REMEDIES FOR BREACH OF TRADITIONAL AND CHAPTER 16 REMEDIES FOR BREACH OF TRADITIONAL AND E-CONTRACTS © 2010 Pearson Education, Inc., publishing as Prentice-Hall

Performance and Breach If a contractual duty (covenant) has not been discharged or excused, the contracting party owes an absolute duty to perform. Breach of contract occurs when a contracting party fails to perform an absolute duty owed under a contract.

Substantial Performance Types of Performance Complete Performance Substantial Performance Inferior Performance

Complete Performance Strict performance Contract is executed. Performing party discharged. Most contracts completely performed. Tender of performance also discharges contractual obligations.

Substantial Performance Minor breach of contract. Performance deviates slightly from complete performance. Nonbreaching party may recover damages.

Inferior Performance Material breach of contractual obligations. Nonbreaching party excused from any further performance. Nonbreaching party may rescind contract and seek restitution, or Sue to enforce contract and seek damages.

Summary: Types of Performance Type of Performance Legal Consequence Complete Performance Contract is discharged. Substantial Performance (minor breach) Nonbreaching party may recover damages caused by the breach. Inferior Performance (material breach) The nonbreaching party may either: Rescind the contract and recover restitution, or Affirm the contract and recover damages.

Anticipatory Breach Party repudiates – indicates that he or she will not perform duties. Nonbreaching party immediately discharged. Nonbreaching party may sue immediately.

Monetary Damages Available to nonbreaching party upon any breach. Minor breach Material breach Intended to compensate nonbreaching party for loss of bargain.

Types of Monetary Damages Consequential Damages Compensatory Damages Liquidated Damages Nominal Damages 3

Compensatory Damages Compensate nonbreaching party for the loss of the bargain. Place nonbreaching party in position would have had if contract had been fully performed. Restore benefit of the bargain.

Compensatory Damages (continued) Amount awarded depends on: Type of contract, and Which party breached. Special types of contracts: Sale of goods Construction contracts Employment contracts

Mitigation of Damages Nonbreaching party has duty to avoid or reduce damages caused by a breach of contract. E.g., look for replacement job, or fix a defective machine. Extent of mitigation depends on the type contract.

Consequential Damages Foreseeable damages that arise from circumstances outside the contract. E.g., lost profits. To be liable for these damages, breaching party must know or have reason to know that the breach will cause such damages.

Liquidated Damages Parties agree in advance that certain damages will be available if contract is breached. E.g., if tenant breaches by late rent payment, tenant shall pay $10/day liquidated damages. To be lawful, Actual damages must be difficult or impracticable to determine, and Liquidated amount must be reasonable in the circumstances, i.e., not punitive.

Nominal Damages Damages awarded when no financial loss has resulted from breach. Usually awarded in a small amount, such as $1. Cases involving nominal damages are usually brought on “principle.”

Enforcement of Remedies If the breaching party refuses to pay the court-ordered judgment, court may issue: Writ of Attachment – Sheriff seizes property for auction, with proceeds to satisfy judgment. Writ of Garnishment – Amount due deducted from wages or bank accounts.

Rescission and Restitution Action to undo the contract. Available if there has been: A material breach of contract Fraud Undue influence Mistake Restitution Returning of goods or property received from the other party. If the actual goods or property is not available, a cash equivalent must be paid.

Equitable Remedies Equitable remedies available if legal remedy (money damages) inadequate. Also available to prevent unjust enrichment.

Specific Performance Court orders breaching party to perform the acts promised in the contract. Appropriate if subject matter of contract is unique. E.g., court will order seller of house or particular Picasso painting to perform. Specific performance of personal contracts usually not granted because it will be difficult to monitor performance.

Reformation Court rewrites contract to express the parties’ true intentions. Usually used to correct clerical errors.

Injunction Court order prohibiting a party from doing a certain act. To prevent irreparable injury. Available in contract actions only in limited circumstances.

Torts Associated With Contracts Intentional Interference with Contractual Relations Breach of the Implied Covenant of Good Faith and Fair Dealing

Intentional Interference with Contractual Relations Third party induces contracting party to breach the contract. Elements: Valid, enforceable contract between the contracting parties. Third-party knowledge of this contract. Third-party inducement to breach the contract.

Breach of Implied Covenant of Good Faith and Fair Dealing Parties held to express terms of the contract, and Also required to act in good faith, deal fairly in all respects. A breach of this implied covenant is tort for which tort damages are recoverable.