Contract Law - Breaches and Remedies Revision Sheet and Key Cases

Introduction

Contract law is a foundational subject of legal studies, providing the framework for understanding how agreements are formed, enforced, and interpreted. There are five elements of a contract:

• Offer and acceptance

• Consideration

• Intention to create legal relations

• Certainty of terms

• Capacity

For any student studying contract law, mastering the key legal principles and cases is essential for academic success. This article serves as a no-nonsense guide to breaches and remedies and provides a table of landmark cases that have shaped this area of English contract law. Familiarity with these key principles and cases will help equip students with the necessary tools to navigate the complexities of contract law and provide the foundations to succeed in their exams.

Revision Sheet

🔑 Core Principles

o      What is a Breach of Contract?

o      Types of Breach

o      Termination

o      Frustration

o      Damages

o      Restrictions on Recovery

o      Equitable Remedies: Specific Performance and Injunctions

📌 What is a Breach of Contract?

A breach of contract occurs where a party fails to perform their contractual obligations without lawful excuse. The breach may arise from non-performance, defective performance or late performance.

Breach of contract is one of the most common legal disputes. Common examples include:

• Failing to deliver goods

• Performing work to a poor standard

• Refusing to pay for services

• Breaching a confidentiality clause

📌 Types of Breach

A breach may occur where a party:

• Fails to perform the contract.

• Performs the contract defectively.

• Performs the contract late.

• Indicates before performance is due that they will not perform (anticipatory breach).

In Hochster v De La Tour [1853], a courier was employed to begin on a future date. Before the employment commenced, the employer informed him that his services would no longer be required. It was held that the innocent party could sue immediately because the contract had been repudiated before performance was due.

✅ Exam Tip

• Has the contract been breached?

• Is the breach actual or anticipatory?

📌 Termination

The general rule is that not every breach of contract entitles the innocent party to terminate the contract. Termination will generally be available where:

• A condition has been breached.

• A sufficiently serious innominate term has been breached.

For more information on conditions and innominate terms, please see the Revision Guide on Contract Terms here.

Termination brings the parties future contractual obligations to an end, although rights and liabilities that have already accrued will generally remain enforceable.

A condition has been breached

A condition is a term that is so important that every breach should be treated as repudiatory.

In Poussard v Spiers and Pond [1876], an opera singer was unable to perform the opening performances due to illness. It was held that the employer was entitled to terminate the contract because a condition had been breached.

An innominate term has been breached

This is where the breach has deprived the other party of substantially all the benefit of the contract.

In Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962], a vessel was delivered in an unseaworthy condition, causing lengthy delays. It was held that termination depends upon whether the breach deprived the innocent party of substantially the whole benefit of the contract.

Actual or Threatened

Repudiatory breaches can be:

• Actual: The breach has already occurred because one party has breached the contract.

  
  

• Threatened: The breach has not yet happened but the other party has indicated they will not perform their future obligations as they become due.

✅ Exam Tip

• Not every breach entitles the innocent party to terminate the contract.

• Is the breach sufficiently serious to justify termination?

  
  

📌 Frustration

The general rule is that a contract may be discharged by frustration where, after the contract has been formed, an unforeseen event occurs through no fault of either party, making performance impossible or radically different from that originally agreed.

Quote: "Frustration occurs whenever the law recognizes 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. Non haec in foedera veni. It was not this that I promised to do". (Davis Contractors Ltd v Fareham UDC [1956]

In Taylor v Caldwell [1863], a music hall was destroyed by fire before concerts could take place. It was held that the contract had been frustrated because performance had become impossible due to the destruction of the subject matter.

Modern Test for Frustration

Generally speaking, a frustrating event is an event which (In National Carriers Ltd v Panalpina (Northern) Ltd [1981]):

• Occurs after the contract has been formed.

• Is so fundamental as to be regarded by the law both as striking at the root of the contract and as entirely beyond what was contemplated by the parties when they entered the contract.

• Is not due to the fault of either party.

• Renders further performance impossible, illegal or makes it radically different from that contemplated by the parties at the time of the contract.

The best way to understand the scope of the doctrine of frustration is by looking at decisions of the court. That said, since the doctrine of frustration depends on the construction of the obligation created by the particular contract in light of its own circumstances, reported decisions can only be a rough guide, albeit a useful one.

In Davis Contractors Ltd v Fareham Urban District Council [1956], a building contract became far more expensive and time-consuming than expected due to labour shortages. It was held that the contract had not been frustrated because performance was still possible, even though it had become more difficult and costly.

Consequences of Frustration

Common Law

At common law, if a contract has been frustrated it is automatically discharged and the parties are excused from their future obligations (Hirji Mulji v Cheong Yue SS Co [1926]).

