Equity and Trusts Law - Case Study Example

 Specific performance of contract In some instances, common law remedies are not an adequate remedy of damages, as a result equity may intercede to provide a range of discretionary remedies, of which enforcing specific performance of the contract is one. Such discretionary remedies will be available only in those instances where no equivalent common law remedy exists. In the case of Jones v Lipman1 the defendant entered into a binding contract to sell a piece of land , but later changed his mind and claimed that the land had been sold to another Company. But in this instance, the Court enforced specific performance of the contract, because the defendant had merely transferred the ownership of the land to a company that he controlled, hence in effect he still retained control of the land. An order for specific performance on a contract will compel the defaulting party to fulfill the terms of the contract. In the case of Broome v Cassell and Co Ltd2 Lord Reid commented that “….it is not the function of . . . judges to frame definitions or to lay down hard and fast rules. It is their function to enunciate principles and much that they say is intended to be illustrative or explanatory and not to be definitive."3 Hence, at the outset, this makes it clear that the kind of judgment that will be rendered in a particular case, and whether or not specific performance will be deemed to be the appropriate remedy, is likely to depend upon the individual circumstances of the case and may not necessarily be enforced in every instance. The Court of Appeal laid down a general rule in relation to non pecuniary damages in the case of Watts v Morrow4 and Bingham LJ observed that on considerations of policy, “a contract-breaker is not in general liable for any distress, frustration, anxiety, displeasure, vexation, tension or aggravation which his breach of contract may cause to the innocent party..”5 There may however, be limited exceptions to this rule, such as for example, when damages are awarded for pain, suffering and/or loss of amenities caused to an individual by the breach of the contract.6 But Bingham J also qualified this further by clarifying that in these instances where the objective of a contract is “to provide pleasure, relaxation, peace of mind or freedom from molestation, damages will be awarded if the fruit of the contract is not provided or if the contrary result is procured instead.”7 In such instances, specific performance of the contract may be enforced. When damages as decreed under common law principles serve as an inadequate remedy for instance, performance of the contract may be enforced. There are certain instances where the award of damages may not be adequate to address the issues raised. For example, in the case of Nutbrown v Thornton8 there was a contract in place to supply machinery, for which specific performance was decreed because the machinery was not available elsewhere. In the case of Beswick v Beswick9 a nephew promised his uncle to pay his aunt an annuity from the Uncle’s estate upon inheriting it, and the Court held that specific performance of this contract could be enforced by the aunt in the interest of fairness and equity. Specific performance may also be enforced in those instances where the quantification of damages is difficult to assess. In the recent case of Farley v Skinner10 the House of Lords held a surveyor liable for failing to provide a survey report that clearly identified the aspects the plaintiff was most concerned about. This was a case where the plaintiff had already purchased a home, made considerable investments into it and commenced living there after receiving an assurance from the surveyor in his report that airport noise would not be a problem. This was a case of a contract difficult to enforce because the plaintiff had already purchased the house based on the surveyor’s recommendation, but the House of Lords enforced specific performance of the contract between the surveyor and plaintiff and for surveyor’s breach of contract by supporting the trial’s judge order for the surveyor to pay damages in the amount of 10,000 pounds to the plaintiff for such a breach. Equity is often a basis upon which the Court orders specific performance of a contract and available common law remedies are not adequate to address the injustices caused. "Equity will only grant specific performance if, under all the circumstances, it is just and equitable to do so."11 But specific performance of the contract may be eschewed by the judges when it could be unconscionable and against the principles of equity to do so. For instance in the case of Lloyds Bank v Bundy12 old Mr. Bundy mortgaged his farm out to the hilt in order to help his son and the bank moved in to foreclose in accordance with the contractual terms. But the Court held that the contract was equivalent to an unconscionable transaction because the bank was in a position to inform the old man about his increasing liability and the dangers inherent therein, but failed to do so and sought to profit from the situation. Another principle that has been laid out in awarding specific performance is that “the court does not grant specific performance unless it can give full relief to both parties,"13 unless it is a question of mistake or misrepresentation in contract which would entitle one party to relief even if mutuality before specific performance is not available. Specific performance will also not be enforced in those instances where such performance of the contractual terms would be impossible to execute. For example, in the case of Watts v Spence14 which involved a contract for the sale of land, specific performance could not be enforced because the defendant was not in fact, the true owner of the land. Equitable principles also guide the Courts in that they will refuse to enforce specific performance in those instances where it turns out that the plaintiff has acted in a dishonest manner. For example in the case of Walters v Morgan15 the plaintiff induced the defendant to sign an agreement for a mining lease over a piece of land, before the defendant was aware of what was the value of the property. Another principle that has guided Courts while not enforcing specific performance of the contract as a remedy is when a contract is based on a false promise16 or when enforcing specific