Transcript Contract Law: Breach of Contract

Contract Law:
Breach of Contract
Douglas Wilhelm Harder, M.Math. LEL
Department of Electrical and Computer
Engineering
University of Waterloo
Waterloo, Ontario, Canada
ece.uwaterloo.ca
[email protected]
© 2013 by Douglas Wilhelm Harder. Some rights reserved.
Breach of Contract
Outline
An introduction to the engineering profession, including:
– Standards and safety
– Law: Charter of Rights and Freedoms, contracts, torts, negligent
malpractice, forms of carrying on business
– Intellectual property (patents, trade marks, copyrights and
industrial designs)
– Professional practice
• Professional Engineers Act
• Professional misconduct and sexual harassment
– Alternative dispute resolution
– Labour Relations and Employment Law
– Environmental Law
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Breach of Contract
Definitions
Terms of a contract that require performance on a party
are said to be obligations
Failure to perform an obligation is said to be a breach of
the contract
The party that breaches the contract is said to be the
defaulting party
Any other parties to the contract are said to be innocent
parties
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Breach of Contract
Types of Breaches
An essential obligation of a contract is said to be a
condition of the contract
Other obligations non-essential to the contract are said
to be warranties
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Breach of Contract
Discharge by Performance
The innocent parties may seek remedies for the breach
The breach of a warranty may allow the innocent parties
to sue for damages or specific performance
– Such a breach is said to be an non-material breach
If, however, it is a breach of a condition, the injured
parties may be able to, in addition, consider the contract
discharged by the breach
– Such a breach is said to be a material breach
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Breach of Contract
Non-material Breach
Consider the case of Pigott Construction Co. Ltd. v W.J.
Crowe Ltd., 1963 where a subcontractor claimed that the
contractor had breached terms in a contract:
– The terms in question requested expeditious work on the part of
the contractor and to provide heat during winter
– Work had not begun by January 1st, 1957
The case went to court:
– The plaintiff argued that the contract should be discharged
– The court said, however, that the breaches would not have
prevented the subcontractor from substantial performance on the
part of his obligations and thus the breaches are grounds for
damages, but not for discharge of contract
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Breach of Contract
Non-material Breach
In the decision:
“A breach of contract is a cause of discharge only if its effect is to
render it purposeless for the innocent party to proceed further
with performance. Further performance is rendered purposeless
if one party either shows an intention no longer to be bound by
the contract or breaks a stipulation of major importance to the
contract...
“It may, indeed, be said in general that any breach which
prevents substantial performance is a cause of discharge.
Whether performance is substantially prevented or only partially
affect is, of course, a question that depends upon the
circumstances of each case.”
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Breach of Contract
Non-material Breach
In Jacob & Youngs, Inc. v. Kent, 1921, the contractor
used a different brand of pipe than was specified in the
contract
– The owner claimed a material breach and refused to make the
last payment
– The owner wanted to sue for the cost of removing the wrong
piping and installing new piping
– The court found that the breach was non-material, as the brand
did not affect the value of the house and thus, the owner was
only able to sue for the difference in the cost of the pipes—in this
case, $0
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Breach of Contract
Engineers
How does one determine when one has a material
breach versus one that is not material?
– Due to the difficulty of determining this point, very often
construction contracts will contain provisions for terminating a
contract if a professional engineer has determined that a
contractor’s performance was inadequate
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Breach of Contract
Repudiation
When parties, either through explicit communications or
through failure to perform, indicate that they will not
perform obligations, they are said to have repudiated the
contract
– The party repudiating the contract is said to be the defaulting
party
– If there is no material change, it is possible for the defaulting
party to retract the repudiation and continue with its contractual
obligations
– Non-defaulting parties have two options:
• Ignore the breach, or assume the contract is discharged
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Breach of Contract
Repudiation
If non-defaulting parties wish to consider the contract
discharged, they must communicate this to the defaulting
party “with reasonable dispatch”
– The non-defaulting parties may then sue for damages
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Breach of Contract
Remedies
The non-defaulting party may be compensated for the
breach through a number of possible remedies:
–
–
–
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Damages for any injury
Quantum meruit remedies
Specific performance
Injunctions
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Breach of Contract
Damages
The term damages refers to monetary compensation for
any losses that affect the innocent party
– The amount of damages is determined by a court
– What can the injured party claim as damages?
