1. 16 - 1Copyright © 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.  Breach of contract – If a contracting party fails to perform an absolute duty owed under a contract.

2. 16 - 2Copyright © 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.

3. 16 - 3Copyright © 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.

4. 16 - 4Copyright © 2004 by Prentice-Hall. All rights reserved. Monetary Damages  A non-breaching party may recover monetary damages from a breaching party.  Monetary damages are available whether the breach was minor or material.

5. 16 - 5Copyright © 2004 by Prentice-Hall. All rights reserved. Types of Monetary Damages Compensatory Damages Consequential Damages Liquidated Damages Nominal Damages

6. 16 - 6Copyright © 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.  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.”

7. 16 - 7Copyright © 2004 by Prentice-Hall. All rights reserved. Compensatory Damages (continued)  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: Sale of Goods Sale of Goods Construction Contracts Construction Contracts Employment contracts Employment contracts

8. 16 - 8Copyright © 2004 by Prentice-Hall. All rights reserved. Consequential Damages  Foreseeable damages that arise from circumstances outside the contract.  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.

9. 16 - 9Copyright © 2004 by Prentice-Hall. All rights reserved. Liquidated Damages  Damages to which parties to a contract agree in advance if the contract is breached.  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.

10. 16 - 10Copyright © 2004 by Prentice-Hall. All rights reserved. Liquidated Damages (continued)  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.

11. 16 - 11Copyright © 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.  Usually awarded in a small amount such as $1.  Cases involving nominal damages are usually brought on “principle.”

12. 16 - 12Copyright © 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.  The extent of mitigation depends on the type contract involved.

13. 16 - 13Copyright © 2004 by Prentice-Hall. All rights reserved. Punitive Damages  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.