Post on 29-Mar-2015
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 1
Chapter 16: Remedies for Breach of Traditional and
Online Contracts
Chapter 16: Remedies for Breach of Traditional and
Online Contracts
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 2
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 occurs when a contracting party fails to perform an absolute duty owed under a contract.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 3
Types of Performance
Complete Complete PerformancePerformance
Substantial Substantial PerformancePerformance
Inferior PerformanceInferior Performance
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 4
Complete Performance
• Most contracts are discharged by strict performance.
• A fully performed contract is an executed contract.
• Tender of performance discharges contractual obligations.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 5
Substantial Performance• This occurs when there is a
minor breach of contract.– Performance deviates slightly
from complete performance.– Nonbreaching party may
recover damages.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 6
Inferior Performance
• This is a material breach of contractual obligations.
• Nonbreaching party may rescind contract and seek restitution.
• Nonbreaching party is excused from any further performance.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 7
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 8
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.
• Also called anticipatory repudiation.
• Nonbreaching party’s duties are immediately discharged.
• Nonbreaching party may sue repudiating party at time of breach.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 9
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 10
Types of Monetary Damages
Compensatory Compensatory DamagesDamages
Consequential Consequential DamagesDamages
Liquidated Liquidated DamagesDamages
Nominal Nominal DamagesDamages
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 11
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.”
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 12
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
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 13
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 14
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 15
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 16
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.”
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 17
Enforcement of Remedies• If the breaching party
refuses to pay the court ordered judgment, the court may issue:– Writ of Attachment
– Writ of Garnishment
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 18
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 19
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 20
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 21
Specific Performance
• Court orders the breaching party to perform the acts promised in the contract.
• The subject matter of the contract must be unique.
• Specific performance of personal contracts are usually not granted because it will be difficult to monitor performance.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 22
Reformation
• Court rewrites a contract to express the parties’ true intentions.
• Usually used to correct clerical errors.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 23
Injunction
• Court order that prohibits a party from doing a certain act.
• Available in contract actions only in limited circumstances.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 24
Torts Associated With Contracts
• Intentional Interference with Contractual Relations
• Breach of the Implied Covenant of Good Faith and Fair Dealing
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 25
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.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 26
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.