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Breach of Contract
Damages
In Hadley v Baxendale, 1854, the plaintiff operated a mill
and required the defendants to transport a broken
crankshaft for repairs
– Through negligence on the part of the carriers, the deliver was
delayed
– The crankshaft was essential to the operation of the mill, but this
was not impressed upon the defendants at the time the contract
was established
– The plaintiff was seeking damages for lost productivity
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Breach of Contract
Damages
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The justice indicated
“Where two parties have made a contract which one of them has
broken, the damages which the other party ought to receive in
respect of such breach of contract should be such as may fairly
and reasonably be considered either arising naturally, i.e.,
according to the usual course of things, from such a breach of
contract itself, or such as may be reasonably be supposed to
have been in the contemplation of both parties, at the time they
made the contract, as the probable result of the breach of it.”
The defendants must be told of the consequences if the
plaintiffs seek damages as a result of any breach
Breach of Contract
Direct and Indirect Damages
Damages may be a direct consequence of the breach:
– Any immediate costs that the injured party must incur to
complete the terms of the contract
– This may include any additional costs, over-and-above the costs
of the current contract to find another party to complete the terms
of the contract
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Breach of Contract
Direct and Indirect Damages
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Damages may also result indirectly from the breach:
– This includes any other losses that are a consequence of the
contract obligations not being performed
– In the case of Hadley v Baxendale, the shutdown of the mill was
an indirect damage resulting from the breach
Many contracting parties will often attempt to limit
damages to those that directly result from any breach
“In no event whatsoever will the manufacturer be responsible for
any indirect or consequential damages howsoever caused.”
Breach of Contract
Duty to Mitigate
When a party is injured as a result of a breach of
contract, the party must still take steps to prevent further
damage
– In a construction that is partially completed, the injured party
would have to, for example, guard against possible water
damage
– The courts will consider compensating the party for any costs
incurred in protecting the structure, but they will not consider
water damage to the structure if the injured party took no
reasonable steps to protect it
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Breach of Contract
Penalty Clauses
If a contract includes a penalty clause, that is, one
indicating damages to be paid in the event of a breach
must be commensurate with the actual damage
– Such clauses that are purely punitive will not be upheld by courts
Such clauses must reasonable consider actual losses
that will be incurred as a result of any breach
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Breach of Contract
Penalty Clauses
Consider a subcontracted software system that must be
installed by a certain date, otherwise, the contracting
party will be in breach of its contract
– The liquidated damages are those that the contractor will incur if
the contract is breach
– If a breach of the contract was $1000 per day, it would be
unreasonable to have a penalty clause that indicates $5000 per
day
– The court would not lower the damages to more reasonable
levels, but instead simply void the term
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Breach of Contract
Quantum Meruit
Suppose prior to a breach of a contract, performance
had occurred, but the contract did not specify the
benefits that would result from the performance
In the case where the breach is the result of the party
that is to pay
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Breach of Contract
Substantial Compliance
Consider a subcontracted software system that must be
installed
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Breach of Contract
Specific Performance
Consider a subcontracted software system that must be
installed
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Breach of Contract
Injunction
Consider a subcontracted software system that must be
installed
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Breach of Contract
References
[1]
[2]
[3]
D.L. Marston, Law for Professional Engineers, 4th Ed., McGraw Hill, 2008.
Julie Vale, ECE 290 Course Notes, 2011.
Wikipedia, http://www.wikipedia.org/
These course slides are provided for the ECE 290 class. The material in it reflects
Douglas Harder’s best judgment in light of the information available to him at the
time of preparation. Any reliance on these course slides by any party for any other
purpose are the responsibility of such parties. Douglas W. Harder accepts no
responsibility for damages, if any, suffered by any party as a result of decisions
made or actions based on these course slides for any other purpose than that for
which it was intended.
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