154 Chapter 5Discharge of contracts and remedies for breach
loss to the shop owner would be £500 a week, then the agreed damages are liquidated
damages. John would therefore have to pay £5,000 damages, no matter how much his
breach of contract actually cost the shop owner. If, when the parties made the contract,
they thought that the actual loss in the event of breach would be much less than £500 a
week, then the term will be a penalty. The penalty will be ignored and damages will be
calculated in the usual way to compensate the shop owner for the actual loss suffered.Interest on damages
A contract might agree that interest on damages should be paid at a certain rate. If the
parties do not make such an agreement then the court will order that interest is payable
from the date when the claim arose.
Figure 5.6 gives an overview of damages for breach of contract.Suing for the contract price
When a seller sues for the contract price, this is not the same thing as suing for damages.
When a claim is made for the payment of a debt, the amount claimed is said to be liquidated.
As the claim is not for damages, the rules on remoteness, mitigation and quantification of
damages will not apply. For example, let us assume that John agreed to build an office for
Tony for £70,000 and completed the job properly. If Tony does not pay the contract price
then John can sue for it. The rules on remoteness, mitigation and quantification of damages
will not apply. So there will be no need to consider the rules in Hadleyv Baxendale, and
John does not need to take any steps to reduce his loss. Nor will a court need to make
calculations to find the amount being claimed, apart from working out any interest which
is payable.
The Sale of Goods Act 1979 lays down the circumstances in which a seller of goods can
sue for the contract price. These rules are examined in Chapter 7.
The Late Payment of Commercial Debts (Interest) Act 1998 gives all businesses the right
to claim interest when a commercial debt arising from the supply of goods and services to
another business or to a public sector body is paid late.
Interest becomes payable under the Act from the day after the date on which the supplier
and purchaser expressly or impliedly agreed that it should become payable. If no such date
is fixed, interest becomes payable 30 days after the supplier performed his obligations under
the contract, or 30 days after the purchaser was given notice of the debt, whichever is the
later. So interest would generally become payable 30 days after the goods or an invoice were
delivered. The rate of interest is currently set at 8 per cent above the base rate.
The effect of the Act cannot be avoided by means of a contractual term unless there is
a ‘substantial’ remedy available for the late payment of the debt. It is only possible for a
contractual term to postpone the time at which a debt is created to the extent that the term
satisfies the UCTA 1977 requirement of reasonableness. (The UCTA requirement of reason-
ableness was examined in Chapter 3.)Specific performance
Specific performance is an equitable remedy which arises when a court orders a person to
actually perform the contractual obligations undertaken. For example, if Mark agreed to sell
an antique vase to Asif but then refused to go through with the contract, Asif might ask the