Discharge the Contract Through Breach of Contract

Mary approached Seng Huat Ann Kitchen Equipment Pte Ltd (SHAKE) to purchase 5 additional ovens so that she could expand her business. SHAKE has been her supplier for the past 3 years, and is familiar with Mary’s business. SHAKE’s agreement with Mary states that all orders will be delivered within 7 days. Mary had also informed SHAKE that she would be expecting “brisk sales over the Christmas festive season”.

Over the next few days, Mary received orders amounting up to $4000. As Mary thought that the ovens from SHAKE would be arriving soon, she tendered and won the tender for a commercial project (The Cookie Monster Company) involving the sale of her cookies, amounting to $12,000.

3 days before Christmas, SHAKE called Mary to inform that the ovens will only be available 30 days after the purchased date. As a result of the delayed delivery, Mary was unable to fulfill her existing orders or take in more orders. Cookie Monster demanded compensation for the failed delivery.

Details

Mary could discharge the contract through breach of contract. A breach of contract occurs when a party fails to perform all his obligations under the contract. (Benny, 2009, pg 183)

There are two types of breach:

Actual Breach: An actual breach arises when the time of performance for the obligation has arrived, and the promisor fails to perform it. (Benny, 2009, pg 183). In this case, SHAKE had informed Mary 3 days before Christmas that they are unable to deliver on time, therefore, SHAKE had not performed the actual breach.

Anticipatory Breach: An anticipatory breach arises when the time of performance for performance has not yet arrived but the promisor, by words or conducts, has clearly expressed his intention not to perform the obligation. (Benny, 2009, pg 183). In this case, SHAKE had informed Mary 3 days before Christmas that they are unable to deliver on time, therefore, allowing time(although insufficient) for Mary to find another vendor. However although they have informed Mary beforehand, as they had already entered into the contract with Mary, they would have performed anticipatory breach.

For an anticipatory breach to be considered repudiatory, the threatened non-performance must have the effect of depriving the other party of substantially the whole benefit which the contract was intended to bestow on him. (Benny, 2009, pg 186).

Comparing the case in (Hochster v De La Tour)(1853) and this scenario, its slightly similar, whereby either party was informed in advance that either would not be able to perform the contract, thus, entitling the plaintiff to claim damages as it constitutes a repudiatory breach.

Remedies:

As Mary will be suing SHAKE for breach of contract, she could also claim damages from SHAKE.

Damages refer to the injury or loss experienced by a person. (Benny, 2009, pg 206). In this case, it will refer to loss experienced by a person.

There are 4 aspects of damages.

Causation: It is logical that a plaintiff should not be entitled to recover damages for breach of contract if the breach did not cause the loss suffered by the plaintiff. (Benny, 2009, pg 208). In this case, Mary had suffered a loss of $16,000, as she did not receive the 5 ovens as promised by SHAKE, she was also unable to fulfill her existing orders or take in more orders.

Remoteness: concept of remoteness of damage prevents such a limitless scenario from occurring. (Benny , 2009, pg 209) In the case of (Hadley v Baxendale)(1854), the court held that Baxendale was not liable for the loss of profit by Hadley as Baxendale would not have known that Hadley did not have a spare crankshaft. To apply the rule in (Hadley v Baxendale)(1854), the defendant (SHAKE) must know that the likely loss is a “serious possibility” or a “real danger”. In Mary case, she had already informed SHAKE of the urgency of the ovens, and that she needed the ovens as she was expecting “brisk sales over the Christmas festive season”, SHAKE would be liable for the loss of profit. Not only that, SHAKE had been working with Mary for the past 3 years. Therefore, they would have known how Mary’s business operates.

Mitigation: Mitigation simply means that a plaintiff (Mary) cannot recover loss which she could have avoided. (Benny, 2009, pg 213). Similar to the case of (White & Carter (Councils) Ltd v McGregor)(1962), Mary affirmed the contract despite the anticipatory breach, as she was unable to find other vendors who were able to provide the ovens in the shortest time available. Therefore, Mary was entitled to succeed.

Assessment: Assess these damages. Damages awarded to an injured party are sometimes classified under two headings: damages for loss of profit and damages for wasted expenditure. (Benny, 2009, pg 216)

Loss of profit (sometimes called expectation loss): In Mary’s case, as SHAKE was unable to provide the 5 ovens in time; Mary had suffered a loss of profit of about $16,000 ($4000 came from the orders Mary had received, and $12,000 came from the tender Mary won from The Cookie Monster Company.).

Damages for wasted expenditure (often called reliance loss) : In Mary’s case, she did not have any damages for wasted expenditure as she could still sell the “leftover” cookies after the festive period.

Conclusion:

Mary could sue SHAKE for breach of contract, and claim damages for loss of profit. To prevent this scenario from happening again, Mary could also order ovens a month in advance next time, so that if SHAKE is unable to deliver within 7 days, there will still be a buffer period whereby Mary could still wait for the ovens to arrive.