Post No.: 0943
Furrywisepuppy says:
In Contract law, once a deal has been made, a party cannot breach it on the basis that it wasn’t at the right price – a deal is a deal!
By far the most common form of ‘remedy’ if one party to an agreement breaks their promise (a breach of contract) is for the courts (frequently a small claims court) to grant the injured party some amount of money – a forced payment of money. The value of this will be the ‘expectation’ or what the breaching party’s promise entitled the disappointed party to expect had the contract been kept i.e. they’re entitled to be put in the same position they would’ve been in had the contract been kept. In practice, this means the injured party can sue the breaching party for the difference between what the former got compared to what they should’ve gotten had the contract been abided (if there was a loss), which could include incidental costs and lost profits. Or if they don’t pay up then bailiffs can come around to seize some of the latter’s goods and sell them as necessary to make up the sum they’ve been ordered to pay.
Any costs incurred by the breaching party for breaching their contract have nothing to do with it – they cannot claim to offset these when the ‘damages’ are calculated against them. Legal fees shouldn’t be added when calculating any damages too.
If a contractor fails to perform their contract, the client can seek out another contractor then sue the first contractor for the difference in cost between the new contractor and the rate that the first had promised in their contract. There’d be a possibility of other damages too (e.g. the costs of actually finding and contracting another contractor) but those incidental costs may be comparatively small and the client mightn’t stress over those.
If a builder has a valid contract to build a luxury kennel for a client but, for no valid reason for a breach on the builder’s side, the client decides to fire the builder – the builder can sue for damages. If, when negotiating the deal, the deal was for £25,000 and the estimated project costs was £20,000 (hence the expectation was a £5,000 profit to the builder), and if the builder had already expended £7,500 on materials and labour, then the builder can sue the client for the £7,500 they’d already spent in costs in performance of the contract, plus the £5,000 in expectation/lost profit (i.e. £12,500 in total damages).
If a deal was to trade a used laptop for £500, if the buyer doesn’t pay that £500 then they can be sued for £500. Or if the seller doesn’t hand over the laptop then they can be sued for the monetarily-equivalent expected value of the laptop to the buyer or the money equivalent to what the victim of the breach would’ve gotten had the other side actually kept their promise. Very rarely will the courts order the seller to hand over the laptop – the courts prefer not to force anybody to take a particular action but to make the party in breach pay in money because it keeps things far simpler (e.g. in case the seller spitefully damages the laptop, has already sold it to someone else, or it was never the seller’s to sell in the first place).
Now the monetarily-equivalent expected value of the laptop to the buyer could be worth more than £500 – maybe £750 – thus £750 would be awarded to the buyer. Obviously if the buyer hasn’t yet paid the £500 to the seller then the buyer can only sue for the £250 excess benefit here.
If the monetarily-equivalent expected value of the laptop to the buyer was actually worth less than £500 – maybe £250 – and if the courts cannot get the seller to deliver the laptop then essentially the deal is called off. The seller cannot sue the buyer for £250(!) because for one thing the seller never fulfilled their side of the bargain to hand over the laptop anyway. If the buyer has already paid the £500 in this case then they’d just get this £500 back i.e. the deal is off and everybody is put back to the positions they were before as if no deal was ever struck.
Okay, if the deal was ‘delivery on receipt of the money by a certain date’ but the buyer never sent that money and so had broken the contract, then the seller can sue for the £500 (and then should deliver the laptop to the buyer). But if the seller had, in the meantime, because they needed the money urgently, sold the laptop to someone else (which is acceptable if the buyer had broken the contract) but has sold it for only £400 (they maybe turned away other potential buyers when holding the laptop for the original intended buyer but it was a slow week when they urgently needed the money) then the seller can sue the breaching buyer for the £100 difference because £500 is the total benefit that the seller had lost because this buyer breached their contract. Obviously if the seller had sold the laptop for £600 to a new buyer (because it was a good week when they urgently needed the money) then there’d be no point in suing the breaching buyer because the seller wouldn’t get anything from them since the seller is already better off than if the promise were kept by the breaching buyer.
