Summary
Summary LAWS10078 Contract Seminar 4 Semester 2 Breach of Contract – Mutuality
- Module
- LAWS10078
- Institution
- The University Of Edinburgh (ED)
LAWS10078 Contract Seminar 4 Semester 2 Breach of Contract – Mutuality
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Seminar 4- Week 4- Semester 2Breach of Contract – Mutuality
MacQueen and Thomson
There are perhaps two inroads upon the unity of the concept of breach. First, with regard to the defensive or
self-help remedies available to an aggrieved party, there are requirements of materiality in relation to the
breach. A non-material breach will not give rise to these remedies although others may be available. These
remedies and the requirements of materiality will be elaborated further later in this chapter [2]. Second, as will
also be discussed in more detail below[3], a party's refusal to perform is not by itself a breach of contract;
breach only arises when the other party accepts the refusal. This is the only category of breach in which the
actions of both parties are relevant.
In the absence of contractual provision on the matter, the remedies available fall into two main categories.
One involves going to court, seeking judicial assistance either to compel payment or performance (specific
implement or interdict) or to obtain a substitute for performance (damages). The other can be described as
self-help or defensive measures, exercisable without the assistance of a court. The essence of these defensive
measures is that the aggrieved party does nothing in a situation where the contract calls upon him to do
something. There are two possibilities: either retention under which performance is withheld until the
contract-breaker repairs his breach (ie the contract is suspended pending resolution of the dispute) or
rescission under which the contract is terminated altogether.
In theory, the approach of the Scots law of remedies for breach of contract is to favour performance of the
contract. This is most obvious given the basic premise that the primary judicial remedy for breach of contract is
specific implement, an order for performance. In this Scots law is like most Civilian systems but contrasts with
English law in which specific performance is an equitable remedy awarded only if damages are not adequate
compensation. Again, in Scots law the aim of an award of damages for breach is to put the aggrieved party in
the same position as if the contract had been performed or to protect the performance or expectation interest
of the aggrieved party. The leaning towards performance can also be detected in the availability of retention
as a remedy which brings pressure to perform to bear upon the contract-breaker, while even a party aggrieved
by the other's breach can only free itself from the contract if that breach has been material.
In Scots law remedies for breach of contract are cumulative. This means that more than one can be exercised
in respect of any breach provided the remedies are not inconsistent with each other. Take for example, a
contract for the sale of goods under which I am due to pay the seller for the goods in instalments which fall
due on the first of the month. The seller does not deliver the goods; I withhold payment on the first of the
following month. Still the seller does not deliver the goods. I terminate the contract. The non-delivery has
meant that I have lost an opportunity to resell the goods at a profit. I can now go on to sue for damages in
respect of that loss. But having terminated the contract, I could not now turn round and seek specific
implement of the seller's obligation to deliver the goods. That would be a cumulation of inconsistent remedies.
It may be possible to cumulate judicial remedies. I might seek specific implement of a contract to sell a house
to me plus damages for the loss caused to me by the delay in delivering it to me; or I might obtain interdict
against my former employee continuing to break his restrictive covenant and seek damages for the losses
which I have suffered as a result of his breach.
Mutuality of contract
5.8 In modern Scots law, the self-help remedies rest upon the concept of the mutuality of contract, sometimes
also described as the interdependence or unity of contract. Several ideas can be found within the concept of
mutuality. A crucial one is that where both parties have rights and duties under the contract, these rights and
, duties are interdependent or reciprocal and the enforceability of one party's rights is conditional upon the
same party performing its own duties. This has two major consequences:
if one party does not perform, the other need not perform;
a party which has not performed or is not willing to perform its obligations cannot compel the other
to perform.
An important limitation upon mutuality is that, before its consequences come into play, it must be shown that
the obligations in question are indeed interdependent or, in Erskine's phrase, 'are the causes of one another' [9].
Accordingly, there cannot be withholding of performance under one contract for claims arising under non-
contractual relationships between the parties (eg a delictual claim for fraud inducing the contract under which
payment is now withheld). There is sometimes said to be a presumption that a contract is to be regarded as a
whole and that all the stipulations on either side are interdependent for the purposes of mutuality [10]. In
complex contracts, however, it will not necessarily be the case that each and every obligation on the one side
is to be treated as the counterpart of each and every obligation on the other side [11]. The difference can be
illustrated by way of the following diagrams where X and Y are the contracting parties, the boxes listed as a, b,
c, and so on are their respective obligations, and d-1 is the obligation on which X has defaulted:
(i) All obligations on either side interdependent
In theory Y can withhold performance of all its obligations if X's breach at d-1 is sufficiently significant. But if Y
has performed, say, obligations g and h before d-1 occurs, then only obligations i-l can be withheld.
(ii) Each obligation on one side has its specific counterpart on the other
Here, however, Y can withhold only performance of the obligation which is the counterpart of X's obligation d-
1 (that is, in the diagram, obligation j).
5.10 While typically mutuality applies within the confines of a single contract, it may also do so where two or
more contracts form part of a single transaction between the parties, with the obligations in each being inter-
related as a result. So in one case buyers of two ships under two separate contracts for which only a single
price was payable were allowed to refuse to pay the whole price in respect of a breach in relation to only one
of the contracts[12]. Where one business (A) sold assets to another (B) with two agreements giving effect to the
transaction - one the asset transfer, the other a services agreement under which A undertook to continue
production, sale and distribution for a period post-sale to ensure business continuity - it was held that there
could be mutuality between the obligations under the two contracts so that B could withhold payments due
under the asset transfer agreement in respect of A's defective performance under the services agreement [13].
Materiality of breach
The application of the mutuality principle may also be limited by the requirements of materiality in relation to
the initial non-performance. At least two levels of materiality of breach have been identified in Scots law: that
required for the less drastic remedy of withholding performance or suspension of the contract (retention)
being lower than that for the more far-reaching action of terminating it altogether (rescission) (Inveresk case)
[15]
. A party may therefore choose only to withhold or suspend performance in respect of a material breach for
which she could terminate; but not the other way around.The exact nature of the difference between these
two levels of materiality has not been much explored nor has there been identification of the level at which
not even retention is allowed.
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