#7430 - Un Liquidated Damages For Breach - Contract Law

Week 5- Un-liquidated damages for breach:

Estoppel:

Estoppel and a right to terminate: If following A’s breach, B’s conduct sends out a message that he is not going to terminate. If A will be disadvantaged then B will be estopped from departing from his initial assumption. Another way to stop a person terminating other than election.

• The exercise of a right to terminate may be restricted by equitable estoppel where the aggrieved party has induced the other party into believing that that the contract will not be terminated and they have relied on that assumption.

• An estoppel by convention will arise where both parties have conducted themselves as if the contract is still on foot even though the condition has not been fulfilled. It will stop parties asserting that the non fulfilment of the condition has brought the contract to an end automatically. This may also happen if parties have conducted themselves in a way that the condition will not bring about an automatic termination.

Difference between estoppel and election:

• Election is based on the concept of a binding choice which requires knowledge of the facts to terminate and knowledge of your legal right to do this. Once made it is final.

• Estoppel is based on detrimental reliance on an assumption induced by the other party. The role of knowledge is uncertain. It may be a temporary effect. A party may regain their right to terminate by giving reasonable notice to the party in breach.

Waiver:

• A restriction on a right to terminate a contract. Election and waiver are often used interchangeably.

Relief against forfeiture (The loss of an asset or rights to an asset, due to default on contractual obligations or conditions):

• Termination may affect a forfeiture of an interest in property or a proprietary right.

• Courts have only done this to protect an interest in property- usually land. They have granted relief against forfeiture to a lessee where a term in the contract has forfeiture for a default in rent payment.

• Relief against forfeiture is based on relief against the unconscionable exercise of legal rights.

• The following establishes whether there is a case appropriate for the relief against forfeiture:

  • Did the conduct of the aggrieved party contribute to the other party’s breach?

  • Was the other party’s breach trivial or slight and inadvertent and not wilful?

  • What damage or other adverse consequences did the aggrieved party suffer by reason of the other party’s breach?

  • What is the magnitude of the purchaser’s loss and the vendor’s gain if the forfeiture is to stand?

  • Is specific performance with or without compensation an adequate safeguard for the vendor?

• In Legione v Hateley, the court said relief against forfeiture was potentially available.

Unconscionable terminations:

Equity:

• There is an equitable relief to grant relief against any termination which would be unconscionable.

Good faith:

• The courts have been concerned about termination cases where there is the question of whether or not an aggrieved party has a right to terminate a contract has not traditionally inquired into whether or not the exercise of that right would be fair or reasonable.

• It may require the aggrieved party to provide grounds for why they terminated, give notice about their decision to terminate, maybe an opportunity for the other party to correct a breach before the contract is terminated, maybe the termination should not be motivated by market playing reasons.

Contractual restrictions:

• Parties can agree that their rights to terminate be restricted in some way. Clauses restricting terminating rights are to be read according to their natural and ordinary meaning.

The Measure of Damages:

• In contracts damages are only compensatory (torts is different. It gives punitive damages- to denounce and punish the offender’s conduct- need to restore the party to the position he was in before the tort occurred) and you get compensation for the loss of the benefit of the performance for which you were promised. This only differed in Attorney-General v Blake. Most are for disappointed concepts of gain. They are not designed to restore you to the same position as you were before. They are to put the victim into as good a position as if the contract had been performed.

• So you have to prove what is the position you would have been in if you had performed. Prove this on the balance of probability.

• The victim of breach should receive compensation to put him in as good a financial position as he would have been in if the defendant had of performed (Robinson v Harman (1848)).

• Work out the market value of the performance that was promised and the market value they ended up with. E.g. there is a car sold for $10,000. The vendor had to deliver on the first of May and fails to do this. The market value of the car increased to $11,000. The damages will be worked out on the market value at the date he agreed to deliver it (the damages are $1000- he would have had to spend the $10,000 anyway).

• Basic pecuniary loss is the loss that any person in the plaintiff’s position would suffer if the defendant breached this kind of the contract in the way he did that. But sometimes a plaintiff suffers further losses usually in follow up transactions. The further losses are

consequential pecuniary loss (they encounter particular scrutiny under the awards of damages).

• E.g. If the purchaser does not accept goods then the loss of the vendor is the purchase price minus the sale price- basic pecuniary loss. He might have to store the goods until he finds an alternative buyer- consequential pecuniary loss in addition to the basic one.

If the plaintiff cannot show what position he would have been in he will only get nominal damages.

• In contracts to build or repair it is hard to show alterations that are done badly what position they would have been in. The difference between the market value and the market value after the breach will not work. The damages will be small. The only fair way to put them in as good as a position will be to award the amount necessary for rectification work.

• Damages are meant to compensate the plaintiff. This is the compensation principle.

• Where a party sustains a loss by reason of a breach of contract, he is to be placed in the same situation with respect to damages as if the contract had been performed.

• Damages are not punitive. In Australia exemplary damages (which punish the defaulting party) are not allowed.

Types of damages:

• Expectation damages:

  • Reliance damages are not the full amount that they would have got like expectations damages. You get back your lost expenditure from the promised performance because you don’t know how much the performance would have been worth. It is impossible to quantify the value of the performance. They don’t try to put the plaintiff in the full position he would have been in because it is impossible to quantify because of the breach of the contract. When the court awards expectation damages, they are trying to give them the full value of the performance of the promise.

  • They compensate the plaintiff for any benefit they expected to have gained from performance of the contract but have been lost because of the breach.

  • They are based on a market measure.

  • Direct loss is where the loss is directly linked to the breach of the contract.

  • It will be the difference in value between what the defendant has done and what they should have done. E.g. The apples were bought for $200 but only $150 worth were delivered so damages is $50.

  • They can be the price promised under the contract or the cost of obtaining performance to replace that promised. E.g. If the apples were not delivered and the only other apples you could buy were $300, then damages would be $100.

  • You can also get consequential losses. E.g. If the apples were rejected then you could get damages for the cost of storing the apples until another buyer was found.

• Damages for breach of an obligation for rectification or repair:

  • They give damages based on the cost of rectifying the work to make it conform to the contract if the plaintiff has incurred costs to fix the damages of the repairs.

  • The rectification work must be reasonable and necessary. That is there must be a practical necessity for the work to be redone. The defect must not be out of proportion to the benefit which the plaintiff will obtain from damages.

  • Rectification may not be reasonable where supervening event mean rectification cannot be carried out.

  • When you sell a property, it makes it questionable if it is reasonable to expect remedial work. They may not think the rectification needs to be carried out.

  • The plaintiff may not have actually intended to rectify the building even though they have sought damages on this basis. Courts are unwilling to look at subjective intentions. However it is unsure if damages would be allowed in this case.

• Reliance damages:

  • The promise of this contract will put me in a profit position if they perform. Sometimes a defendant’s breach makes it impossible to quantify what they would have got before the breach (i.e. measured by market value). The court might presume they would have made at least enough to recoup your own expenditure which was reasonable.

  • A party may incur losses in reliance on a contract being performed.

  • Such losses are usually covered in expectations losses.

  • If the contract is terminated, the plaintiff will get the price payable under the contract. If the contract is terminated before the plaintiff has performed, this will be deducted from their damages.

  • A plaintiff will not recover an...