Contract Breach Claim

Introduction

This question relates to 3 contracts. The first contract is between Douglas and Jill, where Douglas contracts with Jill to build a decked area outside the front of his café for £1000.

The second contract is between Douglas and Frances, where Douglas contracts with Frances to paint the outside of the café for £500 and replace the front door for £100.

The third contract is between Douglas and Sam who he contracts with to finish the decking for £300.

For the purposes of this question I will only be looking at the first two contracts as the contract between Douglas and Sam was discharged by performance, i.e. both parties fulfilled their obligations under the contract.

Contract One

Under this contract, Douglas was to pay Jill £1000 upon satisfactory completion of the decked area outside the front of the café. Douglas was however unhappy with Jill’s workmanship and decided to terminate the contract early. He then contracted with Sam to fix and finish the decking. It is clear that there has been a breach of contract as the work had not been carried out to a satisfactory standard; however the issue is whether the breach was serious enough to entitle Douglas to terminate it. If it was, Jill would be in breach and he would be entitled to claim damages, if it was not, he would be in breach and Jill would be entitled to claim damages.

In order to decide whether Douglas was entitled to terminate the contract, it is necessary to examine what type of term was breached. There are three types of terms in a contract. A condition goes to the root of the contract, upon the occurrence of any breach of condition, the injured party can elect to terminate and claim damages, whatever the gravity of the breach. A warranty is a lesser, subsidiary term of the contract. Breach of a warranty only gives rise to a claim for damages and does not give the innocent party the right to terminate further performance of the contract. The third type is called an innominate term which originated from the case of Hong Kong Fir where the Court of Appeal concluded that the obligation to provide a seaworthy ship was an innominate term. They said that the term could have either been broken in a trivial manner (such as not having enough medical supplies on board) which could be remedied adequately by an award of damages, or in a way that was so fundamental that it could have undermined the purpose which the parties had in mind in entering into the contract. In other words, the outcome of the breach would depend on the seriousness of the factual consequences of the breach. It can be argued that by not building the decking to Douglas’s satisfaction and expectation, Jill has breached a condition of the contract and therefore Douglas would be able to terminate. Douglas would also have statutory protection under s13 of the Supply of Goods and Services Act 1982, as Jill has to carry out the work using ‘Reasonable care and skill.’

If it was found that Douglas was entitled to terminate the contract either because Jill breached a condition or an innominate term (for example breach of s13 Supply of Goods and Services Act 1982) which was deemed serious enough, he would be able to claim damages so long as he has incurred a loss. Douglas has listed his losses as £500 lost profit for the 2 days the café was not open whilst Sam completed the decking. He has also paid Sam £300 for this work, although he does not appear to be making a claim for this amount.

Douglas may not be able to recover damages for all the loss he has suffered as some of this loss may be seen as too remote a consequence of the breach to be compensatable by Jill. The rules on remoteness of damages originated from Hadley v Baxendaleof which there are two limbs. The first being that Douglas can claim for losses arising naturally out of the breach, i.e. as a result of normal business. It is expected that the contract breaker would know what this loss would be. Or if there are special or unusual losses, Douglas can only claim for losses which could reasonably be supposed to have been within the contemplation of the parties at the time of the contract, as the probable result of the breach.

The injured party also has a duty to mitigate his losses caused by the breach as recovery cannot be made for any part of the loss which the defendant can prove to have resulted from a failure to mitigate (British Westinghouse Electric Co).

By applying remoteness and mitigation to Douglas’ claim, there has been no mention of any abnormal losses due to a lucrative contract during the two days the café was shut; therefore it is likely that Jill would have been aware that the losses would have been around this figure of £500. On the part of mitigation, Jill could argue that Douglas may not have needed to close the café for two days as he could have allowed customers into the interior of the café. However Douglas could argue that the building work did not make it safe for customers to enter the café as in order to mitigate he is not required to embark on an uncertain or dangerous course of action (Pilkington v Wood).

