1. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 1 REMEDIES FOR BREACH OF TRADITIONAL AND E-CONTRACTS © 2010 Pearson Education, Inc., publishing as Prentice-Hall CHAPTER 16

2. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 2 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.

3. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 3 Types of Performance Complete Performance Substantial Performance Inferior Performance

4. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 4 Complete Performance Strict performance –Contract is executed. –Performing party discharged. Most contracts completely performed. Tender of performance also discharges contractual obligations.

5. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 5 Substantial Performance Minor breach of contract. –Performance deviates slightly from complete performance. –Nonbreaching party may recover damages.

6. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 6 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.

7. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 7 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: (1) Rescind the contract and recover restitution, or (2) Affirm the contract and recover damages.

8. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 8 Anticipatory Breach Party repudiates – indicates that he or she will not perform duties. Nonbreaching party immediately discharged. Nonbreaching party may sue immediately.

9. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 9 Monetary Damages Available to nonbreaching party upon any breach. –Minor breach –Material breach Intended to compensate nonbreaching party for loss of bargain.

10. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 10 Types of Monetary Damages Compensatory Damages Consequential Damages Liquidated Damages Nominal Damages

11. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 11 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.

12. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 12 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

13. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 13 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.

14. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 14 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.

15. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 15 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.

16. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 16 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.”

17. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 17 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.

18. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 18 Rescission and Restitution Rescission Action to undo the contract. Available if there has been: –A material breach of contract –Fraud –Undue influence –Mistake Rescission 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. 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.

19. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 19 Equitable Remedies Equitable remedies available if legal remedy (money damages) inadequate. Also available to prevent unjust enrichment.

20. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 20 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.

21. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 21 Reformation Court rewrites contract to express the parties’ true intentions. Usually used to correct clerical errors.

22. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 22 Injunction Court order prohibiting a party from doing a certain act. –To prevent irreparable injury. Available in contract actions only in limited circumstances.

23. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 23 Torts Associated With Contracts Intentional Interference with Contractual Relations Breach of the Implied Covenant of Good Faith and Fair Dealing

24. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 24 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.

25. © 2010 Pearson Education, Inc., publishing as Prentice-Hall 25 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.