Alright, if the seller was selling brand new laptops that they have dozens of exactly identical models of, and could get more of if out of stock (i.e. the item isn’t unique/a one-off anymore like a used laptop) and there’s no trouble finding buyers for this item, and if a buyer points to one of them and wants it for £500, and that deal is done – then if that buyer doesn’t pay for it nor pick it up, and then if the seller had sold that laptop, or one that was just like it, to someone else in the meantime for the same £500 the original intended buyer would’ve paid, then it’s not a case of no harm, no foul, because the seller hasn’t technically replaced that buyer with another but has lost a buyer (the seller sold one laptop instead of two here hence has lost out because of the breaching buyer). Therefore the seller can sue this breaching buyer for £500.
So an injured party is entitled to the amount of money that would put them in the same position as if the contract had been kept. But determining the amount of money that’d be equivalent to the bargain that was made, had the bargain been kept, isn’t always easy (e.g. the market value of something mightn’t be the same as its personal value to a particular individual – and working out the market value itself isn’t always straightforward).
The principle of expectation damages is that you’re entitled to the value of what you’ve been promised. And there are two ways to reach that. The first is cost of completion (the cost of putting you in the position you would’ve been in had the contract been fulfilled – an easy way to think about this is the cost of paying a third-party to fulfil the obligations of the contract breacher). The second is diminution of value (the difference in (market) value between the state of affairs due to the contract breach and the state of affairs had the contract been fulfilled e.g. if a carpenter agreed to build a shelving unit for a client that’ll be worth £120 but only builds and submits half of it, which is worth £40, the client would be entitled to £80). But which measure the courts decide to use isn’t always consistent!
If a landowner has a deal with a coal company to allow that company to extract coal from the landowner’s farmland for an agreed duration and price as long as the coal company fixes up the land afterwards – then if the land is left unsightly, to decide the damages owed to the landowner, do we go by the difference in market value of the land to what it should’ve been or the cost of the work that’d bring the land up to the expected standard (which might be markedly different e.g. £10k compared to £100k)? This might depend on whether they’re intending to sell the land shortly afterwards or keeping it long-term? Regardless, the courts can be inconsistent with this.
To have been more in control, and more certain, of what the courts would’ve awarded if the coal company failed to fix the land – the landowner could’ve tried to include a clause that said, at the end of the mining lease, the coal company must either tidy up the land or pay the landowner a fixed £100k, or £1k for every day that they fail to deliver what was promised. However, the courts aren’t there to award penalties but damages i.e. with or without that clause, all the landowner would get is the commercial loss they’d suffered (damages), whatever the court works that out to be (which might be the lesser amount of £10k in this example).
To solve this, the landowner could try making a deal with the company for just the coal side of things. The price that they’d pay to the landowner would then be more in this scenario to factor in the fact they aren’t going to work on fixing up the land afterwards. The difference in price from the first scenario should be the cost of the work required to fix this land afterwards (£100k in this example). The landowner can now make a separate deal with a landscaper for fixing this land once the coal company finishes its lease. They shouldn’t pay them anything upfront though because the landscaper could pull the same stunt and claim that the land isn’t worth fixing. Albeit if the landowner does, they’d at least be able to recover, via the courts, what they’d paid upfront because the landscaper cannot keep the money and do nothing. The land would still be in a mess and the landowner would also need to pay for lawyer’s fees to bring the landscaper to court to recover what they’d paid upfront – but at least, in this scenario, the landowner should have sufficient money in their own hands to pay for the work required to fix up the land because the price charged to the coal company is higher in this scenario to account for the fact this company wasn’t expected to do the work to fix up the land afterwards themselves.
So the best solution to ensure the landowner was covered for the (higher amount) repair costs to the land would’ve been to factor the cost for repairing the land into the negotiating price with the coal company (so charge a higher price for the coal so that the landowner was sure to have the funds to cover the landscaping). If the price was for per ton of coal extracted (instead of a fixed price), and the landowner didn’t know how much was going to be extracted, then the cost for repairing the land could’ve been charged upfront for the first ton and then the agreed upon rate for the rest. Again, don’t pay any landscaper anything in advance – only pay them once they get the landscaping done.
Alternatively, if stuck in the first scenario and the landowner has only been awarded the lesser amount via court – if they can demonstrate detrimental reliance on the coal company to fix the farmland or for the cost of moving to a new farm (e.g. due to lost harvests, accumulated losses) then they might have more to recover via court. But this can become extremely complicated.
Woof. Post No.: 0532 covered frustrated deals due to unforeseen events.
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