Commercial Law Breach of Contract and Remedies

Breach of Contract

Breach of Contract occurs when there is a failure to fulfill the duties under the contract terms.

It may occur when:One party does not perform as promised

One party does something that makes it impossible for the other party to perform the duties under the contract

One party makes it clear of the intention not to perform the contract duties.

Breach of Contract

So what is exactly ‘Breach of Contract’?Answer: It is a legal ‘cause of action’ that arise when the binding agreement in the contract is not honored by at least one party to the contract.

The party who does not fulfill the contractual promise is said “to have performed a breach of contract”

Remedies

In most instances, the remedy given by the court for breach of contract is the delivery of monetary compensation for damages incurred (damages)

IF, the breach cannot be redressed by money, the court may use its discretion by awarding other form of remedies such as specific performance or injunction.

Damages

Damages?It is a remedy under common law to provide monetary compensation where there has been a breach of contract.

Purpose of Damages?To place the party who has suffered the loss, as nearly as possible in the position as he or she would have been if breach has not occurred.

They are not punishment!

DamagesS.74 CA –

(1) When a contract has been broken, the party who suffers by the breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from the breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.

(2) Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.

Damages

Under S.74 – the party may recover damages for:-

Other expenses incurred as result of the breach;

Loss of profits arising as result of the breach (depending on the knowledge of the parties during contracting);

The difference between the price of goods as contracted for and the actual price (market price).

See illustrations to S.74 CA

DamagesWhat if the contract stipulated a sum to be paid in the event of breach of contract?

Answer: The amount of damages recoverable cannot exceed the sum stipulated in the contract.

Authority: S.75 CA

75. When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.

Damages

How to assess damages?General Rule: Court will not award compensation for any loss which is too remote.

Authority: Hadley v Baxendale (1854) – where the rule can be summarized as follows:-

Damages may be awarded for any loss ‘naturally arising’ from the breach of contract (General Damages)

Damages may be awarded for any loss which was ‘in the contemplation of both parties’ as the probable result of the breach (Special Damages)

Damages

Duty to mitigate loss?Party seeking damages is under statutory duty to mitigate loss.

Authority: Explanation to S.74 CAExplanation— In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account.

See Kabatasan Timber Extraction Co v Chong Fah Shing {1969] 2 MLJ 6 – the lazy timber company case.

Specific Performance

It is a court order requiring the defendant to perform the act promised in the contract.

This remedy is provided under Specific Relief Act 1950.

It is a discretionary remedy.

Relevant sections under the SRA – Ss. 20(1)(a), 20(1)(c), 21 and 11(2)

Specific Performance

S.20(1)(a) SRA – the court will exercise its discretion not to decree specific performance where damages will provide an adequate remedy.

S.20(1)(c) SRA – Specific performance will be refused where the terms of the contract are uncertain.

S.21 SRA – The court has discretion to refuse specific performance where the granting of it would cause undue hardship to the defendant.

S.11 SRA – It may be granted in respect of agreements relating to land transactions where there is a presumption that the breach of contract to transfer land cannot be adequately relieved by compensation of money.

Injunction

Interlocutory injunction – is used by a party to maintain status quo of the subject matter in a pending trial.

Mandatory injunction – is a court order requiring something to be done.

Prohibitory injunction – stopping something from being done.

Conclusion – Contract Law

Persons engaged in business should exercise great care when entering a business contract to ensure the

parties are in agreement on all terms.

Therefore a detailed written contract is very essential.

Leaving undecided or unclear terms may result in a displeased customer, lost of opportunity for repeat

customer, and worst, a lawsuit for breach of contract.