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Contract Law: Breach and Termination
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Comprehensive notes for Contract Law: Breach and Termination.
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Breach and Termination (Damages) - Lecture Notes_______________________________________________________________________________________
RECAP
The three end of life (of a contract) concepts that we have dealt with are:
performance, breach and remedies. Based on the standard of performance, we can
determine as to whether a breach has taken place. Breach will either give rise to a
termination right or a right to damages. However, in certain circumstances both
termination and damages may be possible/appropriate. Just because a breach is a
repudiatory breach (gives rise to the right to terminate) that doesn’t mean that
damages are also not going to be payable.
Note: If it is a breach of a warranty, only damages can be claimed. If it is a breach of a
condition, then it might be that both termination and damages may be deemed
appropriate. Both these possibilities need to be explored in a problem question.
_______________________________________________________________________________________
INTRODUCTION
Damages are usually seen as the principle remedy for breach of contract. Hence,
money damages are essentially the first thing that should come to your thought if a
contract is breached.
Common Law v Equity:
Looking at the development of law, you will notice that there are two separate
systems: common law and equity. Damages are often called a common law remedy
because they were only available in the common law courts. On the other hand, the
equitable remedies like specific performance (where you actually require the
performance of the contract) and injunction (where you prevent a party from being
able to perform), were only available in the courts of equity. If there had been a
breach of intellectual property rights, traditionally, to get both injunction and money
damage, one needed to go to both the courts. This was unyielding and impractical. As
a result, both the courts were merged allowing common law and equitable remedies
to be sought from the same place.
The reason as to why this distinction is important is that damages are deemed as
automatic remedies. Hence, if you encounter a breach in a contract, you are
automatically entitled to damages. The court will specify the amount depending on
the losses that has incurred. On the other hand, equitable remedies are deemed as
discretionary remedies. The court may offer such remedies (at their own discretion)
but it is not automatic like that of damages.
Problems with the mechanism:
However, damages are an imperfect remedy for a breach of a contract. The fact that
this is a primary remedy for breach is quite problematic/unfortunate as the law
implies that one should either perform his/her obligations under a contract or not
perform and pay damages as a result. This leads to a fall in incentive to actually
perform the contract. In a common law system, as opposed to some civil systems, it is
always an economical decision (is it more economically efficient or is it in one’s best
interests economically to perform the contract or is it more economic to breach the
contract and simply pay the money damages to get out of it).
, Breach and Termination (Damages) - Lecture Notes
There is has been a lot of discussion where ‘efficient breach’ (where if it is more
efficient to get out of a contract, then one is going to opt into this option) is
concerned. Two points of contention are as follows:
Do we want to encourage people to perform their obligations under their contract?
Do we want them to permit/execute this idea of an economically inefficient breach?
Purpose of damages:
The purpose behind an award of damages is to compensate the injured party for the
loss suffered because of the breach of contract. The key rationale behind damages
are that they are compensatory. This is important to note because there are many
different ways to calculate/evaluate damages. The main way is known as an
‘expectation interest’, where a party would have expected to had the obligations
under a contract had been performed. This includes any profits that a person would
have made from the performance of the contract.
Damages under breach v Rescission:
Essentially, the theoretical idea is that we look to where the parties would have to be
at the end of the contract performance. This is where damages for breach is
distinguished from other forms of damages (like that of misrepresentation) etc. The
following are the differences:
With misrepresentation, we look at where the parties had been before entering into
a contract. Rescission attempts to restore the parties into their original positions
before entering into a contract.
With damages, we look to where the parties would have been after the contract
had been performed.
Where there is uncertainty, what is the principle?
Chaplin v Hicks [1911] 2 KB 786 - Seymour Hicks, a well-known actor and
theatrical manager, invited ladies to submit their photographs to compete in a
beauty contest where the winners would be chosen by the readers of one
newspaper. He promised to give engagements as actresses to the winners. Ms
Chaplin submitted her photograph and came first in her section, which entitled
her to be considered for one of the twelve finalists. The notice reached her too
late, and she was not able to make the appointment with Mr Hicks. She sued Mr
Hicks for damages for breach of contract to compensate her for the loss of a
chance to be selected for an engagement.
Held: The court agreed with her statement as to how there was a contract that
she had been deprived of to make a profit out of. The Court of Appeal upheld a
£100 (was not inconsequential in 1911) award for the loss of the chance at
winning the contest, awarded by the jury.
Rationale: Vaughan Williams LJ dismissed the arguments that the damages were
either (1) too remote or (2) unassessable (how is it possible to know what the
earnings would have been had she been selected as an actress?).
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