DISCHARGE OF CONTRACT

To discharge a contract is to end it. If a contract has been discharged neither party has further obligations under it or defective performance of those obligations. A contract imposes obligations on the parties from which they may be discharged in various ways:

Discharge of contract

Performance
A contract 1. 2. 3. 4.

Breach

Agreement

Frustration

may come to an end and the parties discharged from their obligations in four ways: By performance By breach By agreement By frustration Discharged by Performance

The general rule is that the parties must carry out precisely what they agreed under their contract. If one of the parties does something less than, or different from that which he agreed to do he is not discharged from the contract and, moreover is not entitled for payment/performance from the other.

Case: Cutter v Powell Facts: Cutter agreed to serve on a ship sailing from Jamaica to Liverpool. He was to be paid on arrival at Liverpool. The ship sailed on 2 August, arriving in Liverpool on 9 October. But Cutter died at sea on 20 September. Held: It was held that his widow could not recover anything for the work he had done before he died. Cutter was obliged to complete the voyage before he was entitled to payment. Case: Bolton v Mahadeva Facts: Bolton installed a central heating system in Mahadevas house for an agreed price of 560. The work was carried out defectively and it was estimated that it would cost 179 to put matters right. Held: The Court of Appeal held that since Bolton had not performed his side of the contract, he could recover nothing for the work he had done.
1. Exceptions to the general rule

1. Doctrine of substantial performance. Where a contract has been substantially performed an action lies for the contract price less a reduction for the deficiencies. This exception only applies when the defect relates to the quality of performance. If the defect concerns quantity, for example of goods supplied, the general rule applies. If the court decides that the plaintiff has substantially carried out the terms of the contract, he may recover for the work he has done. The defendant can counter claim for any defects in performance.

Case:

Hoenig v Isaacs

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Facts: The plaintiff agreed to decorate the defendants flat and fit a bookcase and wardrobe for 750. On completion of the work the defendant paid 400 but he complained about faulty workmanship and refused to pay the balance of 350. Held: The Court of Appeal held that the contract had been substantially performed. The plaintiff was entitled to the outstanding 350, less the cost of remedying the defects, which was estimated at 56. 2. Acceptance of partial performance. If one of the parties only partially carries out his side of the contract but the other party exercising a genuine choice, accepts the benefit of the partial performance, the court will infer a promise to pay for the benefit received.

Case: Sumpter v Hedges. Facts: The plaintiff undertook to erect buildings on the land of the defendant for a price of 564. He partially erected the buildings, then abandoned the work when it was only completed to the value of 332. The defendant completed the work using materials left on his land. The plaintiff sued for the value of his materials used by the defendant and for the value of his work. Held: the defendant must pay for the materials since he had elected to use them but he had no obligation to pay the unpaid balance of charges for work done by the plaitiff before abandoning it. It was not a case of substantial performance of the contract.
3. Performance prevented by the promisee. A person who is prevented from carrying out his side of the bargain by the other party can bring an action to recover for the work he has done. Case: Planche v Colburn Facts: The plaintiff agreed to write a book on Costume and Ancient Armour, on completion of which he was to receive 100. After he had done the necessary research and written part of the book, the publishers abandoned the project. Held: He recovered 50 guineas for the work he had done. 4. Divisible or severable contracts. Some contracts are said to be entire. This means that a party is not entitled to payment until he has completely performed his part of the contract (e.g. Cutter v Powell). Other contracts may be divisible, i.e. the obligations can be split up into stages or parts. Payment can be claimed for each completed stage.

Case: Taylor v Laird Facts: The plaintiff agreed to captain a ship up to River Niger at a rate of 50 per month. He abandoned the job before it was completed. He claimed his pay for the month completed. Held: he was entitled to 50 for each complete month. Effectively this was a contract that provided for performance and payment in monthly instalments 5.
Stipulation as to time

At common law time is of the essence but not in equity. However, time is of the essence if it is expressly stipulated or upon giving reasonable time to perform. Where time is not of the essence the injured party may claim damages for loss or expense caused by the delay but must accept late performance. Where it is expressly stipulated that time is of the essence then delays in performing will not discharge the contract. Where there is no express stipulation then the following rules apply: (a) In case of a commercial contract, time of performance is usually treated as an essential condition.

