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Breach of contract

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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 –Breach of contract – If a contracting party fails to perform an absolute duty owed under a contract.

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Types of Performance

Complete Complete PerformancePerformance

Substantial Substantial PerformancePerformance

Inferior PerformanceInferior Performance

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Summary: Types of Performance

Type of PerformanceType of Performance Legal ConsequenceLegal Consequence

Complete PerformanceComplete Performance The contract is dischargedThe contract is discharged..

Substantial Performance Substantial Performance (minor breach)(minor breach)

The non-breaching party may recover damages caused by The non-breaching party may recover damages caused by the breach.the breach.

Inferior Performance Inferior Performance (material breach)(material breach)

The non-breaching party may either:The non-breaching party may either:(1)(1) Rescind the contract and recover restitution, orRescind the contract and recover restitution, or(2)(2) Affirm the contract and recover damages.Affirm the contract and recover damages.

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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.

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Monetary Damages

• A non-breaching party may recover monetary damagesmonetary damages from a breaching party.

• Monetary damages are available whether the breach was minor or material.

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Types of Monetary Damages

Compensatory Compensatory DamagesDamages

Consequential Consequential DamagesDamages

Liquidated Liquidated DamagesDamages

Nominal Nominal DamagesDamages

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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.”

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Compensatory Damages (continued)

• The amount of that will be awarded for breach of contract depends on:– The type of contract involved, and– Which party breached the contract.

• Special types of contracts:– Sale of Goods– Construction Contracts– Employment contracts

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Consequential Damages

• ForeseeableForeseeable 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.

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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 liquidated amount must be

reasonable in the circumstances.

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Liquidated Damages (continued)

• Many businesses include liquidated damages in their commercial contracts, which help to:– Provide certainty,– Avoid lawsuits, and– Provide an incentive to enter into

contracts.

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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.”

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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.

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Enforcement of Remedies

• If the breaching party refuses to pay the court ordered judgment, the court may issue:

– Writ of AttachmentWrit of Attachment

– Writ of GarnishmentWrit of Garnishment

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Enforcement of Remedies (continued)

Writ of Attachment• Orders the sheriff to

– 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.

Writ of Attachment• Orders the sheriff to

– 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.

Writ of Garnishment• 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.

Writ of Garnishment• 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.

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Rescission and Restitution

Rescission• An action to undo the

contract.• Available if there has

been:– A material breach of

contract

– Fraud

– Undue influence

– Mistake

Rescission• An 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 to rescind a contract.

• 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.

• If the actual goods or property is not available, a cash equivalent must be made.

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Equitable Remedies

• 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.

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Types of Equitable Remedies (1 of 2)

Type of Equitable RemedyType of Equitable Remedy DescriptionDescription

Specific PerformanceSpecific Performance Court orders the breaching party to perform the Court orders the breaching party to perform the acts promised in the contract.acts promised in the contract.The subject matter of the contract must be unique.The subject matter of the contract must be unique.

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

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Types of Equitable Remedies (2 of 2)

Type of Equitable RemedyType of Equitable Remedy DescriptionDescription

Quasi ContractQuasi Contract Permits the recovery of damages for breach of an Permits the recovery of damages for breach of an implied-in-law contract where no actual contract implied-in-law contract where no actual contract exists between the parties.exists between the parties.Only the reasonable value of the services or Only the reasonable value of the services or materials may be recovered.materials may be recovered.

InjunctionInjunction Court order that prohibits a party from doing a Court order that prohibits a party from doing a certain act.certain act.Available in contract actions only in limited Available in contract actions only in limited circumstances.circumstances.

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Torts Associated With Contracts

• Intentional Interference with Contractual Relations

• Breach of the Implied Covenant of Good Faith and Fair Dealing

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Intentional Interference with Contractual Relations

• 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:– A valid, enforceable contract between the

contracting parties.– Third-party knowledge of this contract.– Third-party inducement to breach the contract.

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Breach of the Implied Covenant of Good Faith and Fair Dealing

• Under this covenant:– 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.

• A breach of this implied covenant is a tort for which tort damages are recoverable.

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Punitive Damages

• Damages that are awarded to:– Punish the defendant– Deter the defendant from similar conduct

in the future– Set an example for others

• Generally, punitive damages are not recoverable for breach of contract.