This contract between Douglas and Jill is defined as a contract of ‘entire obligation’, where work must be completed before payment is due (condition precedent). The leading case on entire obligation is Cutter v Powell (1795) where Cutter agreedto work on a ship sailing from Jamaica to England for 30 guineas (much more than the going rate); payment was due on completion of the voyage. Unfortunately Cutter died just before the voyage was completed and when his widow went to claim his wages for part performance she was unable to recover them. To further illustrate this, in Re Hall & Barker (1878), Sir George Jessel MR stated, ‘if a shoemaker agrees to make a pair of shoes, he cannot offer you one shoe and ask you to pay one half the price.’ The rule of ‘entire obligation’ was seen as harsh and can be mitigated by the doctrine of substantial performance.

Substantial performance allows a party who performs his contractual obligations substantially to enforce the contract. There are two leading cases that illustrate this, in H. Dakin Co Ltd v Lee, the claimant was a firm of builders who agreed to carry out repairs to the defendant’s house. The work carried out was not to specification in three minor areas which could be remedied at a relatively small cost. The Court of Appeal gave judgment allowing the claimant to recover the contract price less a deduction equal to the cost of remedying the defects. In Bolton v Mahadeva the claimant agreed to install central heating in the defendant’s house for £560. The system was defective as it did not heat the house adequately and it gave off noxious fumes. The cost of remedying these defects was £174. The Court of Appeal held that there had not been substantial performance and the claimant was not entitled to recover anything.

By applying the above rules it can be seen that as the contract price was for £1000 and it only cost Douglas £300 to have the decking fixed and finished, it could be deduced that Jill had completed a considerable amount of the work she was originally contracted to do. Therefore, if Douglas was found to have wrongly terminated the contract, Jill could bring a claim for substantial performance and claim an action for an agreed sum, this being the full contract price.

Contract Two

Under this contract, Douglas contracted to pay Frances £500 to paint the exterior of the café and a further £100 for her to replace the front door. Half way through the job Frances was called away to another one and demanded £250 for the painting she had carried out so far and £50 for the door which she had bought but not yet fitted. The issue here is whether Frances is entitled to claim the £300. This contract like the one between Douglas and Jill is an entire obligation contract, however as there are two parts to the contract, it is known as a ‘severable’ contract. Frances would be entitled to claim the £500 for the painting of the exterior of the café if she completed it but had not replaced the front door. As this is not the case and Frances has only painted half the café, it seems highly unlikely that she could make a claim of substantial performance (as discussed above in the contract between Douglas and Jill) and would therefore be unable to claim the £300 she is claiming. I am assuming that Frances is going to be completing the work once she has finished the job she was called away to.

If it transpires she has actually abandoned the work on Douglas’ café then she may be able to bring a claim for quantum meruit, i.e. a reasonable remuneration for the work she has already done, however Douglas needs to accept her partial performance in order for her to have a claim. In the case of Sumpter v Hedges the claimant’s action on quantum meruit failed as the defendant had no choice whether to accept or reject the partial performance. Therefore by abandoning the work, Frances would not have given Douglas the choice whether he could accept or reject her partial performance and she would therefore not be entitled to make a claim on quantum meruit.

Conclusion

In order for Douglas to claim £500 lost profit, he will need to be able to prove that Jill’s breach of not fitting the decking to a satisfactory standard is serious enough for him to terminate the contract. He will also need to prove that these losses are not too remote and he has done his best to mitigate them.

If it was found that Douglas was in breach as there was no entitlement to terminate, Jill can put in a claim for substantial performance and if successful, she would be entitled to claim the contract price (action for an agreed sum). However as technically she had been in breach albeit not serious enough for the contract to be terminated, it is likely a deduction from the £1000 will be made to cover the cost of remedying the defects in her workmanship.

As far as Frances is concerned, it is unlikely she will be able to claim any payment until she has satisfactorily completed each of her contractual obligations.

Bibliography

• Contract Law, Text, Cases and Materials, Second EditionEwan McKendrick
• Contract LawMindy Chen-Wishart