Case: Elmdore v Keech Facts: An advertisement was to be published within 120 days of delivery. Publication was eleven days late. Held: the party who had supplied the advertisement was entitled to refuse to pay for it. Time was of essence.

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(b) In a contract for the sale of land a plaintiff may be granted an order for specific performance even if he is late. (c) A notice to complete within a reasonable time may be served at a later time.

Discharge by Breach.

A party is said to be in breach of contract where he does not perform his contractual obligations precisely. As a
consequence of this failure the court may award remedies against the party in breach of the contract, the most usual of which is damages. Usually breach of contract only becomes apparent at, or after, the time set for the performance of the contract.

A person has a lawful excuse not to perform primary contractual obligations in the following situations. Performance is impossible He has tended performance but this has been rejected. The other party has made it impossible for him to perform The contract has been discharged through frustration The parties have by agreement permitted non performance A repudiatory breach occurs where a party informs that he does not intend to honour his contractual obligations. A repudiatory breach is a serious actual breach of contract. It does not automatically discharge the contract, indeed the injured party has a choice. He can elect to treat the contract as repudiated by the other, recover damages and treat himself as being discharge from his primary obligations under the contract. He can elect to affirm the contract.
Actual Breach This occurs when a party without lawful excuse fails or refuses to perform what is due from him under the contract, incapacitates himself from performing or performs defectively. Anticipatory breach
Anticipatory breach is where before the time fixed for performance, one party indicates by words or conduct that he does not intend to carry out his side of the contract or puts himself in a position whereby he will be unable to perform. Examples: (a) refusal to perform (renunciation). One party renounces his contractual obligations by showing that he has no intention to perform them nor to be otherwise bound by the contract. (b) failure to perform an entire obligation. (c) Incapacitation: impossible to perform due to default by one party.
Anticipatory breach can take either of two specific forms: express anticipatory breach or implied anticipatory breach. Express anticipatory breach occurs where one of the parties declares, before the due date of performance, that they have no intention of complying with the terms of the contractual agreement.

The injured party may sue immediately for breach of contract or, alternatively, wait for the time for performance to arrive to see whether the other party is prepared to carry out the contract.

Case: Hoschster v De La Tour Facts: In Apr, De La Tour employed Hochester to act as atravel courier on his European tour, starting on 1 June. On 11 May, De La Tour wrote to Hochester stating that he would no longer be needing his

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Held:

services. Hochester started proceeding on 22 May. Defendant claimed there would be no cause of action until 1 June. Claimant was entitled to start action as soon as the anticipatory breach occurred.

Implied anticipatory breach does not arise from any direct indication from either of the parties that they will not perform their contractual agreement, but results from the situation where one of the parties does something which makes subsequent performance of their contractual undertaking impossible.

Case:

Omnium D.Enterprises v Sutherland (1919)

Facts: the defendant had agreed to let a ship to the plaintiff, but before the actual time for performance, he
actually sold the ship to another party

Held:

It was held that the sale of the ship amounted to a clear repudiation of the contract and that the plaintiff could sue for breach of contract from that date, without having to wait until the actual date of performance of the contract.

It can be dangerous to wait for the time for performance. The injured party may lose the right to sue for breach of contract, if, in the meantime, the contracts is discharged for frustration. A breach of contract does not discharge the contract, for either party. However a breach may entitle the innocent party to terminate the contract, and thus treat himself as discharged from any outstanding obligations thereunder. Whether the breach has this effect depends on the nature of the term broken and, in some cases on the effect of the breach. The innocent party has the right to terminate the contract: (a) where the term broken is a condition; or (b) where an innominate term is broken and the breach deprives the innocent party of substantially the whole benefit which it was intended that he should receive; or (c) if the other party repudiates the contract, by indicating that he no longer intends to be bound by it. A breach of contract, does not oblige the innocent party to terminate, but gives him the option to do so. The injured party may affirm the contract, then the right to terminate the contract is lost, though the innocent party may still claim damages.

