ACCA LW · Chapter 4
Breach of contract and remedies MCQs with Answers
10 multiple-choice questions on Breach of contract and remedies for ACCA LW Corporate and Business Law. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Before the date for performance, one party clearly states that it will not perform its obligations. What is this called and what may the innocent party do, as established in Hochster v De La Tour?
- A) Anticipatory breach; the innocent party may sue immediately without waiting for the performance date
- B) Actual breach; the innocent party must wait until the date for performance before suing
- C) Frustration; the contract is automatically discharged
- D) Anticipatory breach; the innocent party may only seek specific performance
Show answer & explanation
Answer: A) Anticipatory breach; the innocent party may sue immediately without waiting for the performance date
An anticipatory breach occurs when a party indicates, before performance is due, that they will not perform. In Hochster v De La Tour the innocent party was allowed to sue for damages at once. Alternatively the innocent party may affirm the contract and wait for the date of performance, but then risks the contract being frustrated in the meantime (Avery v Bowden).
Question 2
Under the first limb of the rule in Hadley v Baxendale, which losses are recoverable for breach of contract?
- A) All losses that were in fact caused by the breach, however unusual
- B) Losses arising naturally, according to the usual course of things, from the breach
- C) Only losses that the defendant actually intended to cause
- D) Only losses that were expressly listed in the contract
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Answer: B) Losses arising naturally, according to the usual course of things, from the breach
Hadley v Baxendale allows recovery of losses that arise naturally from the breach (first limb) and losses which may reasonably be supposed to have been in the contemplation of both parties at the time of contracting as the probable result of breach (second limb), usually because of special knowledge. Losses outside these limbs are too remote. Liability does not depend on intention or on losses being listed in the contract.
Question 3
A laundry company bought a boiler that was delivered five months late. The seller knew the laundry needed it urgently but did not know of an especially lucrative government dyeing contract. Following Victoria Laundry v Newman Industries, which losses could the laundry recover?
- A) Both the normal and exceptional lost profits, because both were caused by the delay
- B) Neither, because lost profits are never recoverable in contract
- C) The normal profits lost through the delay, but not the exceptional profits from the government contracts
- D) Only the exceptional profits, because they were the largest loss
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Answer: C) The normal profits lost through the delay, but not the exceptional profits from the government contracts
The seller knew the boiler was needed for immediate use, so ordinary lost profits were within reasonable contemplation and recoverable. The highly lucrative government contracts were not known to the seller, so the extra profits were too remote under the second limb of Hadley v Baxendale. Lost profits are recoverable in principle if not too remote.
Question 4
A contract states that if the builder finishes late it will pay 2,000 per week of delay. The amount was set after considering the client's likely losses. What is the clause most likely to be?
- A) An enforceable liquidated damages clause
- B) An unenforceable penalty clause
- C) An exclusion clause subject to the reasonableness test
- D) A condition precedent to payment
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Answer: A) An enforceable liquidated damages clause
Under Cavendish Square Holding v Makdessi (with ParkingEye v Beavis), a clause requiring payment on breach is a penalty only if it imposes a detriment on the party in breach out of all proportion to any legitimate interest of the innocent party in performance of the primary obligation. A sum fixed by a genuine attempt to estimate the client's likely loss, the approach associated with Dunlop Pneumatic Tyre v New Garage, protects a legitimate interest and is clearly not out of all proportion, so it is enforceable as liquidated damages. The agreed sum is then recoverable whether actual loss turns out greater or smaller. The clause does not exclude liability and is not a condition precedent.
Question 5
Which of the following best describes the innocent party's duty to mitigate loss after a breach of contract?
