White & Carter (Councils) Ltd v McGregor [1961] UKHL 5 (06 December 1961)

A party repudiated a three-year advertising contract on the day it was made. The advertisers refused the repudiation, performed the contract, and sued for the full price. The House of Lords held they were entitled to affirm the contract and claim the price.

Facts

The appellants (pursuers), White & Carter, were advertising contractors who supplied local authorities with litter bins, on which they displayed advertisements. The respondent (defender), Mr McGregor, owned a garage in Clydebank. On 26th June 1957, the respondent’s sales manager, acting within his apparent authority, entered into a contract with the appellants to display advertisements for the garage on their litter bins for a period of three years. Later that same day, the respondent himself wrote to the appellants to cancel the contract, thus repudiating it. The appellants refused to accept the repudiation. They proceeded to prepare and display the advertisement plates on the bins for the full three-year term. The respondent refused to pay, and the appellants brought an action for the full contract price.

Issues

The central legal issue was whether an innocent party to a contract, when faced with a repudiatory breach by the other party, is entitled to reject the repudiation, perform their own contractual obligations, and claim the full contract sum. The alternative was that the innocent party should be compelled to accept the breach, not perform the contract, and be limited to suing for damages, in which case they would be under a duty to mitigate their loss.

Judgment

By a majority of 3 to 2, the House of Lords allowed the appeal, holding that the appellants were entitled to carry out the contract and claim the full contract price.

The Majority Opinion

Lord Reid, delivering the leading speech, affirmed the principle that an innocent party has an election upon a repudiatory breach. He stated:

If one party to a contract repudiates it … the other party, the innocent party, has an option. He may accept that repudiation and sue for damages for breach of contract, whether or not the time for performance has come; or he may if he chooses disregard or refuse to accept it and then the contract remains in full effect.

He argued that there was no general duty in Scots or English law to compel an innocent party to accept a repudiation. However, he outlined two important limitations on this principle. Firstly, an innocent party cannot affirm the contract and claim the price if performance requires the co-operation of the breaching party, and that co-operation is withheld. Secondly, and more significantly, he introduced a qualification based on reasonableness:

It may well be that, if it can be shown that a person has no legitimate interest, financial or otherwise, in performing the contract rather than claiming damages, he ought not to be allowed to saddle the other party with an additional burden with no benefit to himself.

In the present case, he found that the appellants had a legitimate interest in performing the contract and that the respondent had failed to prove otherwise. The first limitation did not apply as the appellants did not need the respondent’s co-operation to display the advertisements.

The Dissenting Opinion

Lord Morton and Lord Keith dissented, arguing that the appellants’ claim was an ‘abuse of right’. They believed that the appellants should have accepted the repudiation and sued for damages, mitigating their loss by not incurring the costs of performance. Lord Keith expressed his disapproval of the outcome, stating that a right to full payment without any services rendered, in the face of an immediate repudiation, was unreasonable. They contended that in cases where damages would provide an adequate remedy, the court should not permit a party to perform a useless contract and claim the full price.

Implications

The decision in White & Carter v McGregor is a landmark authority on the remedies for breach of contract. It establishes that the duty to mitigate loss does not arise until a repudiatory breach is accepted. An innocent party can, in principle, affirm the contract and earn the contract price, essentially shifting the commercial risk of a bad bargain back onto the breaching party. However, the ‘legitimate interest’ qualification introduced by Lord Reid has become a crucial and debated aspect of the law. Subsequent case law has explored what constitutes a ‘legitimate interest’, suggesting that an innocent party may be denied the right to affirm if their actions are wholly unreasonable and have no benefit to themselves while being punitive to the defendant. The case thus defines the boundaries between an action for debt (the contract price) and an action for damages.

Verdict: Appeal allowed. The pursuers (White & Carter) were held to be entitled to the full contract price from the defender (McGregor).

Source: White & Carter (Councils) Ltd v McGregor [1961] UKHL 5 (06 December 1961)