Case: White & Carter (Councils) v McGregor Facts: The plaintiffs supplied litter bins to local councils, and were paid not by the councils but by traders who hired advertising space on the bins. The defendant contracted with them for advertising of his business. He then wrote to cancel the contract but the plaintiff elected to advertise as agreed, even though they had at the time of cancellation taken no steps to perform the contract. They performed the contract and claimed the agreed payments. Held: the contract continued in force and they were entitled to recover the agreed price for their services. Repudiation does not of itself, bring the contract to an end. It gives the innocent party choice of affirmation or rejection.
Alternatively the injured party may treat the contract as repudiated by the other party, recover damages and treat self as discharged from contractual obligations. Where following a breach the innocent party decides to terminate the contract, he must notify the other party of his decision. The effects of termination for the innocent party is as follows: 1. He is not bound by his future or continuing contractual obligations, and cannot be sued on them 2. He need not accept nor pay for further performance. 3. He can refuse to pay for partial or defective performance already received

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4. He can reclaim money paid to a defaulter 5. He is not discharged from the contractual obligations which were due at the time of termination. The innocent party can also claim damages from the defaulter or a reasonable remuneration on a quantum merruit basis.

Discharge by agreement. There are three ways in which a contract can be discharged by agreement. 1. The parties may have agreed in their original contract that it should end automatically with the happening of some event or after a fixed period of time. Thus goods may be hired, premises may be leased, or a person employed for a fixed term. On the expiration of the term, the contract will cease. The agreement may have included a term allowing either party to terminate the contract by giving notice. A contract of employment, for e.g., can be brought to an end by either the employer or the employee giving reasonable notice to the other. 2. Novation: Discharge can also arise, not out of the original agreement, but by reason of a new, extraneous contract. The new agreement will only discharge the old contract if it possesses all the characteristics of a valid contract; in particular, consideration must be present. when neither party has yet performed his side of the contract, there is no difficulty. Both sides, by waiving their rights, are providing something of value which constitutes consideration. where one party has completely performed his original obligations, the agreement for discharge will only be valid if, in return for the release, the other party does or promises something which he is not already bound to do e.g. payment of a cancellation fee. In the absence of such new consideration, the agreement for release will not be binding, and the original contract will stand. For this reason discharge by new agreement is sometimes called discharge by accord (agreement) and satisfaction (consideration). 3. Finally, one party can release the other unilaterally, without consideration, but only if he does so by deed or by fresh consideration. The fresh consideration is said to be accord and consideration (i) The accord is the agreement by which the obligation is discharged. (ii) The satisfaction is the consideration which makes the agreement effective. (iii) The satisfaction may be executory.

Discharge by frustration Until the last century, the rule was that the parties were under an absolute duty to perform their contractual obligations. A person was not excused simply because outside events had made performance impossible. Case: Paradine v Jane Facts: During the course of the English Civil War, a tenant was evicted from certain property by Prince Rupert and his army. In an action by the landlord to recover three years arrears of rent. Held: it was held that the tenant was not relieved from the obligation to pay rent simply because he had been unable to enjoy the property. Starting with the case of Taylor v Caldwell, the courts have developed the doctrine of frustration as an exception to this absolute rule. If some outside event occurs for which neither party is responsible and which makes total nonsense of the original agreement, then the contract will be discharged by frustration. The doctrine will apply in the following circumstances: 1. Destruction of the subject matter

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Case: Taylor v Caldwell Facts: The plaintiff had hired the Surrey Gardens and Music Hall for a series of concerts. However, after making the agreement and before the date of the first performance, the hall was destroyed by fire. Held: It was held that the contract was discharged and the parties released from their obligations
2. Personal incapacity to render a contract of personal service If the presence of a particular person is necessary for the execution of the contract, the death of that person will clearly discharge the contract. Frustration may also apply if a party is unavailable because of illness, internment or imprisonment.

