOR DAMAGES FOR BREACH

OF CONTRACT.



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ANTON PILLER ORDER (SEARCH ORDER)

WHAT IS AN ANTON PILLER ORDER (SEARCH ORDER)

ANOTHER VALUABLE ADDITION TO CONTRACTUAL REMEDIES WHICH HAS EVOLVED IN RECENT TIMES

ISTHE.

ANTON PILLER ORDER (NOW KNOWN AS A SEARCH ORDER), LIKE THE MAREVA INJUNCTION, IIS A PRE-

EMPTIVE REMEDY DESIGNED TO PREVENT A DEFENDANT FROM DISPOSING OF OR DEALING WITH

MATERIAL, PROPERTY OR ASSETS IN SUCH A WAY AS TO FRUSTRATE ENFORCEMENT OF A JUDGMENT.

A COURT HAS AN INHERENT POWER TO MAKE AN ORDER REQUIRING THE DEFENDANT TO PERMIT

ACCESS TO HIS/HER PREMISES WITH THE OBJECT OF SEARCHING FOR ILLICIT MATERIALS AND

DOCUMENTS. (intellectual property; copyright)

THE ORDER ALSO HAS THE EFFECT OF PERMITTING SUCH PROPERTY TO BE TAKEN AWAY, DETAINED AND

KEPT IN SAFE CUSTODY UNTIL THE FULL TRIAL OF THE ACTION.

SUCH AN ORDER WAS MADE ORIGINALLY IN THE CASE OF ANTON PILLER KG V. MANUFACTURING

PROCESSES LTD (1976).

A SEARCH ORDER MAY BE GRANTED ON AN EX PARTE APPLICATION TO THE COURT (I.E. IN THE

DEFENDANT'S ABSENCE).

THIS IS PERMISSIBLE BECAUSE SURPRISE IS ESSENTIAL –IF THE DEFENDANT WERE TO HAVE PRIOR

KNOWLEDGE OF THE APPLICATION, THERE WOULD BE A RISK THAT HE/SHE WOULD DESTROY OR HIDE

THE PROPERTY IN QUESTION.

THE COURT MAY GRANT A SEARCH ORDER WHERE THE PROPERTY COMPRISES ARTICLES WHICH INFRINGE

THE CLAIMANT'S COPYRIGHT, TRADE MARK OR OTHER RIGHTS.

IT WILL SEEK TO SAFEGUARD THE DEFENDANT'S RIGHTS BY ORDERING THAT THE ITEMS IN QUESTION BE

PLACED IMMEDIATELY IN THE CUSTODY OF A RESPONSIBLE PERSON ON BEHALF OF THE CLAIMANT.

AN ORDER MAY ALSO BE MADE FOR THE PRESERVATION OF A DOCUMENT AMOUNTING TO BEST

POSSIBLE EVIDENCE WHERE THERE IS A REAL DANGER OF ITS BEING DESTROYED OR HIDDEN BY THE

DEFENDANT.



LIMITATION OF ACTION

WHAT IS MEANT IN LAW BY LIMITATION OF ACTION?

IT MEANS A LIMIT TO THE TIME ALLOWED TO BRING AN ACTION IN THE COURTS

THE RIGHT TO SUE ON ANY PARTCULAR MATTER DOES NOT CONTINUE MORE THAN A FEW YEARS

BECAUSE IT WOULD BE BURDENSOME NEVER TO BE FREE OF THE FEAR OF LEGAL ACTION

IT IS CONSIDERED WRONG THAT A PERSON SHOULD HAVE THE LIABILITY HANGING OVER HIS/HER HEAD

INDEFINITELY.

CONSEQUENTLY, THE LIMITATION ACT 1980 PROVIDES THAT NO ACTION MAY BE TAKEN TO ENFORCE A

CONTRACTUAL CLAIM MORE THAN SIX YEARS AFTER THE CAUSE OF ACTION AROSE, IN THE CASE OF

SIMPLE CONTRACTS, OR 12 YEARS IN THE CASE OF CONTRACTS UNDER SEAL.

WHAT ACT CONTROLS THE TIME- LIMITS IN ORDINARY MATTERS?

LIMITATION ACT 1980

HOW LONG DOES IT GIVE?

FOR SIMPLE CONTRACTS THIS IS SIX YEARS

FOR SPECIALTY CONTRACT/ON A DEED 12 YEARS

Abe Discharge

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