1. Copyright © 2004 by Prentice-Hall. All rights reserved. PowerPoint Slides to Accompany BUSINESS LAW E-Commerce and Digital Law International Law and Ethics 5 th Edition by Henry R. Cheeseman Slides developed by Les Wiletzky Wiletzky and Associates, Puyallup, WA Chapter 16 Remedies for Breach of Traditional and Online Contracts Chapter 16 Remedies for Breach of Traditional and Online Contracts

2. 16 - 2Copyright © 2004 by Prentice-Hall. All rights reserved. Performance and Breach If a contractual duty has not been discharged or excused, the contracting party owes an absolute duty (covenant) to perform the duty. If a contractual duty has not been discharged or excused, the contracting party owes an absolute duty (covenant) to perform the duty. Breach of contract – If a contracting party fails to perform an absolute duty owed under a contract. Breach of contract – If a contracting party fails to perform an absolute duty owed under a contract.

3. 16 - 3Copyright © 2004 by Prentice-Hall. All rights reserved. Types of Performance Complete Performance Substantial Performance Inferior Performance

4. 16 - 4Copyright © 2004 by Prentice-Hall. All rights reserved. Summary: Types of Performance Type of Performance Legal Consequence Complete Performance The contract is discharged. Substantial Performance (minor breach) The non-breaching party may recover damages caused by the breach. Inferior Performance (material breach) The non-breaching party may either: (1) Rescind the contract and recover restitution, or (2) Affirm the contract and recover damages.

5. 16 - 5Copyright © 2004 by Prentice-Hall. All rights reserved. Anticipatory Breach A breach that occurs when one contracting party informs the other that he or she will not perform his or her contractual duties when due. A breach that occurs when one contracting party informs the other that he or she will not perform his or her contractual duties when due.

6. 16 - 6Copyright © 2004 by Prentice-Hall. All rights reserved. Monetary Damages A non-breaching party may recover monetary damages from a breaching party. A non-breaching party may recover monetary damages from a breaching party. Monetary damages are available whether the breach was minor or material. Monetary damages are available whether the breach was minor or material.

7. 16 - 7Copyright © 2004 by Prentice-Hall. All rights reserved. Types of Monetary Damages Compensatory Damages Consequential Damages Liquidated Damages Nominal Damages

8. 16 - 8Copyright © 2004 by Prentice-Hall. All rights reserved. Compensatory Damages Award of money intended to compensate a non-breaching party for the loss of the bargain. Award of money intended to compensate a non-breaching party for the loss of the bargain. They place the non-breaching party in the same position as if the contract had been fully performed by restoring the benefit of the bargain. They place the non-breaching party in the same position as if the contract had been fully performed by restoring the benefit of the bargain.

9. 16 - 9Copyright © 2004 by Prentice-Hall. All rights reserved. Compensatory Damages (continued) The amount of that will be awarded for breach of contract depends on: The amount of that will be awarded for breach of contract depends on: The type of contract involved, and The type of contract involved, and Which party breached the contract. Which party breached the contract. Special types of contracts: Special types of contracts: Sale of Goods Sale of Goods Construction Contracts Construction Contracts Employment contracts Employment contracts

10. 16 - 10Copyright © 2004 by Prentice-Hall. All rights reserved. Consequential Damages Foreseeable damages that arise from circumstances outside the contract. Foreseeable damages that arise from circumstances outside the contract. To be liable for these damages, To be liable for these damages, The breaching party must know or have reason to know that the breach will cause special damages to the other party. The breaching party must know or have reason to know that the breach will cause special damages to the other party.

11. 16 - 11Copyright © 2004 by Prentice-Hall. All rights reserved. Liquidated Damages Damages to which parties to a contract agree in advance if the contract is breached. Damages to which parties to a contract agree in advance if the contract is breached. To be lawful, To be lawful, The actual damages must be difficult or impracticable to determine, and The actual damages must be difficult or impracticable to determine, and The liquidated amount must be reasonable in the circumstances. The liquidated amount must be reasonable in the circumstances.

12. 16 - 12Copyright © 2004 by Prentice-Hall. All rights reserved. Liquidated Damages (continued) Many businesses include liquidated damages in their commercial contracts, which help to: Many businesses include liquidated damages in their commercial contracts, which help to: Provide certainty, Provide certainty, Avoid lawsuits, and Avoid lawsuits, and Provide an incentive to enter into contracts. Provide an incentive to enter into contracts.

13. 16 - 13Copyright © 2004 by Prentice-Hall. All rights reserved. Nominal Damages Damages awarded when the non-breaching party sues the breaching party even though no financial loss has resulted from the breach. Damages awarded when the non-breaching party sues the breaching party even though no financial loss has resulted from the breach. Usually awarded in a small amount such as $1. Usually awarded in a small amount such as $1. Cases involving nominal damages are usually brought on principle. Cases involving nominal damages are usually brought on principle.

14. 16 - 14Copyright © 2004 by Prentice-Hall. All rights reserved. Mitigation of Damages A non-breaching party is under a legal duty to avoid or reduce damages caused by a breach of contract. A non-breaching party is under a legal duty to avoid or reduce damages caused by a breach of contract. The extent of mitigation depends on the type contract involved. The extent of mitigation depends on the type contract involved.