Case: Condor v Barron Knights Fcats: The plaintiff, aged 16, contracted to perform as drummer in a pop group. His duties when the group had work, were to play on every night of the week. He fell ill and his doctor advised that he should restrict his performance to four nights per week. The group terminated his contract. Held: a contract of personal service is based on the assumption that the employees health will permit him to perform his duties. If that is not so the contract is discharged by frustration. Case: Hare v Murphy Bros Facts: Hare was sentenced to 12 months imprisonment for unlawful wounding and was, therefore, unavailable to carry out his responsibilities as a foreman. Held: It was held that this frustrated his contract of employment.
3. Government intervention Case: Metropolitan Water Board v Dick, Kerr & Co. Facts: A firm of contractors agreed in 1914 to build a reservoir. In 1916, under wartime emergency powers, the government ordered the contractor to stop work and sell the plant. Held: This was held to frustrate the contract. Although it might eventually be possible to start work again after the war, the enforced hold-up for an indefinite period made nonsense of the contract. 4. Supervening illegality

A subsequent change in law or in circumstances may make performance of the contract illegal. An export contract will be discharged if war breaks out with the country of destination.

Case: Re Shipton, Anderson & Co and Harrison Bros & Co Facts: A contract was made for the sale of wheat stored in a Liverpool warehouse. It was requisitioned by the government under emergency wartime legal powers. Held: it was no longer lawful for the seller to deliver the wheat. The contract had been discharged by frustration.
5. Non-occurence of event The parties may have made their contract on the basis of some forthcoming event. If the event fails to take place and as a result, the main purpose of the contract cannot be achieved, the doctrine of frustration will apply.

Case: Krell v Henry Facts: Henry hired a room overlooking the route of Edward VIIs coronation procession. The procession was cancelled owing to the Kings serious illness. Although it would have been possible to come and sit in the room, the main purpose of the contract, to view the procession, had been destroyed. Held: The Court of Appeal held that the contract had been frustrated.
6. Interruption which prevents performance in the form intended by the parties

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Case: Jackson V Union Marine Insurance Co. Facts: The parties contracted in Nov 1871 for a charter of a ship to proceed immediately from Liverpool to Newport, damages and accidents of navigation excepted, to load cargo for San Francisco. Having sailed on 2 January, the ship went ashore off the coast of Wales on 3 January and could not be refloated for a month. Thereafter she needed repairs in Liverpool to make her fit for the voyage; These were still in progress in August. Meanwhile the charterers hired another vessel. The plaintiff claimed on his policy of insurance. Held: the interruption had put an end to the contract in the commercial sense. It was no longer possible to perform the contract intended. The charterer was discharged by frustration. The plaintiff had no claim against the charterer and could claim from the defendants.
Exceptions 1. A contract will only be frustrated if the change in circumstances has had a substantial effect on the main purpose of the contract. The fact that it has become more difficult or expensive to carry out tthe contract will not excuse the parties.

Case: Tsakiroglou & Co Ltd v Noblee & Thori GmbH Facts: In October 1956 sellers agreed to deliver nuts from Port Sudan in Hamburg, shipment to take place during Nov/Dec 1956. On 2 Nov, the Suez Canal was closed to traffic. The sellers failed to deliver and, when sued for breach of contract argued that the contract had been frustrated. Clearly, it had not become impossible to carry out the contract: shipment could have been made via the Cape of Good Hope - a longer and much more expensive operation. Held: The House of Lords held that this was not sufficient to discharge the contract for frustration. Case: Davis Contractors v Fareham UDC

2. If one party has accepted risk that he will be unable to perform. Case: Budgett & Co v Binnington & Co 3. Where one of the parties is responsible for the frustrating event (i.e. self-induced frustration)

Case:

