A breach of a contract occurs
With regards to remedies there are many different types of remedies, but the main one being Damages. The purpose of damages is to put the claimant party into the financial point they were in prior to entering the contract that caused the problem. It is a monetary sum set by the court to reimburse the claimant. Therefore the innocent party must show that they have suffered actual loss, if this can’t be proved then they will only be entitled to nominal damages. To award the claimant for damages, the court has to think about two things:
Remoteness – for example the consequence of the breach is the defendant legally responsible and
Measure of Damages – the damages are evaluated in monetary terms.
The case of Hadley v Baxendale established the rule of Remoteness of loss. The court came up with the principle that where one party is in breach of contract, the claimant is to receive damages which can be considered to come from the breach of contract itself. There are two types of loss for which damages may be recovered, what comes naturally and what the parties can foresee when the contract was made as the likely result of breach. As a result of the first rule in Hadley v Baxendale the claimant is considered to expect the result of the breach, whether they were expected or not. For the second part of the rule, the claimant can only be held for unusual consequences. Where the party has knowledge that the abnormal consequence will follow where it is reasonably ought to. Damages are not given for non financial loss, they are awarded for losses where the contracts purpose is to promote enjoyment. The innocent party must take reasonable steps to ease the loss for example by trying to find an alternative measure of the contract.
Liquidated damage clauses are where a contract includes a condition that damages of a certain sum will be payable – the courts will acknowledge the certain sum to be a measure of damages. Even if the claimant receives less than the actual loss coming from the breach, the courts can still uphold a liquidated damages clause. But a court will ignore an amount for damages if it is classed as a penalty clause, this is where an amount which is not a genuine pre estimate of the expected loss on the breached contract. The case of Dunlop Tyres v New Garage & Motor Co set the rule to distinguish between liquidated damages and penalties. The court was of the view that the amount will be a penalty where it is excessive, a larger amount is to be payable where the smaller sum is not paid and the same amount is payable whether the breach is small or big.
An Injunction is an equitable remedy which is given by the court. It is given where damages are not a suitable answer to compensate the claimant because the claimant has to stop the defendant from continuing breach on the contract. The two main types of injunction are prohibitory injunction – an order that something must not be done. The second is mandatory injunction – an order that something is to be done.
Reliance loss can occur when the claimant has suffered a loss in expenditure due to the contract. The purpose of this remedy is the same as expectation loss, as it is designed to put the claimant in the previous financial position they would have been prior to entering the contract. Reliance loss can be claimed as expectation loss cannot be recovered.
Another type of remedy is specific performance, this is where the court orders the defendant to carry out their part of the contract. This remedy is to put the parties in the position they would have been if the contract had been carried out correctly in the first place. For example the case of Falcke v Gray 1859 as the contract was for unique Chinese vases.
From the remedies it can be seen that damages is the main remedy to use when an innocent party faces a contract being breached. Equitable remedies can be sought where damages will be inadequate to reimburse the claimant for their loss. The method in which the loss is calculated is for the claimant to decide and prove to the courts. Instead of going though court seeking damages parties can also use their own methods like retention of title clauses, enforcement of security, withholding payments and rights against the goods themselves.
The claimant party will lose their right to compensate for their breached contract if they delay for a certain period of time. The Limitation Act gives statutory periods. It distinguishes between simple contracts and deeds. A contract has a limitation period for six years, from the point the breach occurred. As for deeds the period is twelve years. If there is evidence of deception the limitation period does not start until the claimant party is aware of the deception. There is then a three year period with regards to damages for personal injuries resulting from breach of contract. For deeds, the seller may want a shorter limitation period – six years from the start of the contract. This pertains to the Inland Revenues time limit for making tax reviews.