Analysis of Anticipatory breach in a broad perspective

1.Anticipatory Breach and Effect

According to the mainstream opinion in common law, it’s “before the time fixed for performance under the contract, one party informs the other that he will not or cannot perform his obligations under the contract or that he intends to carry out his obligations in a way that is not consistent with the terms of the contract” (Contract Law:Text, Cases and Materials page 801).

There are two opinions regarding the outcome and effect of anticipatory breach.

The first one is a simple but difficult one: there is no effect at all. For both parties in one contract, this would cause difficulties. To the innocent party, “it leaves him in a state of some uncertainty”.  If he continues to perform in this side, he would suffer the damage caused by the breach of other party. If he stop perform, he would be the breaching party. For the potential non-performing party, he has to be responsible for the incoming breach in his side but he actually wants to repudiate the contract in advance. Therefore, despite simple, this opinion is seldom used in practice.

The second one is a more practical one, which “regard the intimation of the refusal to perform in accordance with the terms of the contract as a breach of contract which immediately gives the innocent party access to the usual array of remedies for breach.”(Contract Law: Text, Cases and Materials page 801). The foundation case is Hochster v. De la Tour (1853) in which the court permitted the damage claim brought by plaintiff who required the defendant who would not employ him in the future to pay him damage for anticipatory breach of their employment contract.

2.The remedy of innocent party

Under the commonly practiced principle, the innocent party “can seek a remedy immediately or can choose to affirm the contract and wait for the time for performance” instead of waiting for the time for performance. Here arise two possible choices the innocent party may elect.

The first one is that the innocent party can choose to terminate further performance of the contract on account of the anticipatory breach and seek the damage caused by the non-performing party.

The second one is a more difficulty and controversial one. The innocent party also has the right to “affirm the contract and continue with performance”. In the leading of this kind White and Carter (Councils) Ltd v. McGregor(1962), the judges divided into two groups regarding this issue: the claim in debt and the claim in damage.

On one hand, “A claim in debt is a claim that the debtor owes to the creditor a liquidated sum of money. Such a claim is not subject to the requirement that the creditor must have mitigated his loss.”

On the other hand, ”A claim in damages, on the other hand, is an unliquidated claim to be compensated for the loss that the innocent party has suffered as a result of the breach of contract. A claimant who brings a claim for damages are under a ‘duty’ to mitigate his loss, in the sense that he cannot recover that portion of his loss that is attributable to his failure to mitigate”.

The majority of the judges in White and Carter supported the claim of debt, for “claimants could recover the contract price and were not obliged to take steps to mitigate their loss because there was an automatic claim in debt” (Wikipedia) which is highly criticized later.

The core idea underlying of the criticism is the issues of fairness. To most of the dissents for the White and Carter case, its decision is controversial because it is unfair. In a broad perspective, the deny of the duty to mitigate of the innocent party is detrimentally unfair to the economical fairness to the society.

It is clearly that the claimant of damage is fairer then the claimant of debt. “Had it been a claim in damages, the appellants would have been subject to a requirement that they take reasonable steps to mitigate their loss.”(Contract Law: Text, Cases and Materials page 806).This will also decrease the burden on the non-performing party and decrease the total loss in the whole. But the court choose the other kind of claimant, it is surprising, especially when analyzing this decision in the perspective of philosophy.

3.Philosophical perspective:

There are two relevant philosophical schools we can refer here, the first one is Deontology and the second one is utilitarianism.

Utilitarianism supports the idea that “the best action is the one that maximizes utility”. “Utilitarianism is a version of consequentialism, which states that the consequences of any action are the only standard of right and wrong. Unlike other forms of consequentialism, such as egoism, utilitarianism considers all interests equally.” (Wikipedia). Utilitarianism is common in United Kingdom philosophy and other countries dominated by common law.

On the other hand, Deontology or the Ethical egoism thinks that “moral agents ought to do what is in their own self-interest”. Therefore, “actions whose consequences will benefit the doer can be considered ethical.”(Wikipedia). This school does not believe that the end should justify the means; there it does care about consequences, no matter that of individual or society. Deontology or the Ethical egoism is common in continent countries like France, Germany, Japan and China.

Understanding the simple explanations of the two philosophical schools, we can awkwardly find out that the legal doctrines taken by different countries are not consistent with the philosophy ideas prevalent in the respective country. More specially speaking, in common law countries, the legal authority do not support the Utilitarianism method on the problem of anticipatory breach. It is obvious that the claimant of damage is more like a Utilitarianism solution than the claimant of debt. But the English court chooses the later solution, a less fair and utilitarianism solution.

On the contrary, Civil Law has long established the doctrine of damage mitigation. At least in Chinese law, the innocent party is obliged to take any reasonable ways to mitigate the loss caused by the anticipatory breach of non-performing party. If he does not take the mitigation duty, which is legally required, the final remedy the innocent party would get will be the total loss caused by the anticipatory breach minus the loss which can be avoided by the mitigation of innocent party. That means that innocent party cannot get full remedy with reasonable mitigation. This doctrine taken by Civil Law is clearly consistent with the idea of utilitarianism and it can also promote the economic efficiency, especially in business world, in which anticipatory breach is very commonly happened.

4.The End

This is not a detailed analysis and there is no conclusion on this issue, which is not even an academic problem. But it is worthy continuous research and analysis by both legal and philosophy academics.

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