Maritime National Fish Ltd v Ocean Traders Ltd

Facts: The appellants chartered a trawler from the respondent which needed to be fitted with an otter trawl. It was illegal to operate with an otter trawl unless a licence had been obtained. The appellants applied for five licences to cover four trawlers of their own and the trawler on charter; however, they were granted only three licences. They decided to nominate their own trawlers for licences rather than the chartered trawler. Held: The Judicial Committee of the Privy Council held that contract was not frustrated as the appellants had decided quite deliberately not to nominate the respondents trawler and were, therefore, responsible for the frustrating event. The consequences of frustration. At common law, a frustrating event has the effect of bringing the contract to an immediate end. The rights and liabilities of the parties are frozen at the moment of frustration. The rule was that money payable before frustration remained payable and money paid before frustration could not be recovered. Any money which did not become payable until after frustration ceased to be payable. The harsh consequences of this rule were modified by the House of Lords in the Fibrosa case and wider changes were introduced under the Law Reform (Frustrated Contracts) Act 1943. The Act made two important changes:

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1. Money payable before frustration ceases to be payable and money paid before frustration can be recovered. The court may in its discretion allow the payer to recover or retain all or part of the sums to cover any expenses incurred. 2. A party who has carried out acts of part performance can recover compensation for any valuable benefit (other than a payment of money) confered on the other party.

REMEDIES FOR BREACH OF CONTRACT

Breach of a contract occurs where one of the parties to the agreement fails to comply, either completely or satisfactorily, with their obligations under it. A breach of contract may occur in three ways: (i) where a party, prior to the time of performance, states that they will not fulfil their contractual obligation; (ii) where a party fails to perform their contractual obligation; (iii) where a party performs their obligation in a defective manner. Any breach will result in the innocent party being able to sue for an appropriate remedy. In addition, however, some breaches will permit the innocent party to treat the contract as discharged. In this situation they can refuse either to perform their part of the contract, or to accept further performance from the party in breach.

In appropriate cases the party who has suffered a breach of contract may have any of the following remedies::
damages; quantum meruit; specific performance; injunction.

DAMAGES Damage is the common law remedy and is available as of right for every breach of contract. The aim of damages in contract is usually to put the injured party into the position he would have been had the contract been properly performed. Damages are compensatory. They are not usually intended to be punitive.

REMOTENESS OF DAMAGES
This involves deciding how far down a chain of events a defendant is liable. When assessing the measure of

damages payable, one of the important factors to consider is the concept of remoteness of damages. It relates to the relationship between a wrongful act and the resulting damage which determines whether or not compensation may be recovered. A damage will be considered on proximate only if it is within the contemplation of both parties as the likely outcome of the breach. If there are specific circumstances known to one party only, and if it is not communicated to the other party then there would be no damages resulting as a consequence of the breach. The damage is then too remote. To make it proximate it should have been communicated to be within the contemplation of parties and the other party contracts in reliance on that prospective reliability.

Hadley V Baxendale
The claimants owned a mill, which came to a standstill because the main crank shaft had broken. The defendant contracted to transport the broken shaft to the makers the following day, to serve for a pattern for making a new shaft. Owing to neglect by the defendant, delivery was delayed and the mill was out of action for a longer period than expected. The defendant did not know that the mil would be idle during the interval. The claimant claimed for loss of profits suffered during that period. Although the failure of the carrier to perform the contract promptly was the main cause of the stoppage, the claim failed since the defendant did not know that the mill would be idle until the new shaft was delivered. Moreover it was not a natural consequence of delay in

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transport of a broken shaft that the mill would be out of action. The importance of the shaft was not obvious; the miller might have a spare.
Conclusion: The rule in Hadley v Baxendale (1854) states that damages will only be awarded in respect of losses which arise naturally, i.e. in the natural course of things; or which both parties may reasonably be supposed to have contemplated, when the contract was made, as a probable result of its breach. The effect of the first part of the rule in Hadley v Baxendale is that the party in breach is deemed to expect the normal consequences of the breach, whether they actually expected them or not. Under the second part of the rule, however, the party in breach can only be held liable for abnormal consequences where they have actual knowledge that the abnormal consequences might follow.

