BREACH OF CONTRACT

and
REMEDIES
DR. NUR KHAIRIYAH BINTI BASRI
 Outcomes
• Able to determine a breach of contract.
• Able to explain various remedies for breach of contract.
• Able to differentiate between the different remedies for breach of contract.
 DISCHARGE OF CONTRACT
• When the obligations created by the contract comes to an end.
OR
• The obligations binding the parties are no longer valid and thus the contract
should be terminated.

By performance

By agreement

By frustration

By breach
 Discharge by performance
• Both party comply fully with the term of contract. The express and implied
terms must be performed.
• Two different types of performance:
1. The strict contractual obligations – Both parties must complete the
work precisely and exactly the as the term under the contract. Classic
case: Cutter v Powell (1975).
2. The qualified contractual obligations – There is no req. to achieved
the results for the qualified obligation. Any failure to completely
perform the obligation will be amount to breach. Case: Liverpool City
Council v Irwin (1977).
 Discharge by agreement
• Both parties agree to abandon or to discharge the contract.
• Agrees to substitute or alter the contract, the original contract should be discharged.
• Example: contract to return/refund on defective items, contract of land for sale when
buyer unable to obtain finance.
 Discharge by frustration
• Due to unforeseen event occurs - the contract impossible, illegal, or something
radically different from what was in the contemplation when the contract was made.
AND neither party must be at fault.
• Example of circumstances become impossible to be performed are death, supervening
illegality.
• There are two alternative tests for frustration:
1. The implied term theory, as in: Taylor v Caldwell (1863)
2. The radical change in the obligation test. Adopted by the majority of the House
of Lords in: Davis Contractors v Fareham UDC [1956] AC 696.
 Discharge by BREACH
Breach of contract is the failure to perform what a
party is under a duty to perform.

• Consequences - the non-breaching party (innocent) have right to terminate the contract
or choose one or more remedies (commence proceedings for damages). Unless
damages would be inadequate a court will award money damages
• When?
1.Refuses to perform his obligation.
2.Disable himself from performing.
3.Makes performance impossible by himself
 Discharge by BREACH (cont.)
• Innocent party has the option to treat the contract as discharged through:-
1. Anticipatory breach - either party expressly or form a conduct at some time before performance is due
that he does not intend to observe his obligations under the contract.
Hochster v De la Tour (innocent party has option to sue immediately/ wait until breach occur.
2. Repudiatory breach – one party may break a contract that amounts to a substantial failure of
consideration.
• The innocent party has right to affirm or to terminate the contract, and
• The innocent party gains the right to claim damages.
Cook v MSHK Ltd & ors (2009), Northen Eastern Properties Ltd v Coleman & anor (2009)
 Damages
• A breach of contract entitles the non-breaching party to sue for a sum of money (damages).
• In the context of contract law, damages compensate the nonbreaching party for the loss of the loss
suffered as a result of the breach of contract.
• Expectation loss damages place the innocent party into the same position they would have occupied
had the contract, as been fully performed. Two different ways:
1. Cost-to-complete (cost of cure or reinstatement) – awarding the cost to pay and replace or
complete the project as promised. Courts use this measure when the breaching party's
performance has been defective or incomplete.
2. Diminution-in-value (difference in value) - awarding the difference in value between the
completed (expected value) project and the project specified (actually received) in the
contract. Example, a house is built in breach of the contract terms. The market value of the
finished house and the house specified in the contract would be calculated, and the builder
would have to pay the difference between the two. This measure is generally used only when
substantial performance of the contract has occurred.
 Types of Damages

Compensatory Consequential Punitive Nominal

to cover to punish to recognize
to cover indirect and
direct losses and deter wrongdoing
foreseeable wrongdoing when no
and costs losses monetary
loss is
shown
 Compensatory
• compensate the injured party
directly from the loss of the
bargain caused by the breach of
contract.
• The difference between the
promised performance and the
actual performance.
• They replace what was lost because
of the breach of contract.
Consequential
• Damages caused by special
circumstances beyond the contract
itself. They flow from the
consequences, or results, of a breach.
• The breaching party must know (or
have reason to know) that special
circumstances will cause the
additional loss.
(Hadley v. Baxendale)
 Punitive
• (exemplary damages) - generally not
awarded in an action for breach of
contract (designed to punish).
• Contract damages are to compensate.
• Some intentional torts, such as fraud,
are a basis for rescission and allowing
for punitive damages as the
commission of tort.
Nominal
• No actual damages result from a breach of
contract (only a technical injury).
• A contracts between Jackson and Stanley.
Stanley breaches the contract. Thus, in a suit
for breach of contract, Jackson may be
awarded only nominal damages for the
technical injury he sustained, because no
monetary loss was involved.
 Mitigation of Damages
• The innocent injured party is held to a duty to mitigate, or reduce, the damages that he
or she suffers.
• Injured - expected to take reasonable steps to minimize his losses but need not take
steps which would be unreasonable.
• Fails to mitigate a loss, he cannot recover for it or he cannot recover to the extent that
he failed to mitigate.
• Example: persons whose jobs have been wrongfully terminated have a duty to seek
other jobs. The damages they receive are their salaries, less the income they received (or
would have received) in similar jobs (Parker v. Twentieth Century-Fox Film Corp.)
Case 17.1: Fujitsu v. Federal Express
(Mitigation of Damages)

