Chapter 7 Multiple choice questions

. According to the compensation principle, the non-breaching party is normally entitled to recover as loss of profit any profit made from the breach by the contract-breaker.

True

False

. The purpose of awarding contractual damages is generally to put the non-breaching party into the position it would have been in had the contract been performed as agreed.

True

False

. Which one of the following statements in relation to the 'cost of cure' (or cost of repair) measure of damages in breach of contract cases is true?

Cost of cure is measured by the loss of 'subjective benefits', i.e. 'consumer surplus', resulting from the breach of contract.

Cost of cure was awarded in Ruxley Electronics and Construction Ltd v Forsyth [1996] 1 AC 344.

Cost of cure is awarded irrespective of whether the non-breaching party intends to cure.

Cost of cure is available only when it is not out of all proportion to the non-breaching party's loss resulting from the breach.

. A Ltd enters into a construction contract with B Ltd under which A is to build a warehouse for B for £200,000. The estimated total cost for A to complete the building work at the time of the contract is £160,000. Due to market changes, however, the estimated total cost of completing the work becomes £220,000 before A starts building. B then fails to make some prepayments, which entitles A to terminate the contract. A terminates the contract and claims for damages, amounting to £50,000, as wasted expenses incurred in preparation for the building work. Which one of the following statements most accurately summarises the legal position between the two parties?

A is entitled to an award of £50,000 because this reflects expenses incurred for the purpose of performing the contract.

A is entitled to an award of £40,000 because this reflects A's net profit under the contract at the time of making the contract.

A is entitled to £30,000 because this reflects expenses that would have been recouped had the contract been duly performed.

A is entitled to nominal damages only because A would not have made a net profit had the contract been duly performed.

. A, the owner of a vessel, enters into an agreement with a charterer, B, for the charter of the vessel. A spends money preparing the vessel before B subsequently, in breach of contract, repudiates the agreement. However, A is then immediately able to enter into a new agreement with another charterer, C, and due to an upturn in the market rate, receives a much greater profit than that which she would have received under the agreement with B.
Regardless of the greater profit received, A will always be entitled to recover the wasted expenditure in reliance on the agreement with B.

True

False

. A agrees to repair B's broken mill shaft and to return it to B within a week. At the time of contracting, B points out that he has no spare mill shaft and that he will not be able to operate his mill until the repaired one has been returned. A does not return the repaired shaft until two weeks later. B sues A for breach of contract, claiming damages for the loss of profit during the second week, when his mill was closed as a result of A's delay. A argues that the damages claimed by B are too remote to be recoverable. Which one of the following statements concerning A's argument is true?

The damages claimed by B are not too remote, because his loss of profit is a natural or normal loss resulting from A's breach of contract.

The damages claimed by B are too remote, because his loss of profit is an abnormal loss resulting from A's breach of contract.

The damages claimed by B are too remote, because his loss of profit is not within the reasonable contemplation of the parties at the time of contracting.

The damages claimed by B are not too remote, because his loss of profit is an abnormal loss within the parties' actual knowledge at the time of contracting.

. Which one of the following statements is consistent with the decision in Farley v Skinner (No. 2) [2001] UKHL 49, [2002] 2 AC 732?

Non-pecuniary loss may be recovered as damages for a breach of contract if the major or important object of the contract is to provide pleasure, relaxation, or peace of mind.

Non-pecuniary loss may be recovered as damages for a breach of contract only if the very object of the contract is to provide pleasure, relaxation, or peace of mind.

Non-pecuniary loss is generally not recoverable as damages for a breach of contract if the breach relates to a qualified contractual obligation to use reasonable care and skill.

Non-pecuniary loss cannot be recovered as damages for a breach of contract if it is consequent on physical inconvenience caused by the breach.

. Where loss is caused by a breach of a strict contractual obligation and by the contributory negligence of the non-breaching party, the damages payable by the contract-breaker cannot be reduced proportionately according to the provisions of the Law Reform (Contributory Negligence) Act 1945.

True

False

. A and B enter a contact whereby A is to supply 20 tons of coal per month to B's factory at £300 per ton, by the third day of each month, until either side gives one month's notice to terminate this agreement. At the time of contracting, A knows that B relies on the coal to keep his factory operating. The contract stipulates that, if A is late in delivering a particular month's consignment, she will pay to B 'by way of compensation, a sum of £75 for each full day by which delivery is delayed'. A is eight days late in delivering the February consignment and, as a result, B suffers a loss of £1,000. B claims damages for this loss. Which one of the following statements most accurately describes the position between A and B?

B is not entitled to £1,000 as damages, because the compensation clause in the contract is a liquidated damages clause and precludes B from claiming his actual loss.

B is entitled to £1,000 as damages, because the compensation clause in the contract is a penalty clause and is thus wholly unenforceable and B's actual loss is not too remote to be recoverable.

B is not entitled to £1,000 as damages, because this loss is too remote to be recoverable.

B is entitled to £1,000 as damages, because B is entitled to claim his actual loss where it is greater than the stipulated sum in the contract.

. In Makdessi v Cavendish Square Holding BV [2015] UKSC 67, [2015] 3 WLR 1373, the Supreme Court stated that the scope of the penalty rule applies in circumstances concerning agreed damages clauses that are payable on breach and is not concerned with payments concerning primary contractual obligations.

True

False

Chapter 7 Multiple choice questions

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