BetterLawNotes-5 (2)

CONTRACT LAW

The defendant will not be liable to compensate the claimant for loss which can be attributed to the claimant’s own failure to take reasonable steps to mitigate or minimise the harm flowing from the defendant’s breach of contract. Put another, but not strictly accurate, way, the claimant is said to be under a duty to mitigate his loss. (Strictly, this is not a duty because failure to discharge it will not lead to liability – failure to mitigate merely means that an unmitigated loss is not recoverable.

Payzu v Saunders [1919] 2 KB 581

The parties had entered into a contract under which S agreed to supply P with certain material over a nine-month period as and when required by P. It was agreed that payment for each delivery would fall due one month after delivery. P was late in making payment for the first delivery, and S said that future deliveries would have to be paid for on delivery. P refused to agree to this modification. The market price for the material having risen in the meantime, P claimed damages based on the difference between the contract and market prices. The Court of Appeal held that S was not liable to pay damages on such a basis. P should have accepted S’s offer of cash on delivery and P’s damages were limited to such loss as they would have suffered had they accepted S’s offer.

The Solholt [1983] 1 Lloyd’s Rep 605

D, the seller of a vessel, was three days late in tendering delivery of the vessel. The price under the contract was $5m. The market value at the time of agreed delivery was $5.5m. Having elected to treat D’s breach as bringing an end to the contract, C offered to take the vessel for $4.75m. This offer was rejected by D and C subsequently brought a claim for damages of $500,000, being the difference between the contract and the market price as at the date of the repudiation.

Staughton J held that C was only entitled to nominal damages. In order to mitigate its loss, C should have offered to take the vessel for the agreed price of $5m, which offer D would have accepted. The CA dismissed C’s appeal.

Manton Hire & Sales Ltd v Ash Manor Cheese Company Ltd [2013] EWCA Civ 548

Ash had wanted a forklift truck for use in its warehouses. A representative from Manton visited Ash in order to advise on a suitable vehicle. Ash then chose the cheaper of Manton’s two recommendations, a Doosan. Having purchased a Doosan, Manton then immediately sold it to a finance company, Albury. Albury then supplied the Doosan to Ash pursuant to the terms of a five-year hire agreement. It soon became apparent that the forklift was too big for Ash’s warehouses. Manton proposed a modification to the cab, but Ash rejected the proposal on safety grounds. Ash claimed that the Doosan was not fit for purpose and stopped making hire payments to Albury. Albury treated the non-payment as repudiatory and, pursuant to the terms of the agreement, demanded payment of hire for the unexpired term less an allowance for early receipt. Ash subsequently admitted liability and sought an indemnity from Manton. The Court of Appeal held that the judge had been entitled to find that Ash had acted reasonably in rejecting Manton’s proposed modification and that Manton were, accordingly, liable to indemnify Ash.

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