Victoria Laundry V Newman Industries

The defendant contracted to sell a large boiler to the claimants for immediate use in their business of launderers and dyers. The delivery was somehow delayed. The defendants were aware of its importance and they were sued for the loss suffered and the contract of dyeing forgone during that period. The court held that the loss of normal profits were recoverable since in the circumstances failure to deliver a major industrial equipment ordered for immediate use prevented the operation of the plant. However the claim for loss of special profits failed because the defendant had no knowledge of the dyeing contracts.

The Herron II
K, a ship-owner entered into a contract for the shipment of a bulk cargo of sugar belonging to C. the ship arrived 9 days late and in that time the price of sugar had fallen in the market. C sued for damages for loss suffered due to the delay. The claim succeeded since the value of commodities fluctuate.

(ii) Measure of damages

The courts use a number of rules and principles to determine the actual extent of monetary damages owed. The general rule is that damages in contract are intended to be compensatory rather than punitive. The aim is to put the injured party in the same position they would have been in had the contract been properly performed. As the object is not to punish the party in breach but to compensate the injured party for any financial loss sustained as a consequence of the other partys breach, so the amount of damages awarded can never be greater than the actual loss suffered. It should be noted that the exact amount of the loss may differ depending on whether the innocent partys reliance interest or expectation interest is used as the criterion against which damages are measured. In practice it is usually the expectation loss that is compensated except where this permits the innocent party to escape responsibility for any loss they would have made in the contract in the absence of breach (see CCC Films (London) Ltd v Imperial Quadrant Films Ltd (1985)). Where the breach relates to a contract for the sale of goods, damages are usually assessed in line with the market rule. This means that if goods are not delivered under a contract, the buyer is entitled to go into the market and buy similar goods, and pay the market price prevailing at the time. They can then claim the difference in price between what they paid and the original contract price as damages. Conversely, if a buyer refuses to accept goods under a contract, the seller can sell the goods in the market, and accept the prevailing market price. Any difference between the price they receive and the contract price can be claimed in damages. The injured party is under a duty to take all reasonable steps to mitigate their loss. So in the above examples, the buyer of goods which are not delivered has to buy the replacements as cheaply as possible; and the seller of goods which are not accepted has to try to get as good a price as they can when they sell them. In such a way they are expected to minimise the actual loss they sustain, as may be seen in Payzu v Saunders (1919).

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The foregoing has dealt with losses that are relatively easily quantified in monetary terms but matters are more complicated when it comes to assessing damages for non-pecuniary loss. At one time, damages could not be recovered where the loss sustained through breach of contract was of a non-financial nature. The modern position is that such non-pecuniary damages can be recovered. Thus in Jarvis v Swan Tours Ltd (1973) it was held that the plaintiff was entitled to recover, not just the substantial financial loss he suffered, but also for loss of entertainment and enjoyment which amounted to an even greater sum. The job of estimating damages may be made much simpler where the parties to an agreement make provisions for possible breach by stating in advance the amount of damages that will have to paid in the event of any breach occurring. Damages under such a provision are known as liquidated damages. They will be recognised by the court as long as they represent a genuine pre-estimate of loss, and are not intended to operate as a penalty against the party in breach. If the court considers the provision to be a penalty, it will not give it effect, but will award damages in the normal way (Dunlop v New Garage & Motor Co (1915)).