FACTS:
✓Fujitsu shipped a container of silicon wafers from Japan,
to Ross in Austin, TX using FedEx.
✓The next day, the container arrived in Austin and was
held for clearance by the U.S. Customs Service.
Meanwhile, Ross told FedEx it was rejecting the
shipment and that FedEx should return the goods to
Fujitsu at Ross’s expense.
✓The goods left Austin in good condition, but when they
arrived in Japan, Fujitsu found the goods covered with an
oily residue. Fujitsu reported the damage to FedEx.

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 Case 17.1: Fujitsu v. Federal Express
(Mitigation of Damages)

FACTS (cont’d)
✓Fujitsu’s insurance company directed FedEx to dispose the entire container
of chips without opening the bags.
✓Fujitsu filed suit for breach of contracts and the court found FedEx liable for
$726,640 in damages.
✓FedEx appealed arguing that Fujitsu failed to mitigate its damages.
HELD: AFFIRMED. FOR FUJITSU.
✓Fujitsu could not mitigate its damages because the chips could only be
opened in a clean room, which was not possible with the oily residue on the
bags.

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 Liquidated Damages
• An amount, stipulated in the contract, that the parties to a contract
believe to be a reasonable estimation of the damages that will occur in
the event of a breach.
• Example: a provision requiring a construction contractor to pay $300
for every day he or she is late in completing the construction is a
liquidated damages provision.
• Liquidated damages provisions are enforceable if they are not found
to be a penalty.
 Liquidated Damages (cont.)
• To determine if a particular provision is for liquidated damages or for
a penalty, two questions must be answered:
1. When the contract was entered into, was it apparent that damages would be
difficult to estimate in the event of a breach?
2. Was the amount set as damages a reasonable estimate and not excessive?
• If the answers to both questions are yes, the provision will be
enforced. If either answer is no, the provision will not be enforced.
 Case 17.2: Atel Financial v.
Quaker Coal Company
(Liquidated Damages)
FACTS:
✓Atel leased heavy mining equipment to Quaker Coal
Company, a Kentucky firm engaged in coal mining.
✓The lease provided for liquidated damages in “an
amount equal to the present value of all monies to be
paid by Lessee during the remaining Basic Term or any
successive period then in effect, plus * * * the
anticipated residual of the Equipment.”
✓Later, Quaker asked Atel to temporarily forego
payments so that Quaker could refinance its debts. Atel
agreed.

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 Case 17.2: Atel Financial v.
Quaker Coal Company
(Liquidated Damages)
FACTS (cont’d)
✓Months later, when Quaker was over $700,000 in arrears, Atel declared a
default and demanded liquidated damages.
✓Two weeks later, Quaker finalized its debt restructuring and sent Atel a
check for all outstanding invoices. The next day, Atel sued Quaker for breach
of contract.
✓By the time of trial, Quaker had made all past due payments.

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 Case 17.2: Atel Financial v.
Quaker Coal Company
(Liquidated Damages)
HELD: FOR QUAKER.
✓Court denied Atel’s request for liquidated damages and entered a judgment
in favor of Quaker.
✓Court considered the liquidated damages clause to be a penalty clause.
✓“[A] liquidated damages clause will generally be considered unreasonable,
and hence unenforceable, if it bears no reasonable relationship to the range
of actual damages that the parties could have anticipated would flow from a
breach.”

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 ADDITIONAL REMEDIES
• Rescission terminates a contract.
• Restitution both parties must returns the good, property of money they occupied prior
to the contract.
• Specific Performance requires the performance of the act promised in the contract.
Consider the unique, scarce, not available remedies in contract for personal services.
• Reformation allows the contract to be rewritten to reflect the parties' true intentions.w
hen the contract was not perfectly written/espress.
 Jurisdiction
• Jurisdiction: The persons about whom and the subject matters about which
a court has the right and power to make decisions that are legally binding.
 “Clean Hands”
• This ancient doctrine of equity law requires that before a plaintiff can ask a
court for an order sanctioning the other party, the plaintiff must show that
he did not do anything wrong.