- A) The innocent party must take every possible step, regardless of cost, to avoid loss
- B) The innocent party must accept any offer of substitute performance from the party in breach on any terms
- C) The innocent party must take reasonable steps to minimise the loss and cannot recover loss that such steps would have avoided
- D) The innocent party has no duty to mitigate if the breach was deliberate
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Answer: C) The innocent party must take reasonable steps to minimise the loss and cannot recover loss that such steps would have avoided
The innocent party cannot recover damages for loss that could have been avoided by taking reasonable steps (British Westinghouse v Underground Electric Railways). The standard is reasonableness, not every possible step. In Payzu v Saunders it was reasonable to accept the defaulting seller's offer of cash terms, but this depends on the circumstances, and the duty applies whether or not the breach was deliberate.
Question 6
In which situation is a court most likely to order specific performance?
- A) A contract for the sale of a particular piece of land
- B) A contract for the sale of ordinary goods readily available elsewhere
- C) A contract of employment
- D) A contract where damages would fully compensate the innocent party
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Answer: A) A contract for the sale of a particular piece of land
Specific performance is a discretionary equitable remedy granted only where damages are inadequate. Land is regarded as unique, so specific performance is commonly ordered for contracts to sell land. Courts will not order it where substitutes are readily available, or for contracts of personal service such as employment.
Question 7
An actress contracted exclusively with a film company and agreed not to act for any other company during the contract. She left to work elsewhere. In Warner Bros v Nelson, what remedy did the court grant?
- A) An injunction preventing her from acting for another film company during the contract period
- B) Specific performance ordering her to act for Warner Bros
- C) An injunction preventing her from doing any work at all
- D) Rescission of the contract and return of all payments made to her
Show answer & explanation
Answer: A) An injunction preventing her from acting for another film company during the contract period
The court will not order specific performance of a contract of personal service, but may enforce an express negative stipulation by injunction. The injunction was limited to acting for other film companies, so she was not forced to perform for Warner Bros or face starvation, as she could still earn a living in other ways. Compare Page One Records v Britton, where an injunction was refused because it would in effect compel performance.
Question 8
An author was engaged to write a book for a series, and after he had done part of the work the publisher abandoned the series. What remedy allowed the author to recover reasonable payment for the work done in Planche v Colburn?
- A) Rescission
- B) Rectification
- C) Quantum meruit
- D) Specific performance
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Answer: C) Quantum meruit
Quantum meruit ('as much as he has earned') allows a party to recover a reasonable sum for work done, for example where the other party prevents completion of performance. In Planche v Colburn the author recovered for the work done before the publisher abandoned the series. Rescission and rectification are equitable remedies concerned with setting aside or correcting a contract, and specific performance would compel completion.
Question 9
Under the Limitation Act 1980, what is the normal limitation period for an action for breach of a simple contract?
- A) Three years from the date of the contract
- B) Twelve years from the date of the contract
- C) One year from the date of the breach
- D) Six years from the date on which the cause of action accrued
Show answer & explanation
Answer: D) Six years from the date on which the cause of action accrued
An action for breach of a simple contract must normally be brought within six years of the date on which the breach occurred. For a contract made by deed (a speciality), the period is twelve years. Three years applies to personal injury claims, which are a separate category.
Question 10
Which of the following statements about damages for breach of contract is correct?
- A) Damages may be awarded for mental distress where the purpose of the contract was to provide pleasure or relaxation, as in Jarvis v Swans Tours
- B) Damages are intended to punish the party in breach, so exemplary damages are routinely awarded
- C) Damages can never be awarded for the loss of a chance
- D) Damages normally aim to put the claimant in the position they were in before the contract was made, rather than the position if the contract had been performed
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Answer: A) Damages may be awarded for mental distress where the purpose of the contract was to provide pleasure or relaxation, as in Jarvis v Swans Tours
The general aim of contract damages is to put the claimant in the position they would have been in had the contract been performed (expectation loss); reliance loss is an alternative in some cases. Distress damages are exceptionally available for contracts aimed at pleasure, such as holidays (Jarvis v Swans Tours). Loss of a chance can be compensated (Chaplin v Hicks), and punitive damages are not awarded for breach of contract.