Importantly, the contract is not rescinded (rescission undoes a contract as if it had never existed and restores the parties to their pre-contract positions). Instead, if a party incurred obligations before the time of frustration, it remains bound to perform them (including any payment obligations which have accrued due).

Statute

Sections 1(2) and 1(3) of the Law Reform (Frustrated Contracts) Act 1943 address the possible unfairness that the common law position can create. It provides that:

• Money paid before the frustrating event can be recovered and money due before the frustrating event, but not in fact paid, ceases to be payable (section 1(2), LRA).

  
  

• A party who has incurred expenses is permitted, if the court thinks fit, to retain an amount up to the value of the expenses out of any money they have been paid by the other party before frustration; or where money was due and payable at the time of frustration, recover a sum not exceeding that amount for expenses (section 1(2), LRA).

  
  

• The court may require a party who has gained a valuable benefit under the contract before the frustrating event occurred, to pay a "just" sum for it. This is so whether or not anything was paid or payable before the frustrating event (section 1(3), LRA).

You can read more about the law of frustration and its development here.

📌 Damages

Damages are the primary remedy for breach of contract. Their purpose is to place the innocent party, so far as the money can do so, in the position they would have been in had the contract been properly performed.

Contract damages are, therefore, compensatory, and measure the loss caused by the breach. In other words, the damages should compare the position the claimant is in fact in, following the breach, and the position the claimant would have been in but for the breach.

Damages for Monetary Loss

Most contract awards compensate for financial loss. This takes many forms, including costs or liability the claimant has incurred to a third party and profits the claimant has foregone.

Cost of Cure

The claimant can pay for a third party to cure or reinstate so as to put the claimant in as good a position as if the defendant had performed.

💡Example: the claimant might pay for repairs to rectify a breach of warranty of quality by a seller of goods, or a partial non-performance by a builder.

Where already incurred by the time of trial, such a cost will be recoverable from the defendant providing it was not so unreasonable as to be a failure to mitigate and/or a break in the chain of causation. Where the cost of cure has not been incurred at the date of trial, it will only be recoverable where incurring the cost would be reasonable in all the circumstances.

Sale of Goods

The rules for the quantification of damages in relation to contracts for the sale of goods are set down in the Sale of Goods Act 1979 (SGA 1979). However, they are very similar to the common law position.

Non-Financial Loss

Most contract awards are for financial loss and, in general, damages for non-pecuniary loss (like distress, disappointment, or inconvenience) are generally irrecoverable. However, courts make exceptions when the primary object of the contract is to provide pleasure, peace of mind, or relaxation (e.g., a holiday)

In Ruxley Electronics v Forsyth [1996], the claimant contracted for a swimming pool with a specified depth of 7 feet 6 inches. The pool was constructed but it was only 6 feet 9 inches deep. The cost of taking out the pool and rebuilding it was £21,560. The difference in financial value between the house with the pool as constructed and the house with a pool 7 feet 6 inches deep was nominal. The House of Lords upheld the trial judge's award of £2,500 for "loss of amenity", the loss of enjoyment the claimant would suffer during the life of the pool given that it was shallower than promised and the cure had been refused. The cost of reinstatement, however, was held to be out of proportion to the benefit that would have been obtained, or in other words to the diminution in value that resulted from the uncured breach (here a financial diminution of £0 and a loss of amenity of £2,500).

This case showed that the House of Lords recognised that financial value is not always a sufficient measure of the relevant consequences of performance or breach.

📌 Restrictions on Recovery

The general rule is that not every loss resulting from a breach of contract is recoverable. In other words, just because a loss was caused by the breach (that is, would not have occurred but for the breach) does not mean that the law holds the defendant responsible for it.

The rules on mitigation, legal causation, remoteness and contributory negligence may restrict, and in some cases prevent, a damages award.

Legal Causation

This principle essentially provides that, even though some losses were factually caused by the breach (that is, but for the breach they would not have occurred), they are nevertheless treated legally as not having been caused by the breach.

Whilst this is separate from the principle of remoteness, the foreseeability of an intervening act or event, and whether it was something that the defendant’s duty aimed to protect against, will both be factors that point against a finding that there was legal causation.

Mitigation of Loss

The general rule is that an innocent party must take reasonable steps to minimise the losses caused by a breach of contract. They cannot recover damages for losses that could reasonably have been avoided.

💡Example: Where a defendant fails to deliver goods for which a market substitute is available, the claimant cannot simply claim for all the losses which result. This is because the claimant should have acted reasonably to mitigate its losses by purchasing a replacement on the market.

