LawLevel: Advanced

Answering a Breach of Contract Problem Question With IRAC

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Problem Statement / Assignment Scope

Northgate Developments agrees to pay BuildRight Ltd £500,000 to finish an office block by 1 September. On 15 August, BuildRight says it won't finish the job because material prices have risen too much. Northgate hires another builder to complete the work, which costs £80,000 more than the original price. Advise Northgate, using IRAC.

Prerequisites: How a contract is formed, the difference between conditions and warranties, and the basic remedies.

Step-by-Step Worked Solution

1. Issue

Is BuildRight's statement on 15 August an anticipatory repudiatory breach, and if so, can Northgate terminate and recover the extra £80,000 as damages?

2. Rule

Anticipatory breach: a party who makes clear, by words or conduct, before performance is due that it won't perform commits an anticipatory breach. The innocent party can accept it, end the contract and sue at once (Hochster v De La Tour (1853)).
Measure of damages: damages put the claimant, as far as money can, in the position it would have been in had the contract been performed (Robinson v Harman (1848)).
Mitigation: the claimant can't recover loss it could reasonably have avoided (British Westinghouse v Underground Electric Railways (1912)).
Rising costs are not an excuse: a contract becoming more expensive to perform doesn't frustrate it (Davis Contractors v Fareham UDC [1956]).

3. Application

BuildRight's refusal is clear and unconditional and comes before the completion date, so it's an anticipatory breach. Higher material prices only make the job less profitable; under Davis Contractors that isn't frustration. Northgate can accept the repudiation and terminate. Had the contract been performed, Northgate would have its building for £500,000. It now pays £580,000, so its expectation loss is £80,000. By hiring a replacement promptly, Northgate has mitigated; BuildRight could only reduce the award by showing the replacement was unreasonably expensive.

4. Conclusion

BuildRight is liable for anticipatory repudiatory breach. Northgate can terminate and should recover £80,000 in damages, as long as the substitute contract was made on reasonable market terms.

Key Takeaways & Core Principles

IRAC (Issue, Rule, Application, Conclusion) gives problem answers a structure markers can follow.
After an anticipatory breach, the innocent party can sue straight away rather than waiting for the performance date.
Contract damages compensate for the lost bargain; they don't punish the party in breach.
Deal with the obvious counter-argument (here, frustration) before you conclude.

Frequently Asked Questions

What's the difference between a liquidated damages clause and a penalty?

A liquidated damages clause sets an agreed sum payable on breach. Under *Cavendish Square Holding v Makdessi* [2015], it's enforceable if it protects a legitimate interest and isn't out of all proportion to that interest. A clause that is extravagant and mainly meant to punish is a penalty and can't be enforced.

Academic References & Standards

[1]Peel, E. (2020). Treitel on the Law of Contract (15th ed.). Sweet & Maxwell. Source Link

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