2

Mindy Chen-Wishart. Contract Law (2018 6 edn). Scanned p 225.

  1. Where the claimant refuses to continue with the contract, the court must decide whether this amounts to rescission (limiting her to reliance damages) or termination (preserving her right to expectation damages).

  2. Since the threshold for termination is very high (it is only available for ‘serious’ breaches (12.2.2)), a claimant may find that she has unwittingly rescinded the contract (eg by returning defective items), thereby extinguishing her right to potentially superior contractual damages.

I don't understand 2. Why would returning defective items be worth less than contract damages?

3

Let’s assume that I’m buying widgets from you for $10 each and I have a contracted buyer at $20 each. I pay you $10. Your widgets are defective and my buyer (legitimately) cancels the order.

If I rescind the contract with you, you owe me $10 - the value of my loss.

If I validly terminate the contract, you owe me $20 - the value of my expectation.

Now assume the order was for 10 million units.

3

Because returning the defective items bring the claimant back to the status quo before performing the contract, but expectation damages bring the claimant to a position as good as if the contract were fully performed. Usually, contracts benefit both parties, including the claimant. Therefore, in this context, expectation damages are usually more superior.

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