Law of Contract: Effect of Breach Last updated 28-Nov-2014

The duty to keep a contract at common law means a prediction that you must pay damages if you do not keep it, and nothing else.
Oliver Wendell Holmes, The Path of the Law, 10 Harv.L Rev. 457, 462.

Damages, agreed sum, specific performance, injunction or termination of contract.

When or if breach occurred the contract often specifically provides for remedies available to the aggrieved party, as for example in case of port delays in excess of agreed laytime the charterer becomes liable to pay the owner liquidated damages. Such damages also called demurrage and specifically agreed between the owner and the charterer. In all other cases the injured party usually sues to be put into the position in which it would have been if the contract had been completely performed.

Philosophy of contract law with regard to the breach and its consequences was stated by Lord Hoffmann in Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1997] 3 All ER 297 at p.305:

It is true that the defendant has, by his own breach of contract, put himself in such an unfortunate position. But the purpose of the law of contract is not to punish wrongdoing but to satisfy the expectations of the party entitled to performance. A remedy which enables him to secure, in money terms, more than the performance due to him is unjust.

Thus, every breach of contract gives right to injured party to claim either damages or the agreed sum or specific performance or an injunction. Another important remedy, which under certain circumstances is available to innocent side, is termination of contract. While sometimes the innocent party may be entitled to more than one of these remedies: e.g. to an injunction and damages, but not every breach gives to the innocent party the right to terminate the contract. The rule was stated by Lord Ellenborough CJ in Davidson v Gwynne (1810), 12 East 381, at p 389:

The principle laid down in Boone v Eyre (1779), 1 H. Bl 273 has been recognised in all the subsequent cases, that unless the non-performance alleged in breach of the contract goes to the whole root and consideration of it, the covenant broken is not to be considered as a condition precedent, but as a distinct covenant, for the breach of which the party injured may be compensated in damages.

Existence of the right to terminate can be evaluated by application of two principles: i) significance of the contractual term broken irrespective of the consequences of the breach; ii) in cases where broken term is neither condition, nor warranty, the law shall focus on the consequences of the breach.

It follows that a right to terminate will generally arise where the term broken is a condition and will not where such term is a warranty. Alternatively, where the term broken is innominate, i.e. neither condition, nor warranty, the right to terminate will depend upon the consequences of the breach.

It is admitted that English law generally does not impose restrictions on parties willingness to walk away from a deal when things go wrong, even when such behaviour is dictated purely by speculative motives at the times of volatile market. The law also gives contracting sides freedom to decide for themselves when and whether to terminate contract or how long to keep it alive if another side ceased to perform.

In cases, when one party announce that he is not going to perform, another party has to elect whether to accept such behaviour as repudiation or not. Until such election has been made there is no breach.

An unaccepted repudiation is a thing writ in water and of no value to anybody: it confers no legal rights of any sort or kind.
Dictum of Asquith LJ in Howard v Pickford Tool Co. [1951] 1 K.B. 417 at p.420.

Affirming party loses the right to terminate the contract again unless there is a continuing repudiatory conduct by the party in breach.

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