The duty to mitigate losses

This rule relates to the rule that the injured party in the situation of a breach of contract is under a duty to take all reasonable steps to minimise their loss. The operation of the rule means that the buyer of goods that are not delivered, as required under the terms of a contract, has to buy the replacements as cheaply as possible. Correspondingly, the seller of goods that are not accepted in line with a contractual agreement has to try to get as good a price as they can when they sell them. In Payzu v Saunders (1919), the parties entered into a contract for the sale of fabric, which was to be delivered and paid for in instalments. When the purchaser, Payzu, failed to pay for the fi rst instalment on time, Saunders refused to make any further deliveries unless Payzu agreed to pay cash on delivery. The plaintiff refused to accept this and sued for breach of contract. The court decided that the delay in payment had not given the defendant the right to repudiate the contract. As a consequence, he had breached the contract by refusing further delivery. The buyer, however, should have mitigated his loss by accepting the offer of cash on delivery terms. His damages were restricted, therefore, to what he would have lost under those terms, namely, interest over the repayment period. In Western Web Offset Printers Ltd v Independent Media Ltd (1995), the parties had entered into a contract under which the plaintiff was to publish 48 issues of a weekly newspaper for the defendant. In the action, which followed the defendants repudiation of the contract, the only issue in question was the extent of damages to be awarded. The Court of Appeal decided that as the claimant had been unable to replace the work due to the recession in the economy and, therefore, had not been able to mitigate the loss, it was entitled to receive the full amount that would have been due in order to allow it to defray the expenses it would have had to pay during the period the contract should have lasted. However, in relation to anticipatory breach of contract the injured party can wait until the actual time for performance before taking action against the party in breach. In such a situation, they are entitled to make preparations for performance, and claim the agreed contract price, even though this apparently confl icts with the duty to mitigate losses (White and Carter (Councils) v McGregor (1961)).

(LIQUIDATED, UNLIQUIDATED) DAMAGES & PENALTY CLAUSE LIQUIDATED DAMAGES

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It is possible, and common in business contracts, for the parties to an agreement to make provisions for possible breach by stating in advance the amount of damages that will have to be paid in the event of any breach occurring. Damages under such a provision are known as liquidated damages.

If the clause is a genuine attempt at estimating the loss in advance of the breach it is a liquidated damages clause and will be valid and enforceable by either party of the contract. Thus, if the actual damages suffered by the innocent party are greater than the damages provided for, he can only claim the liquidated amount. In other words, liquidity damages are those damages which the parties have already agreed upon the amount in the contract agreement.

UNLIQUIDATED DAMAGES Where the contract does not provide for damages while making the contract, it is left to the court to determine the damages payable. In other words, these are damages which the parties have not specified in the contract agreement if there is a breach and damages are payable, the amount to be paid is left to the court to decide. NOMINAL DAMAGES These are damages which have a nominal value only. They are granted only to give efficiency to the decision of the court. PENALTY CLAUSE Where the clause is expressed to force a party to perform his obligations under the contract, it will be penal and the clause will be of no effect. It will be held to be a penalty if: (a) the sum stipulated is extravagant and unconscionable (b) the sum is payable on the occurrence of one or more breaches However, a penalty is not necessarily penal merely because the stipulated sum is more than the loss actually suffered. As long as the stipulated figure is a genuine attempt to pre-estimate the loss it will be permissible. The burden of proof is on the party alleging that the clause is a penalty.
PENALTY AND LIQUIDATED DAMAGES It is important to differentiate between a penalty and liquidated damages. If it is a penalty the court will reduce it to what is considered as a reasonable amount whereas if it is a liquidated damage, it is considered to be a genuine pre-estimate of the lost that has been sustained. Penalty on the other hand is a gross exaggerated amount as compared to the lost that could have been sustained.

The criteria to determine whether there is a penalty or not .

The use of the word penalty or liquidated damage in itself is not conclusive. It is the amount, which is material not the wording. The essence of a penalty is a payment of money to the offending party; liquidated damage is a genuine pre-estimate of the damage that could have been sustained.
Dunlop v New Garage and Motor Co (1915),

Case:

Facts: the plaintiffs supplied the defendants with tyres, under a contract designed to achieve resale price
maintenance. The contract provided that the defendants had to pay Dunlop 5 for every tyre they sold in breach of the resale price agreement. When the garage sold tyres at less than the agreed minimum price, they resisted Dunlops claim for 5 per tyre, on the grounds that it represented a penalty clause . the court decided that the provision was a genuine attempt to fi x damages, and was not a penalty. It was, therefore, enforceable.

Held:

In deciding the legality of such clauses, the courts will consider the effect, rather than the form, of the clause.

Case:

Cellulose Acetate Silk Co Ltd v Widnes Foundry (1925) Ltd (1933)

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Facts: the contract expressly stated that damages for late payment would be paid by way of penalty at the
rate of 20 per week. In fact, the sum of 20 was in no way excessive and represented a reasonable estimate of the likely loss.

