Contract Law Problem Question - Breach of Contract - Essay Example

Contract law Problem Question - Breach of Contract Peter wishes to demand specific performance of the contract between him and David regarding the house as he intends to live, at the very least, the stipulated 10 years of the contract. In doing so, Peter needs to affirm the contract exercising his right of election as a result of the breach of contract, in order to successfully argue the remedy of specific performance. The Breach of Contract Peter needs to show that David is in breach of contract since he has performed his obligations defectively. David has used the subject matter of the agreement, the house, to express his intentions to sell it to the property developer while it was still in use by Peter who had abided by his obligations. This constitutes a breach of the original agreement between them. A breach of contract occurs when a party to it acts inconsistently with his obligations either by implications or express words without lawful excuse. The onus is on Peter to prove that there was in fact a breach committed by David. Generally, the act that is allegedly in breach must have “such an effect, that the party in question has put it out of his power to perform his obligations” (Alfred C Toepfer International GmbH vs Itex Hagrani Export SA (1993) 1 Lloyd’s Rep 360, 362). Moreover, Peter is not required to wait for David to perform, and the effect of the breach is immediate (Hochester v. De La Tour (1853). In order for the breach to be classified as a repudiatory breach, that is one allowing Peter to set aside the performance of the contract, the breach must be one of condition or a serious innominate term and not warranty. The current scenario entails a breach of time, which is generally of the essence. It is arguable that this breach is one of condition, and the immediate consequence of that for Peter is his right to elect one of two alternatives; terminate the performance of or affirm the contract, communication either of them in a reasonable amount of time (Stocznia Gdanska SA v. Latvian Shipping Company (2002)). Since Peter has opted to stay at the house and continue running it as a guest house, he has decided to opt for the affirmation of the contract, which will be effected just by merely continuing with his obligations of running the business while maintaining a healthy profit (Davenport v. R (1877)). Thus, Peter is advised to affirm the contract and apply for an order of specific performance by exercising his right of election and issue a claim in damages. Damages David has communicated his intention of selling the property and ordered Peter to move out in three months. In effect, he has also demanded that Peter must stop catering to the guests who have booked the guest house for the next six months. Peter has also incurred several expenses in the renovation of the guest house. The issue here is the determination of the extent of Peter’s loss as a result of the breach. Peter may claim damages as a result of one of three interests, those of expectation loss, reliance loss, and restitutionary loss. An expectation interest seeks to put Peter in the position he would have been had the contract been fulfilled. The loss incurred is generally understood to be financial, as Parke B pointed out in Robinson v Harman (1848), the claimant should, “so far as money can do it, be placed in the same situation, with respect to damages, as if the contract had been performed.” However, the opinion of the courts has changed since, and other non-financial gains may also be taken into account on special occasions (see Ruxley below). The claim of reliance loss seeks to put the claimant in the same position he was in had he not entered the contract, thus restoring his wasted expenditure. The restitutionary loss aims to provide the claimant the return of any and all enrichment awarded to the defendant as part of his obligation. For a successful claim, Peter will have to prove that David was enriched at his expense, and it would be unjust to let him keep the enrichment money (Barclays Bank Ltd v. W J Simms Ltd (1980)). In order to be eligible for a particular loss, Peter must establish a causal link between the loss and the breach of contract. Furthermore, damages must not be too remote and should be in the reasonable contemplation of the parties (Hadley v Baxendale (1849)) and are only awarded if the claimant took reasonable steps to mitigate his loss (British Westinghouse Co v. Underground Electric Ry Co (1912)). Confirmed booking for the next six months The most obvious loss to Peter is the money he would lose by having to cancel the bookings. This would be a direct result of the breach of contract, amounting to an expectation loss or loss of bargain, and thus Peter would be allowed to recover the damages in the amount of his 70% share of the profit from the bookings, were David to pursue the property deal and Peter had to wind the business down, provided he takes reasonable steps to mitigate the loss (British Westinghouse). It is worth noting that this loss will be negated if Peter is successfully granted an order of specific performance, which is his primary interest. Abandoning the JD degree, death of Evelyn, and the caretaking of Howard Peter abandoned his JD law degree in order to look after the guest house. This was done in reliance on the terms of the contract which guaranteed his use of the guest house for another 10 years provided he successfully ran it, which he has. Moreover, he fulfilled his side of the obligation of providing 30% of the profit to David. However, the academic loss incurred here is not monetary, and as seen in Addis v Gramophone Co Ltd (1909), such non monetary subjective losses are usually left uncompensated. Thus, Peter’s case would have to fall in the special category of “consumer surplus” and the measure of “amenity damages” (Ruxley Electronics and Construction Ltd v. Forsyth (1996)). In Ruxley, the House of Lords decided that the compensation for distress and other subjective annoyances may be factored into damages provided they were incorporated, or could be inferred to be incorporated, in the terms of the contract (Farley v Skinner (2001)). It is for that reason that the shortened depth of the pool was compensated for to the claimant in Ruxley along with the discomfort caused from the noise of the aeroplanes in Farley. Since Peter was jobless at the time the contract was made, it could be easily inferred that the degree was very important to him and the decision of abandoning it mid-way was a crucial one resulting from his expectation of David’s full performance of the contract, presuming David had full knowledge of this reliance (with Peter being unemployed) thus establishing causation between the breach and the loss of degree. In light of Ruxley and Farley, Peter may be entitled to recover damages with regards to the degree as the Evelyn’s death may have been a result of the stress induced by David’s breach of contract as she may have placed reliance on the house to be her home for the next 10 years at the least, but the facts are silent on this case. However, even if causation could be established, the courts may be reluctant to assume that her accident was a result of the breach of contract as the damage is too remote (The Heron II (1969)). Howard is under the care of Peter and can be understood to be an important factor in his decision-making. Judging from the decision in Hamilton Jones v. David & Snape (a firm) (2003), family relations may be inferred into the contract as a source of distress and compensation could thus be sought for them, so long as causation and remoteness could be satisfied. Howard’s disability could be presumed to be under David’s knowledge since he was already declared disabled and under the care of the local centre at the time the contract was made. Thus, the courts may award damages for the distress caused by the breach (since now Peter and Howard may have to move out while Peter is still unemployed) in light of Peter’s responsibility to his son, Howard (Ruxley). Renovation of the guest house Peter spent a renovation fund from the bank. This amount is recoverable if it was spent in reliance on the promise made by David, thereby establishing a causal link. David can either claim a reliance interest or expectation interest in this case, but it is accepted that there cannot be a restitutionary claim since Peter did manage to run the guest house for 18 months and therefore, earned himself 70% of the profit according the agreement. Since there must be a complete lapse of consideration for there to be a successful restitutionary claim, Peter is barred from a restitutionary claim (Whincup v Hughes (1871), White Arrow v Express Ltd v Lamey’s Distribution Ltd (1996)). What falls to determine is whether Peter claims an expectation interest or reliance interest. The reliance interest would be to the amount of the renovation cost, but since such a claim may only consider money spent, Peter is advised to file a claim for expectation lost since the courts would value the damages both in terms of monetary losses, as per Lord Bingham’s definition in White Arrow Express, as well as more recently attributed amenity losses or consumer surplus (Ruxley). Specific Performance Peter’s interest lies heavily on the affirmation of the contract after the breach. He may thus ask the court to issue an order for specific performance in order to push David to fulfill his obligations, allowing Peter to stay in the house and run it as a guest house for a full 10 years. A grant of specific performance is an equitable remedy which is independent of an award of damages and is at the discretion of the courts (Beswick v Beswick (1968)). This remedy is usually unavailable if it puts too much burden on the defendant (Patel v Ali (1984)). However, recent cases of Hill v CA Parsons Ltd (1972) and Irani v. Southampton AHA (1985) awarded specific performance in cases of employment, which are generally excepted as they amount to contracts of personal service. The facts here are more akin to the recent case of Co-operative Insurance Society Ltd v. Argyll Stores (Holdings) Ltd (1998), where the defendants were allowed to go against a keep-open covenant that required them to continue operating a business on the claimant’s premises. Specific performance was not granted as it would have required the defendant to run a business on a court order, which is not allowed. The House of Lords reversed the Court of Appeal decision on the grounds that the defendants could be subjected to huge losses as a result, there would be considerable difficulty in drafting the order, and it was against the public interest to let a failing business run. This was Lord Hoffman’s approach. On those facts, Peter may not be able to effectively argue specific performance in his favor as it may require David to run a business on his land he does not wish to operate. However, the courts may distinguish the case on the facts that the business was turning a profit to David (30% as agreed with Peter), it was under Peter’s administration, and would cause undue hardship on his part if the contract was allowed to end early. On balance, it seems that the courts would rule in Peter’s favor given that it might be inequitable for him and his son to close the business and move out now that their only source of income, Evelyn, has died. Conclusion Peter is advised to affirm the contract and seek an order of specific performance relying on the authority of Beswick v Beswick (1968), distinguishing the facts of Co-operative Insurance Society v Argyll Stores (1998) as noted above, while instigating a claim for damages for breach of contract accruing to his expectation loss at the same time since both can be granted at the discretion of the High Court under s. 50 of the Supreme Court Act 1981. Read More