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8/6/2019 Ta Sindhe Sir

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Introduction

Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange isnot honoured by one or more of the parties to the contract by non-performance or interference with theother party's performance. If the party does not fulfil his contractual promise, or has given information to

the other party that he will not perform his duty as mentioned in the contract or if by his action andconduct he seems to be unable to perform the contract, he is said to breach the contract.

Minor breach

In a "minor" breach (a partial breach or immaterial breach or where there has been substantialperformance), the non-breaching party cannot sue for specific performance, and can only sue for actualdamages.

Suppose a homeowner hires a contractor to install new plumbing and insists that the pipes, which willultimately be hidden behind the walls, must be red. The contractor instead uses blue pipes that functionjust as well. Although the contractor breached the literal terms of the contract, the homeowner cannot aska court to order the contractor to replace the blue pipes with red pipes. The homeowner can only recoverthe amount of his or her actual damages. In this instance, this is the difference in value between red pipeand blue pipe. Since the colour of a pipe does not affect its function, the difference in value is zero.

Therefore, no damages have been incurred and the homeowner would receive nothing.

However, had the pipe colour been specified in the agreement as a condition, a breach of that conditionwould constitute a "major" breach. For example, when a contract specifies time is of the essence and oneparty to the contract fails to meet a contractual obligation in a timely fashion, the other party could sue for

damages for a major breach.

Material breach

A material breach is any failure to perform that permits the other party to the contract to either compelperformance, or collect damages because of the breach. If the contractor in the above example had beeninstructed to use copper pipes, and instead used iron pipes that would not last as long as the copper pipeswould have lasted, the homeowner can recover the cost of actually correcting the breach - taking out the

iron pipes and replacing them with copper pipes.

As with nearly everything in the law, there are exceptions to this. Legal scholars and courts often statethat the owner of a house whose pipes are not the specified grade or quality (a typical hypothetical

example) cannot recover the cost of replacing the pipes for the following reasons:

1. Economic waste. The law does not favour tearing down or destroying something that is valuable(almost anything with value is "valuable"). In this case, significant destruction of the house would be

required to completely replace the pipes, and so the law is hesitant to enforce damages of that nature.

2. Pricing in. In most cases of breach, a party to the contract simply fails to perform one or more terms. Inthose cases, the breaching party should have already considered the cost to perform those terms and thus"keeps" that cost when they do not perform. That party should not be entitled to keep that savings.However, in the pipe example the contractor never considered the cost of tearing down a house to fix the

pipes, and so it is not reasonable to expect them to pay damages of that nature.


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Most homeowners would be unable to collect damages that compensate them for replacing the pipes, butrather would be awarded damages that compensate them for the loss of value in the house. For example,say the house is worth $125,000 with copper and $120,000 with iron pipes. The homeowner would be

able to collect the $5,000 difference, and nothing more.

The Restatement (Second) of Contracts lists the following criteria can be used to determine whether a

specific failure constitutes a breach:

In determining whether a failure to render or to offer performance is material, the followingcircumstances are significant: (a) the extent to which the injured party will be deprived of the benefitwhich he reasonably expected; (b) the extent to which the injured party can be adequately compensatedfor the part of that benefit of which he will be deprived; (c) the extent to which the party failing toperform or to offer to perform will suffer forfeiture; (d) the likelihood that the party failing to perform orto offer to perform will cure his failure, taking account of all the circumstances including any reasonableassurances; (e) the extent to which the behavior of the party failing to perform or to offer to perform

comports with standards of good faith and fair dealing.

American Law Institute, Restatement (Second) of Contracts 241 (1981)

Fundamental breach

A fundamental breach (or repudiatory breach) is a breach so fundamental that it permits the aggrieved

party to terminate performance of the contract. In addition that party is entitled to sue for damages.

Anticipatory breach

A breach by anticipatory repudiation (or simply anticipatory breach) is an unequivocal indication that the

party will not perform when performance is due, or a situation in which future non-performance is

inevitable. An anticipatory breach gives the non-breaching party the option to treat such a breach as

immediate, and, if repudiatory, to terminate the contract and sue for damages (without waiting for the b

Damages for breach

Damages are intended to compensate the innocent party for the loss that he has suffered as aresult of the breach of contract. In order to establish an entitlement to substantial damages forbreach of contract the injured party must establish that:

- actual loss has been caused by the breach; and

- the type of loss is recognised as giving an entitlement to compensation; and

- the loss is not too remote; and

- the quantification of damages to the required level of proof.


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Liquidated Damages

Liquidated damages refers to damages set by the parties themselves where they decide upon afixed sum being payable in the event of a breach of contract. Where the sum is a genuine pre-estimate it will be enforced by the court. However, where is it not a genuine pre-estimate it will

be regarded as a penalty which will not be enforced by the court. Unliquidated damages will beawarded instead.

The case of Dunlop Pneumatic Tyres Ltd v New garage and Motor Co. (1915) set downguidelines to distinguish between liquidated damages and penalties. The court was of the viewthat the sum will be a penalty where:

y it is extravagant and unconscionable;y a larger sum will be payable where the smaller sum is not paid; andy the same sums will be payable whether the breach is minor or major.

