Consequences of Breach of Contract
Consequences of Breach of Contract
1. What is Breach of Contract?
A breach occurs when a party fails to perform their obligations under a contract without lawful excuse.
Breach can be:
Actual breach: When a party refuses to perform or does not perform on the due date.
Anticipatory breach: When a party indicates in advance that they will not perform.
2. Consequences of Breach
When a breach occurs, the non-breaching party has certain legal remedies:
A) 1. Right to Rescind the Contract
The injured party may cancel the contract and treat it as at an end.
Restores parties to their original position as if the contract never existed.
B) 2. Claim for Damages
Damages are monetary compensation for losses caused by the breach.
The goal is to put the injured party in the position they would have been if the contract was performed.
Types of damages:
Compensatory damages (most common)
Punitive damages (rare, usually for fraud)
Nominal damages (when breach occurred but no loss proven)
Liquidated damages (pre-agreed sum in contract)
C) 3. Specific Performance
A court order directing the breaching party to perform their contractual duties.
Granted when damages are inadequate, e.g., in contracts involving unique goods or land.
D) 4. Injunction
Court order preventing a party from doing something that would breach the contract further.
E) 5. Quantum Meruit
If a contract is partly performed, the party may recover payment for the value of work done.
3. Relevant Case Law
a) Hadley v Baxendale (1854)
Established the principle of remoteness of damages.
Damages must be reasonably foreseeable as a result of breach.
Losses too remote from breach are not recoverable.
b) Carlill v Carbolic Smoke Ball Co. (1893)
Damages awarded for breach of a unilateral contract (offer to the world).
Shows damages can be awarded even when acceptance is by performance.
c) Lumley v Wagner (1852)
Established the remedy of injunction to prevent breach (e.g., stopping a singer from performing elsewhere).
d) Specific Performance Cases
Courts typically order specific performance in contracts for sale of land or unique goods (like rare paintings).
Not granted if it involves continuous supervision or personal services.
4. Summary Table
| Consequence | Description | When Applicable |
|---|---|---|
| Rescission | Cancel contract and restore status quo | When breach is serious or fundamental |
| Damages | Monetary compensation for loss | Most common remedy |
| Specific Performance | Court orders performance | Unique subject matter |
| Injunction | Prevents breach or further breach | To stop wrongful acts |
| Quantum Meruit | Payment for partial performance | When contract is partly fulfilled |
5. Key Points to Remember
The non-breaching party is not obliged to continue the contract after a breach.
Remedies can be alternative or cumulative, depending on the case.
Mitigation of damages: The injured party must take reasonable steps to reduce losses.
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