Should Courts Award Expectation Damages for Breach of Contract?

This research paper explores the principles of damages in contract law and whether courts should award expectation damages for breach of contract. It analyzes the impact of the current approach of the courts on the business society and identifies potential guidelines for parties whose contractual rights have been breached.

Running head: LLB LAW
LLB LAW
Name of the Student
Name of the University
Author Note

1LLB LAW
Broad area of research and Topic
The broad area of research which has been selected for the purpose of this paper is the
law of contract. The law impacts mostly all people who get into business transaction. A contract
creates a agreement between the parties to it which can be enforced by them in the courts. When
a party has not obeyed the terms of the contract it may lead to breach of contract. This means that
the party whose rights have been breached may sue the other party in the court of law for the
purpose of claiming damages. The general rule which had been provided by the case of Addis v
Gramophone Co Ltd [1909] AC 4881 in relation to damages is that when a contractual right of a
party has been contravened the aim of the court is to restore the position of the party which they
would have been in if the contractual right has not been breach. It is not an easy task for the
courts to determine the position of the party as there may have been various expectations of the
party with respect to the contra2ct. The topic for the research is that “should the courts award
expectation damages for the breach of contract in relation to the principles of damages in
contract law, why or why not.”
Why is this research significant?
Where there is a loss of profit in relation to a breach of contract there may be claims
made by the aggrieved party with respect to expectation damages. However, in contract law there
are no principles which have been clearly defined in relation to what expenses have to be
deducted. All expenses are individually determined whether it is an over head or a direct cost.
The case of Robinson v Harman (1848) 1 Ex Rep 8503 is one of the landmark cases in which the
1 Addis v Gramophone Co Ltd [1909] AC 488
2 Göller, Daniel. "Expectation damages and bilateral cooperative investments." American Law and Economics
Review 16.2 (2014): 473-498.
3 Robinson v Harman (1848) 1 Ex Rep 850

2LLB LAW
principles of expectation damages had been discussed by the court. In this case it had been
provided by Parke B that the provisions of common law state that where a loss has been incurred
by a contractual party die to the breach of contract, the party has the be placed in the same
situation, so far as can be possible by money, which it would have been if the contract had been
duly performed in relation to damages. The question which arises through the principles of this
case is that whether to include a profit which the party was expecting to make in case a contract
had been performed. One of the main problems which the courts may be subjected to when
resolving this issue is that the contract which had been actually breached was of a very nominal
amount and the expectation of profit by the aggrieved party was very high4. For instance A got
into a contract with B to supply spare parts of a machine which was worth £100. A had already
mentioned to B that he wants the spare part so that he can resale his machine to a good customer
who would not wait for more than two days. B failed to supply the part and A missed out on a
profit of £200, 000. The question before the court would that whether they should make B liable
to pay £200, 000 to A under the principles of expectation damages. This is an area of law which
has not been widely explored. What rules would the judges follow in this case is still a very
ambiguous area. Therefore, the rationale of the research is to find out what rules should the court
follow in these situations.
Why is it important?
Three measures of damages are used by contract law. The expectation measure places the
injured party in a position as the contract had not been breached. The reliance measure puts the
party in a position as the contract had never been performed and the restitution measure ensures
4 Chillemi, Ottorino, and Claudio Mezzetti. "Optimal procurement mechanisms: bidding on price and damages for
breach." Economic Theory 55.2 (2014): 335-355.

3LLB LAW
restoration of any benefit to the aggrieved party which has been obtained by the wrong doing
party at the expenses of the aggrieved party. It has been argued by Schweizer (2016), that
expectation measures should always be the norm5. Courts have ranked these damages according
to their importance and the expectation measure has been put last. It is therefore important to
analyze this approach of the courts and how it has an impact on the business society where
numerous contracts are made and breached daily.
What impact could it have on law/society
The research has the potential of identifying an injustice which may be present in the
current system of law in relation to expectation damages. It may provide adequate guidelines to
parties who contractual rights have been breached with respect to analyzing what exactly they
can claim in form of damages for the breach of contract. The research would also be able to
clarify to contractual parties what correspondences they should have in relation to contract
formation in order to claim expectation damages.
Other Guidelines
The primary guideline which needs to be assessed in relation to the main question is the
way in which expectation damages are currently measured by the court. In relation to expectation
damages, the generally used formula states that the measure of damages is the difference
between what has been provided and what has been promised with incidental and consequences
damages subtracted by any payment which the breach party received and any cost which had
been saved because of the breach6. The main amount is which that would provide the aggrieved
5 Schweizer, Urs. "Efficient incentives from obligation law and the compensation principle." International Review of
Law and Economics 45 (2016): 54-62.
6 Gordley, James. "The Just Price: The Aristotelian Tradition and John Rawls." European Review of Contract Law
11.3 (2015): 197-219.

4LLB LAW
party a benefit of bargain. However these damages are punitive. The theoretical purpose is to put
the aggrieved party in a position in which would be occupied by them if the contract had been
fully performed. To make it simple, it is an amount which would make the aggrieved party
indifferent to the contravention of contractual terms. There are other guidelines which also need
to be considered in relation to the research. These include the duty to Mitigate; the principles of
reasonable certainty, foreseeability of damages and proposed value of damages or cost of
performance exceed greatly the market value of the full performance7.
7 Golden, John M. "Reasonable Certainty in Contract and Patent Damages." (2017).

5LLB LAW
References
Cases
Addis v Gramophone Co Ltd [1909] AC 488
Robinson v Harman (1848) 1 Ex Rep 850
Journal Articles
Chillemi, Ottorino, and Claudio Mezzetti. "Optimal procurement mechanisms: bidding on price
and damages for breach." Economic Theory 55.2 (2014): 335-355.
Golden, John M. "Reasonable Certainty in Contract and Patent Damages." (2017).
Göller, Daniel. "Expectation damages and bilateral cooperative investments." American Law and
Economics Review 16.2 (2014): 473-498.
Gordley, James. "The Just Price: The Aristotelian Tradition and John Rawls." European Review
of Contract Law 11.3 (2015): 197-219.
Schweizer, Urs. "Efficient incentives from obligation law and the compensation principle."
International Review of Law and Economics 45 (2016): 54-62.