15. 16 - 15Copyright © 2004 by Prentice-Hall. All rights reserved. Enforcement of Remedies If the breaching party refuses to pay the court ordered judgment, the court may issue: If the breaching party refuses to pay the court ordered judgment, the court may issue: Writ of Attachment Writ of Attachment Writ of Garnishment Writ of Garnishment

16. 16 - 16Copyright © 2004 by Prentice-Hall. All rights reserved. Enforcement of Remedies (continued) Writ of Attachment Orders the sheriff to Orders the sheriff to Seize property in the possession of the breaching party that he or she owns, and Seize property in the possession of the breaching party that he or she owns, and To sell the property at auction to satisfy the judgment. To sell the property at auction to satisfy the judgment. Writ of Attachment Orders the sheriff to Orders the sheriff to Seize property in the possession of the breaching party that he or she owns, and Seize property in the possession of the breaching party that he or she owns, and To sell the property at auction to satisfy the judgment. To sell the property at auction to satisfy the judgment. Writ of Garnishment Orders that Orders that Wages, bank accounts, or other property of the breaching party that is in the hands of third parties be paid over to the non-breaching party to satisfy the judgment. Wages, bank accounts, or other property of the breaching party that is in the hands of third parties be paid over to the non-breaching party to satisfy the judgment. Writ of Garnishment Orders that Orders that Wages, bank accounts, or other property of the breaching party that is in the hands of third parties be paid over to the non-breaching party to satisfy the judgment. Wages, bank accounts, or other property of the breaching party that is in the hands of third parties be paid over to the non-breaching party to satisfy the judgment.

17. 16 - 17Copyright © 2004 by Prentice-Hall. All rights reserved. Rescission and Restitution Rescission An action to undo the contract. An action to undo the contract. Available if there has been: Available if there has been: A material breach of contract A material breach of contract Fraud Fraud Undue influence Undue influence Mistake MistakeRescission An action to undo the contract. An action to undo the contract. Available if there has been: Available if there has been: A material breach of contract A material breach of contract Fraud Fraud Undue influence Undue influence Mistake MistakeRestitution Returning of goods or property received from the other party to rescind a contract. Returning of goods or property received from the other party to rescind a contract. If the actual goods or property is not available, a cash equivalent must be made. If the actual goods or property is not available, a cash equivalent must be made.Restitution Returning of goods or property received from the other party to rescind a contract. Returning of goods or property received from the other party to rescind a contract. If the actual goods or property is not available, a cash equivalent must be made. If the actual goods or property is not available, a cash equivalent must be made.

18. 16 - 18Copyright © 2004 by Prentice-Hall. All rights reserved. Equitable Remedies Equitable remedies are available if there has been a breach of contract that cannot be adequately compensated by a legal remedy. Equitable remedies are available if there has been a breach of contract that cannot be adequately compensated by a legal remedy. They are also available to prevent unjust enrichment. They are also available to prevent unjust enrichment.

19. 16 - 19Copyright © 2004 by Prentice-Hall. All rights reserved. Types of Equitable Remedies (1 of 2) Type of Equitable Remedy Description Specific Performance Court orders the breaching party to perform the acts promised in the contract. The subject matter of the contract must be unique. Reformation Court rewrites a contract to express the parties true intentions. Usually used to correct clerical errors.

20. 16 - 20Copyright © 2004 by Prentice-Hall. All rights reserved. Types of Equitable Remedies (2 of 2) Type of Equitable Remedy Description Quasi Contract Permits the recovery of damages for breach of an implied-in-law contract where no actual contract exists between the parties. Only the reasonable value of the services or materials may be recovered. Injunction Court order that prohibits a party from doing a certain act. Available in contract actions only in limited circumstances.

21. 16 - 21Copyright © 2004 by Prentice-Hall. All rights reserved. Torts Associated With Contracts Intentional Interference with Contractual Relations Intentional Interference with Contractual Relations Breach of the Implied Covenant of Good Faith and Fair Dealing Breach of the Implied Covenant of Good Faith and Fair Dealing

22. 16 - 22Copyright © 2004 by Prentice-Hall. All rights reserved. Intentional Interference with Contractual Relations A tort that arises when a third party induces a contracting party to breach the contract with another party. A tort that arises when a third party induces a contracting party to breach the contract with another party. The following elements must be shown: The following elements must be shown: A valid, enforceable contract between the contracting parties. A valid, enforceable contract between the contracting parties. Third-party knowledge of this contract. Third-party knowledge of this contract. Third-party inducement to breach the contract. Third-party inducement to breach the contract.

23. 16 - 23Copyright © 2004 by Prentice-Hall. All rights reserved. Breach of the Implied Covenant of Good Faith and Fair Dealing Under this covenant: Under this covenant: The parties to a contract are held to the express terms of the contract, and The parties to a contract are held to the express terms of the contract, and They are also required to act in good faith and deal fairly in all respects in obtaining the contract. They are also required to act in good faith and deal fairly in all respects in obtaining the contract. A breach of this implied covenant is a tort for which tort damages are recoverable. A breach of this implied covenant is a tort for which tort damages are recoverable.

24. 16 - 24Copyright © 2004 by Prentice-Hall. All rights reserved. Punitive Damages Damages that are awarded to: Damages that are awarded to: Punish the defendant Punish the defendant Deter the defendant from similar conduct in the future Deter the defendant from similar conduct in the future Set an example for others Set an example for others Generally, punitive damages are not recoverable for breach of contract. Generally, punitive damages are not recoverable for breach of contract.