CILEx L3 Contract Law Fundamentals 6 — Questions and Answers
Question 1: What is the purpose of 'damages' in contract law?
- To put the innocent party in the position they would have been in had the contract been performed (Correct answer)
- To punish the party in breach
- To restore the innocent party to their pre-contract position
- To compensate for any loss whatsoever arising from breach
Correct answer: To put the innocent party in the position they would have been in had the contract been performed
The aim of damages in contract law (expectation damages) is to put the claimant in the position they would have been in if the contract had been properly performed (Robinson v Harman [1848]).
Question 2: What is the rule on 'remoteness of damage' in contract law?
- Losses must be within the reasonable contemplation of the parties at the time of contracting (Correct answer)
- All losses flowing from the breach are recoverable
- Only losses that are the direct result of the breach are recoverable
- The remoteness test is the same as in tort law
Correct answer: Losses must be within the reasonable contemplation of the parties at the time of contracting
Under Hadley v Baxendale [1854], losses are recoverable only if they were within the reasonable contemplation of the parties at the time of contracting as a probable result of breach.
Question 3: What duty does an innocent party have following a breach of contract?
- A duty to take reasonable steps to mitigate their loss (Correct answer)
- A duty to accept any offer of remedy from the breaching party
- A duty to sue immediately or lose their claim
- No duty — they can allow losses to accumulate
Correct answer: A duty to take reasonable steps to mitigate their loss
The innocent party has a duty to take reasonable steps to mitigate their loss following a breach of contract. They cannot recover for losses that could have been avoided by taking reasonable steps (Payzu v Saunders [1919]).
Question 4: What is 'anticipatory breach'?
- One party indicates before the time for performance that they will not perform the contract (Correct answer)
- One party performs the contract partially and then refuses to complete it
- A breach that occurs before the contract is signed
- A breach that is anticipated but has not yet occurred
Correct answer: One party indicates before the time for performance that they will not perform the contract
Anticipatory breach occurs when one party indicates, before performance is due, that they will not be performing their contractual obligations. The innocent party may treat this as an immediate breach and sue at once (Hochster v De La Tour [1853]).
Question 5: What does 'quantum meruit' mean in contract law?
- A reasonable sum for work done where no price has been agreed (Correct answer)
- The full contract price regardless of work done
- A penalty for breach of contract
- A reduction in the contract price for poor performance
Correct answer: A reasonable sum for work done where no price has been agreed
Quantum meruit means 'as much as he has earned' and refers to a claim for a reasonable sum for work done or services rendered, particularly where no price was agreed or a contract has been partially performed before frustration or breach.
Question 6: What is a 'liquidated damages' clause?
- A genuine pre-estimate of loss agreed by the parties to be payable on breach (Correct answer)
- A clause imposing a punishment on the party in breach
- Any clause referring to a sum of money payable under the contract
- A court's assessment of the damages payable for breach
Correct answer: A genuine pre-estimate of loss agreed by the parties to be payable on breach
A liquidated damages clause is an agreed genuine pre-estimate of the loss likely to be suffered on breach. It is enforceable, unlike a penalty clause (which is a deterrent rather than a genuine estimate), following Cavendish Square Holding v Makdessi [2015].
CILEx L3 Contract Law Fundamentals 6
What is the purpose of 'damages' in contract law?