Held:

the House of Lords enforced the clause in spite of its actual wording.

SPECIFIC PERFORMANCE This is an equitable remedy whereby the court orders the defendant to carry out his obligations under the contract. Like other equitable remedies it is at the discretion of the court to grant it and cannot be obtained as of right. It is only given where it is just an equitable to do so. The main principles which determine when specific performance is ordered or refused are: Where damages are an adequate remedy, specific performance will not be ordered Beswick V Beswick A contract provided for Peter Beswick to transfer property to his nephew and in return, the nephew would make payments to Beswicks wife after his death. The nephew failed to make the payments and he was sued. Damages were an adequate remedy as the estate itself had suffered no loss, since the payments were due to made to the widow in a personal capacity. Therefore, the court made an order for specific performance, compelling the nephew to carry out his obligations. Specific performance will not be given where it would cause undue hardship. Thus specific performance will not be ordered of a contract of personal services, such as an employment contract, on the basis that it is contrary to public policy to compel an unwilling party to maintain continuous personal relations with another. The remedy will only be given on the basis of mutuality, i.e., the remedy will only be granted if both parties could, if necessary, seek the protection of the court. For this reason an infant cannot obtain an order for specific performance since the court would not be able to enforce an order against him.

INJUNCTION An injunction is an order of the court, which either requires a person to do something or prohibits a person from doing something. The court will grant an injunction to restraint a party from committing a breach of contract. Although it is said that an injunction will be granted to enforce a negative stipulation in a contract it may be extended to cases where a negative term may be inferred.

Metropolitan Electric Supply V Ginder

The contract obliged the defendant to take all his electricity from the plaintiff; the obligation was in substance not to take electricity from another supplier. An injunction to that effect was issued. An injunction will not be granted if it would have the effect of requiring specific performance in circumstances where the latter would be refused. However an injunction may be granted in the circumstances such as in the case of Warner Bros v Nelson. The film star Miss Nelson entered into a contract for a term of one year but giving the plaintiff the option of extending it, whereby she agreed that she would not accept any work outside without obtaining their written consent. The plaintiff sought an injunction to restrain her from doing film work for another company in breach of this agreement. It was held that the injunction would be granted. However, no injunction would be granted to prevent her engaging in other occupations as this would force her to work for the plaintiffs. An injunction would be granted only where it is just and convenient to do so and if it is inappropriate the court can award damages in lieu of injunction. There are various types of injunctions among which we have the Anton Pillar Order and The Mareva Injunction.

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ANTON PILLAR ORDER

It was granted in the case of Anton pillar against Manufacturing Processors Ltd. It provides that a defendant is under a duty to allow a plaintiff to enter his premises, inspect, remove or make copies of documents belonging to him or relating to his property. It is generally obtained ex-parte where the plaintiff shows that there is a damage of property being smuggled away or vital evidence being destroyed.

THE MAREVA INJUNCTION It was granted in the case of Mareva Companies v International Bulk Carriers. Under such an injunction, the applicant will normally ask the court to prevent the defendant from disposing the assets as long as the hearing of the main case is pending and thus becoming unable to meet any judgment which he is likely to get against him.
QUANTUM MERRIT Quantum meruit means that a party should be awarded as much as he had earned, and such an award can be either contractual or quasi-contractual in nature. If the parties enter into a contractual agreement without determining the reward that is to be provided for performance, then in the event of any dispute, the court will award a reasonable sum. The plaintiff can be rewarded for his work or his goods as much as they are worth in the sense of a reasonable value.

Planch v Colburn
Planch agreed to write a book for a series of books to be published by Colburn, but the series was discontinued before completion of the work by the author. The original contract had been discharged by the defendants breach, but reasonable remuneration was recoverable on a quantum merit basis independently of the original contract. Payment may also be claimed on the basis of quantum meruit, where a party has carried out work in respect of a void contract (Craven-Ellis v Canons Ltd (1936)).

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