11 Discharge, breach of contract and remedies

1 Discharge

1.1 A contract can be discharged in a number of ways. The method of discharge may amount to a breach of contract and hence give rise to a claim for damages. However, there are other methods of discharging a contract that will not give rise to a breach of contract claim namely discharge by

(a) Agreement

(b) Performance.

1.2 Agreement

(a) Agreement means that both parties agree that the contract be discharged. Some contracts provide for discharge by agreement for example by expressly stating that the contract can be discharged by notice.

Alternatively:

(b) The contract can be discharged by a completely new agreement e.g. where one party agrees to accept a change in the other's performance (a 'variation' agreement). To be binding such agreements themselves must be supported by consideration.

1.3 Performance

(a) This is the most common way in which a contract is discharged. It is important that performance occurs as without it there will be a breach of contract. It would also be inequitable to allow one party to sue another for breach if he himself has not performed the terms of the contract exactly and completely. This is known as the rule in Cutter v Powell.

(b) Sometimes the rule is Cutter v Powell can act harshly and hence some exceptions to the rule have developed for example where non-performance has been caused by the other party.

1.4 Breach

(a) Contracts can be discharged by fundamental breaches of contract.

(b) Breach of condition:

(i) Straightforward breach is easy enough to understand. One or both parties are not complying with the conditions of the contract. Remember the injured party may only bring the contract to an end if there has been a breach of condition.

(ii) Anticipatory breach is where one party indicates that he does not intend to complete his part of the contract. The innocent party (the claimant) can sue on notice.

But claimant can elect to ignore the breach, complete his part of the contract and then sue: White and Carter (Councils) Ltd v McGregor

If the claimant so elects he must complete his part properly or he himself will be liable for breach.

Actions for anticipatory breach should be started at once otherwise factors may intervene which mean the contract is automatically discharged (e.g. on outbreak of war that would render the contract illegal).

2 Remedies

2.1 (a) The remedies for breach of contract you need to be aware of are:

(i) damages

(ii) action for price

(iii) quantum meruit

(iv) specific performance

(v) injunction

(vi) rescission

3 DAMAGES – Available only if the injured party has completed his contractual obligations

3.1 Aim is to place the innocent party (or claimant) in the same position as if the contract had been performed.

3.2 The intention is not punishment, but compensation. This reflects the fact that a breach of contract claim is on the basis that something should have been done, but wasn’t.

Remoteness of damages

3.3 (a) Damages are awarded to compensate for loss of bargain or to extent of contractual expectations. Some limit is placed on the nature and scope of loss recoverable.

Rule in Hadley v Baxendale make losses compensatable if:

(i) they arise naturally; and

(ii) they are within the reasonable contemplation of the parties at time of contract.

(b) See also: Victoria Laundry v Newman Industries

Measure of damages

3.4 (a) Assessed with reference to doctrine of restitution.

(b) One can only claim for actual loss suffered. Note however that nominal damages can be available.

(c) Non financial loss may be recoverable where contract is one for provision of enjoyment or peace of mind: Jarvis v Swan Tours. Also the courts may award damages for distress and loss of amenity where the cost of curing a defect is excessive: Ruxley Electronics v Forsyth.