performance would cause severe hardship to the defendant.17 Thus in conclusion, it appears that judges will grant specific performance of a contract based upon the individual circumstances of the case. As Storey accurately points out, such a determination is not made arbitrarily, neither is it subject to a judge’s whims, rather there are some equitable principles that underlie a judge’s decision to award specific performance. This may be the only remedy in those instances where damages are inadequate, or where specific performance is desirable in the interest of fairness and justice or where alternative means of performance of the contractual terms are not available. An injunction is generally awarded by a Court in a case where the award of damages would not be an appropriate remedy. For instance an injunction may be issued when an ongoing trespass or nuisance needs to be arrested. Hence the essential difference between specific performance and an injunction is that the terms that are being disputed must be positive in nature. In those instances where the stipulations are negative, i.e, a party seeks to enforce the performance of a contract restraining the other party from a particular action, an injunction will be the more appropriate remedy. For example, in the case of Lumley v Wagner18the contract contained a clause that the defendant singer was not to sing elsewhere for three months without plaintiff’s consent. The Court was able to enforce an injunction to prevent the defendant singer from performing for a competitor during the period of contract with the plaintiff. Similarly, in the case of Warner Bros v Nelson19 the defendant who was an actress, has contracted with Warner Brothers to not enter into any other employment during a two year period without the plaintiff’s consent. In this instance, since this was a negative stipulation, the Court was able to enforce it by ordering an injunction. It must be noted that Storey’s views in reference to specific performance of the contract may not be as relevant in the context of an injunction. Essentially, a judge will grant an injunction based upon the existence of negative stipulations in the contract and the objective will be to prevent the breach of contractual terms. While the question of equity and fairness may play a role in the discretion the judge will exercise in each individual case, it will be to a much lower degree as compared to ordering specific performance of a contract. The distinction between a rule and a principle is relevant when determining whether specific performance or an injunction is to be issued. For example, in the case of Farley v Skinner20 Lord Steyn made a reference to the general rule as set out by Bingham LJ in Watts v Morrow21 about a contract breaker not being responsible for intangible damages such as frustration and anxiety which could be caused by his breach of contract. But he went on to point out that useful though such an observation or rule may be, it was “never intended to state more than broad principles.”22 The case of Farley v Skinner involved the same issue as that which arose in Watts v Morrow, i.e, the failure of a surveyor to provide a report identifying the potential defects in the property but the decision rendered was different on the basis of principle. The rule that appeared relevant in Watts v Morrow23 and held the surveyor not liable was not found applicable in Farley v Skinner, where the Court held that since the plaintiff had clearly spelt out the importance of the airport noise requirement in the report and had purchased his home and made improvement on the basis of the surveyor’s report, the surveyor could not be absolved of liability as a matter of principle. In general, where specific performance of the contract or the granting of an injunction are concerned, the Court is bound by rules, i.e, it is obliged to enforce the terms of the contract that have been mutually agreed to between the parties. In general, it will be the contractual terms which will form the basis upon which a Court will arrive at a determination of whether a breach of contract has occurred and if so, what is the remedy that would be appropriate. But rules cannot always be applied on a blanket basis. The Court will also take into account, the individual circumstances of each case in determining the remedy. When equity and fairness mandate the application of an equitable remedy, rules may be eschewed to uphold principles of fairness and justice. For example when one party induces another to enter into a contract on the basis of a misrepresentation, this can be grounds for rescission of the contract.24 Fraudulent misrepresentation on the basis of which a contract has been concluded, means that the terms of such contract may not be enforced by the Courts25. This is one example of an instance where it is principle that will apply over the rule, in the interest of equity. Similarly, when the contract is the result of a mistake, the general rules about contractual terms and their enforcement will fail to apply. When the two parties have made an error relating to a fundamental fact26, then such a contract may be held to be void because of the mistake and contractual terms will not be enforced by the Courts. Specific performance or an injunction will not be relevant or applicable in such a case. Thus, on an overall basis, it may be concluded that the distinction between rule and principle will play a big part in the kind of judgment a Court will render, after taking into account the circumstances of each individual case. Bibliography * McGregor on Damages, (16th ed), para 96, pp 56-57, 2007 Cases cited: * Beswick v Beswick (1968) AC 58 * Blackett v Bates (1865) LR 1 Ch App 117 * Broome v Cassell & Co Ltd [1972] AC 1027 * Couturier v Hastie (1856) 5 HL Cas 673 * Derry v Peek (1889) 14 App Cas 337 * Farley v Skinner (2001) UKHL 49 * Galloway v Galloway (1914) 30 TLR 531 * Jones v. Lipman [1962] 1 All ER 442 * Lamare v Dixon (1873) LR 6 HL 414 * Lumley v Wagner 1 De GM and G 604 * Lloyds Bank v Bundy (1975) QB 326 * Museprime Properties v Adhill Properties [1990] 36 EG 114 * Nutbrown v Thornton (1804) 10 Ves 159 * Patel v Ali [1984] 1 All ER 978. * Stickney v Keeble [1915] AC 386 * Walters v Morgan (1861) 3DF and J 718 * Warner Bros v Nelson (1937) 1 KB 209 * Watts v Morrow [1991] 1 WLR 1421 * Watts v Spence [1976] Ch 165. Read More