Unliquidated Damages

Unliquidated damages are assessed by the court and are designed to compensate the innocentparty for any losses incurred as a result of a breach of contract. However, where loss can not beproved, the innocent party will only be entitled to claim nominal damages. In the case of SurreyCC v Bredero Homes (1993), damages were not awarded to the Council arising from thedefendant's failure to comply with planning permission, because the Council had not sufferedany loss. This can be contrasted with the case of Chaplin v Hicks (1911) where the courtawarded damages to the claimant for the loss of a chance to win a competition.

Unliquidated damages are not a means by which to punish the defendant and punitive damageswill not be awarded for a breach of contract. They are also not a way to recover any gain madeby the defendant as a result of a breach.

Limits on remedies and damages

Typically, the judicial remedy for breach of contract is monetary damages (see damages). Where thefailure to perform cannot be adequately redressed by money damage, the court may enter an equity decreeawarding an injunction or specific performance.

The aggrieved person has a duty to mitigate or reduce damages by reasonable means. LiquidatedDamages may be limited to a specific amount. In the United States, punitive damages are generally notawarded for breach of contract but may be awarded for other causes of action in a lawsuit. Limitation ofLiability (Exculpatory) clauses. There are various remedies available to an innocent party where there hasbeen a breach of contract. The main remedy is damages, but in certain situations, equitable remedies are

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Type of loss

Pecuniary loss is the usual ground upon which damages are awarded for breach of contract.However, damages for non-pecuniary loss are sometimes awarded in certain circumstances, suchas:

y Pain and suffering as a result of a physical injury;y Physical inconvenience;y Damage to a commercial reputation; andy Any distress caused to the claimant.

Reliance loss

y Reliance loss is also known as wasted expenditure loss and arises when the claimant hasincurred out of pocket or wasted expenditure in preparation of or partial performance ofthe contract. The purpose of reliance loss is the same as expectation loss in that it isdesigned to put the claimant in the same position they would have been in before thecontract was entered into.

yy Where expectation loss can not be recovered, reliance loss will be claimed.

Loss of Market Value

In some cases the measure of damages for defective work may instead be the reduction in marketvalue of the development. This will be the case when it is unreasonable for the defects to be putright, particularly where the value of remedial works is out of proportion to the value of thedevelopment and only affects the "amenity value" of the development G W Atkins Ltd -v- Scott(1980) 7 Const LJ 215 CA. The overriding requirement in the loss of bargain measure ofdamages is that actual loss should have occurred. Damages are based on the loss incurred by theinjured party, and are not based on the gain by the party in breach Surrey CC -v- BrederoHomes Ltd (1992) 3AllER302.


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Robinson v Harman (1848)

Facts

The charterers entered into a five year charter party with the owners in relation the vesselMamola Challenger. Under that charter party, the owners were obliged to modify the vessel prior

to delivery, include installation of a new crane. The owners incurred expenses in preparation for

those modifications, which included removing a crane from another vessel. Subsequently, the

charterers failed to perform the fixture and the owners accepted the charterers conduct as

bringing the charter party to an end. After the repudiation of the charter party, the owners

concluded a number of short-term fixtures where the market rate of hire was higher than the

charter party rate of hire. Nonetheless, the charterers sought to claim as damages the expenses

they had incurred in preparing to perform the charter party. They argued, amongst other things,

that those expenses were

wasted in that they had no residual value or benefit for the owners.

The LMAA arbitral tribunal found that, over a period of five years, the owners had or would

have earned more from the short- term fixtures than they would have earned under the charter

party and that the excess was greater than the amount of the wasted expenditure. Nonetheless,

the arbitrators held that the owners were entitled to recover the wasted expenditure even though

they had not suffered a net loss as a result of the owners repudiation and had more then

recuperated the losses they were claiming as wasted expenses.

In coming to this conclusion, the tribunal commented that the fact that the vessel might have

been occupied in more gainful employment as a result of the termination of the Charterparty by

the Charterers is not a matter to be brought into account and that the expenses, such as they

were, were wasted in preparing for the Charterparty and were rendered irrecoverable not by any

provision of the Charterparty but as a result of its termination.

The charterers appealed, submitting that the tribunal had made a mistake of law. They argued

that the decision to award anything other than nominal damages to the owners breached the

principle that awards of damages for breach of contract are compensatory (citing in support The

Golden Victory [2007] AC 353) and are designed to put the innocent party in the position

it would have been in had the contract been performed, rather than the position it would havebeen in had no contract been made.


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Conclusion

Mr Justice Teares decision endorses the well-recognised principles of mitigation and the duty onan innocent party to take all reasonable steps to mitigate the loss consequent on the breach ofcontract by its counterparty. If the effects of mitigation are ignored, the claimant may end up in a

better position than he would have been in had the contract been performed and such anoutcome, according to the judges line of argument in this decision, would be contrary to thewell- established principle in Robinson v Harman. The facts of this case were unusual in thatowners had not suffered any loss of hire as a result of charterers repudiatory breach of thecharterparty. Nonetheless, owners who are faced with similar circumstances to those in this caseshould note the courts approach to the recoverability of wasted expenses.

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