BUSINESS LAW
MGMT2021
SEMESTER 1 ACADEMIC YEAR 2013
WORKSHEET IX
CONTRACTUAL REMEDIES
Learning Objective: The student must be able to:
o list and briefly explain the various remedies available for breach of contract
o explain the concepts of remoteness of damage and measure of damages
o explain and apply the principles applicable to the concept of remoteness of damage
Contractual remedies emanate from both the common law and equity. Common
law remedies include damages (the main type of contractual remedy), action for
an agreed sum and quantum meruit. Equitable remedies include specific
performance, injunctions and rescission.
Damages are monetary compensation for loss suffered by the aggrieved
party where there has been a contractual breach. In trying to arrive at the
damages to be awarded to the aggrieved party, there are two factors
which a court must consider:
a) remoteness of damage/loss i.e. the type of loss for which the
injured party should be compensated
b) measure of damages i.e. how much money the injured party
should receive
Remoteness of damage If damage/loss is too remote, it will not be
recoverable by the injured party. How does the law determine if loss or
damage is too remote? The principle regarding this was laid down in
Hadley v Baxendale (1854): “Where two parties have made a contract which one of them
has broken, the damages which the other party ought to receive in respect of such breach of
contract should be such as may fairly and reasonably be considered either arising naturally, i.e.,
according to the usual course of things, from such breach of contract itself, or such as may
reasonably be supposed to have been in the contemplation of both parties, at the time they made
the contract, as the probable result of the breach of it. Now, if the special circumstances under
which the contract was actually made were communicated by the plaintiffs to the defendants, and
thus known to both parties, the damages resulting from the breach of such contract, which they
would reasonably contemplate, would be the amount of injury which would ordinarily follow from a
breach of contract under these special circumstances so known and communicated. But, on the
other hand, if these special circumstances were wholly unknown to the party breaking the contract,
he, at the most, could only be supposed to have had in his contemplation the amount of injury
which would arise generally, and in the great multitude of cases not affected by any special
circumstances, from such breach of contract.”
H Parson’s (Livestock) Ltd v Uttley Ingham & Co (1978) – this case
makes a distinction between cases involving loss of profits (like Hadley v
Baxendale) and those involving physical damage. The court in Parson’s
said that in loss of profit cases, the party in breach should be liable for the
losses if they are such as “at the time of the contract, he ought reasonably
to have contemplated as a serious possibility or real danger”. In cases
involving physical damage, the party in breach is responsible for ‘any loss
or expense which he ought reasonably to have foreseen at the time of the
1
breach was a probable consequence, even if it was only a slight
possibility”.
In H Parson’s (Livestock), pig farmers bought a hopper for storing pig feed from the
Ds. Ds forgot to open the ventilator when they delivered and installed the hopper. As a
result, the pig feed became mouldy and caused the pigs to contract e coli. Over 250 pigs
died. Farmers sued for breach of contract for the sale of the hopper claiming the value of
the pigs and the loss of sales.
Issue: Whether the loss claimed was too remote. Held, applying the ‘loss which could
reasonably have been foreseen’ test, that it was not too remote.
The measure of damages – the amount of money the aggrieved party
should recover. The principle here is that this party should be put in the
position he would have been in had the contract been performed. The
measure of damages will be the difference in value between what
aggrieved party expected to receive and what he actually received. See
too Sale of Goods Act s.49 which states how damages should be
assessed for non-acceptance of goods in a contract for the sale of goods.
Mitigation of loss – party should take reasonable steps to reduce the loss
he has suffered.
Liquidated damages – an amount specified in the contract for a
stipulated breach of contract. The amount must be a genuine estimate of
the loss consequent on the breach. If it is not, it will be regarded as a
penalty and will not be enforceable.
Action for an agreed sum – suing for the amount agreed for the
performance of a contractual obligation
Quantum meruit – reasonable payment for work done.
Specific Performance – if damages are not an appropriate remedy,
specific performance may be awarded e.g. contract for a one of a kind
painting. But will not typically be given in contracts for personal services.
(Specific performance will not be given where damages are adequate).
Especially appropriate in contracts for the sale of land.
Injunctions – may be given to restrain a party from doing something that
would be in breach of contract or to require a party to do certain things to
remedy a breach. Special type of injunctions: Mareva; Anton Piller.
Rescission: putting the parties back into their pre-contractual situations.
Revise the restrictions on the grant of the remedy of rescission: See
Worksheet VIII.
Reading: Abbott, Pendlebury & Wardman, Business Law (8th edition) pp. 162-168 OR
(7th ed) pp. 159-166.