The burden of proving that the claimant failed to take all reasonable steps to minimise or avert loss falls on the defendant

Remoteness of Damage

The general rule is that not every loss resulting from a breach of contract is recoverable.  A party will only be liable for losses that are sufficiently connected to the breach.

Damages will generally be recoverable where the loss:

• Arises naturally from the breach; or

• Was within the reasonable contemplation of both parties when the contract was made.

In Hadley v Baxendale [1854], a delayed crankshaft prevented a mill from operating. It was held that only losses arising naturally from the breach or within the reasonable contemplation of the parties at the time the contract was made were recoverable.

📌 Equitable Remedies: Specific Performance and Injunctions

The general rule is that damages are the primary remedy for breach of contract. However, where damages would not provide an adequate remedy, the court may grant an equitable remedy. Equitable remedies are distinguished from legal remedies which are available, as a right, to a successful claimant.

Equitable Maxims

The courts' equitable jurisdiction is exercised in accordance with certain principles and doctrines which have developed from the equitable maxims. The equitable maxims characterise the supplemental role of equity to prevent injustice from reliance on strict common law rights:

• Equity will not suffer a wrong to be without a remedy.

• Equity acts in personam (that is, judgments are made against the person and enforced against him, in contrast to judgments in rem that are enforced against the world with respect to a particular asset).

• Equity follows the law.

• One who seeks equity must do equity.

• One who comes into equity must come with clean hands.

• Delay defeats equities.

Specific Performance

The court may order specific performance, requiring a party to perform their contractual obligations.

Specific performance is more likely to be granted where:

• The subject matter of the contract is unique.

• Damages would not adequately compensate the innocent party.

In Beswick v Beswick [1968], an uncle transferred his business to his nephew provided his nephew continue payments to his widow after his death. The nephew later refused, and it was held that specific performance was appropriate because damages were not an adequate remedy, since estate damages would have been nominal.

Injunctions

An injunction is a court order preventing a party from acting in breach of a contract. Like specific performance, it is an equitable remedy and will only be granted where it is just and equitable to do so.

An injunction may be granted where:

• Damages would not provide an adequate remedy.

• It is necessary to prevent a continuing or threatened breach of contract.

In Warner Bros Pictures Inc v Nelson [1937], an actress agreed not to work for competing film companies during her contract. It was held that an injunction could restrain her from acting in breach of the agreement.

🔑 5 Step Exam Checklist

1. Identify the type of breach

Has there been:

→ non-performance?

→ defective performance?

→ late performance?

→ Anticipatory breach?

2. Consider whether the contract has been discharged

Has the contract been discharged by:

→ Termination for breach?

→ Frustration?

3. Consider damages

Can the innocent party recover damages?

Is the loss too remote?

Has the innocent party mitigated their loss?

4. Consider equitable remedies

Would damages provide an adequate remedy?

Could the court grant:

→ Specific performance

→ An injunction

5. Determine the appropriate remedy

Which remedy best protects the innocent party in the circumstances?

Key Cases

Case Name	Facts	Legal Principle
Beswick v Beswick [1968]	An uncle transferred his business in return for payments to his widow after his death.	Specific performance may be granted where damages are not an adequate remedy.
British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912]	Defective turbines were replaced with more efficient ones following a breach of contract.	An innocent party cannot recover losses that could reasonably have been avoided by mitigating their loss.
Davis Contractors Ltd v Fareham Urban District Council [1956]	A building contract became significantly more expensive and time-consuming due to labour shortages.	A contract is not frustrated merely because performance has become more difficult or expensive.
Hadley v Baxendale [1854]	A delayed crankshaft prevented a mill from operating.	Damages are limited to losses arising naturally from the breach or within the parties' reasonable contemplation.
Hochster v De La Tour [1853]	An employer informed a courier before the start date that his services would not be required.	An innocent party may sue immediately for an anticipatory breach of contract.
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962]	A vessel was delivered in an unseaworthy condition, causing lengthy delays.	Whether termination is available for breach of an innominate term depends upon the seriousness of the consequences.
Poussard v Spiers and Pond [1876]	An opera singer missed the opening performances due to illness.	Breach of a condition entitles the innocent party to terminate the contract.
Robinson v Harman [1848]	A lease could not be completed because the defendant did not own the property.	Damages aim to place the innocent party in the position they would have been in had the contract been performed.
Taylor v Caldwell [1863]	A music hall was destroyed by fire before concerts could take place.	A contract may be discharged by frustration where performance becomes impossible through no fault of either party.
Warner Bros Pictures Inc v Nelson [1937]	An actress agreed not to work for competing film companies during her contract.	An injunction may be granted to restrain a breach of contract where damages are inadequate.