Performance and compensation: An analysis of contract damages and contractual obligation

Abstract

Although there is an increasing body of opinion that awards of damages for breach of contract should take account of the claimant's performance interest, there has been little in the way of analysis of what the performance interest is. Commonly the concept is put forward as simply a reformulation or reconceptualization of the expectation interest, itself hitherto regarded as the one true contractual interest. Such thinking is flawed. A closer analysis of contract doctrine shows there to be two distinct contractual interests; in receiving performance, and in being compensated for losses caused by non-performance. Receiving compensatory damages for non-performance is not the same as receiving performance. At present, this important difference is not fully appreciated, resulting in a failure to develop a principled approach to the claims that can be made following a breach of contract. Recognition of this distinction forces us to confront the fundamental question of how committed we are to the notion that contracts entail a right to performance. This article examines the distinction between these two interests, how the performance interest may be given effect by a damages award, and what the consequences of this analysis are for our understanding of the nature of contractual obligation. © 2006 Oxford University Press.