Breach of Contract and Remedies

A breach of contract occurs when one party fails to fulfill their obligations, either partially or entirely, or communicates an intention to fail in performing their obligations, or otherwise seems incapable of fulfilling their obligations.

In the realm of day-to-day business transactions, the increasing complexity of these dealings has elevated the drafting of contracts from a mere preference to an absolute necessity. This shift is primarily due to the frequent emergence of disputes regarding the precise terms of contractual business relationships.

In such cases, it is crucial to emphasize that the contract document holds paramount significance. When these disputes reach a legal forum, such as a Court of Law, the terms explicitly outlined within the contract become the focal point for resolution.

When parties enter into a contract, there is an expectation that the contract will eventually come to an end, typically when the agreed-upon performance has been completed. When a contract is discharged, it means that the rights and obligations of the parties have reached their conclusion, and the contractual relationship has been terminated.

A breach of contract occurs when one party fails to fulfill their obligations, either partially or entirely, or communicates an intention to fail in performing their obligations, or otherwise seems incapable of fulfilling their obligations. In other words, a breach can happen in three situations:

a. When a party explicitly states that they do not intend to fulfill their obligations.

b. When a party fails to fulfill their obligations without communicating their intention to break the contract.

c. When a party appears to be incapable of fulfilling their obligations.

In legal principles, it is a widely recognized concept that when a wrong occurs, there should be a corresponding remedy. This principle holds true for breaches of contracts, where legal remedies are typically available for the injured party. Among the array of remedies, the most prevalent one is the award of damages, although in certain cases, a court may also issue specific performance orders or injunctions.

See also: Contract in Law

Damages: Breach of Contract Remedy

Damages are a standard legal remedy for breaches of contract. The foundation for this common law remedy was initially established in the case of Robinson v. Harman[1], but its modern interpretation took shape in Hadley v. Baxendale[2].

When one party breaches a contract, the damages awarded to the other party should, by principle, be those that naturally flow from the breach or those that both parties would have reasonably contemplated as likely consequences when they entered into the contract.

The overarching goal of awarding damages is to restore the innocent party to the position they would have been in had the breach never occurred. However, it is important to note that the party responsible for the breach is only liable for damages that were reasonably foreseeable at the time of contract formation.

The rule of damages’ remoteness, as articulated by Anderson B in Hadley v. Baxendale, categorized financial losses into two groups: normal and abnormal losses.

Normal losses are automatically recoverable, while abnormal losses can be recovered only if the party in breach was informed of the specific circumstances that could lead to such losses at the time the contract was made.

This rule was further clarified in the case of Victoria Laundry (Windsor) Ltd. v Newman Industries Ltd[3]. In this case, the plaintiffs, who were launderers and dryers, needed a larger boiler to expand their business.

The defendant agreed to sell and supply the boiler, with the plaintiffs expressing their urgency to have it as soon as possible. However, the defendant delivered the boiler five months late. As a result, the plaintiffs successfully sued for the loss of profits, as these losses were foreseeable given the surrounding circumstances.

Types of Damages

1. Specific and General

In the context of damages arising from a breach of contract, there is a common distinction between general and specific damages. Specific damages typically involve quantifiable, well-defined losses with a clear monetary value.

For instance, if A agrees to sell a car to B for use as a cab, and the car turns out to be in terrible condition, B may seek compensation for both the loss of earnings and the cost to repair the car as specific damages.

On the other hand, when the court needs to determine or estimate the damages, the resulting amount is referred to as general damages.

2. Nominal Damages

In cases where one party breaches a contract but no actual losses are proven, or the innocent party fails to establish such losses, the court has the discretion to award nominal damages.

An example is the Nigeria Advertising and Publicity Ltd v. Nigerian Airways case, where nominal damages of 100 pounds were granted even though the plaintiff couldn’t demonstrate any specific losses resulting from the breach.

Nominal damages serve to acknowledge the violation of the injured party’s legal rights in cases where no actual losses are evident.

3. Exemplary Damages

Exemplary damages, which are intended to punish the defendant rather than solely compensate the plaintiff, are relatively uncommon in breach of contract cases. However, when they are awarded, it typically occurs in situations involving a breach of promise to marry.

An example can be seen in the case of  Uso v. Iketubosin[4], where the defendant and the plaintiff were engaged for a period of ten years. Suddenly, the defendant terminated the engagement without justifiable cause.

The woman was already thirty years old and had spent her most significant years with the defendant, affecting her marriage prospects. In this case, the court granted exemplary damages to the plaintiff as a form of punishment.

4. Liquidated Damages

Liquidated damages are pre-determined, specific monetary amounts outlined within the contract itself to be paid in the event of a breach. These amounts typically represent a reasonable estimate of the actual damages that could arise from such a breach.

Specific Performance: Breach of Contract Remedy

Specific performance, an equitable remedy granted at the court’s discretion, compels a party to fulfill their contractual obligations when damages are deemed inadequate.

The court’s decision to grant specific performance considers factors like the timeliness of the request, the party’s willingness to meet their contractual obligations, potential hardships faced by the party against whom the order is sought, the balance of benefits and costs, impact on third-party rights, and the presence of adequate consideration in the contract.

However, in cases like Taylor v H.B. Russel, specific performance may be refused when it would be impossible for the party to carry out the order due to the transfer of property titles or when it is likely to result in additional legal actions, and where hardships may arise for third parties, unless those third parties were aware of the contract for which specific performance is sought.

Injunction: Breach of Contract Remedy

An injunction is an equitable remedy that operates on a discretionary basis. It can take two forms: prohibitive, which instructs a party not to engage in a particular action, or mandatory, which compels a party to reverse something they have already done.

When considering the granting of an injunction, courts apply the balance of convenience test. If the harm that would be suffered outweighs the benefits of granting the injunction, it may be refused.

An important principle is that an injunction should not compel the defendant, directly or indirectly, to perform an act that could have been ordered through specific performance. For instance, in an employment contract, an employee cannot be restrained from breaching their obligation to work because this would essentially enforce specific performance of an employment contract. In contrast, contracts frequently enforced by injunctions are those involving restraint of trade.

An illustrative case where an injunction was granted is Warner Bros Pictures Inc v Nelson.[5] In this case, a film actress had signed an agreement with her employers (plaintiffs) not to work for any other organizations. She was prevented from breaching this agreement through the issuance of an injunction.

Conclusion

In conclusion, breach of contract remedies offer a multifaceted approach to addressing contractual disputes. Damages, specific performance, and injunctions play distinct roles in providing legal and equitable solutions.

These remedies ensure that parties are held accountable for their obligations and maintain the integrity of contractual relationships in the ever-evolving business landscape.

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[1] (1848) 1 EX.850

[2] (1854) 9 Ex 341

[3] [1949] 2 KB 528

[4] [1957] W.R.N.L.R. 187

[5] [1937] 1 KB 209

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