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REMEDIES FOR BREACH OF

TRADITIONAL AND

E-CONTRACTS

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CHAPTER 16 CHAPTER 16

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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.

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Types of Performance

Complete Complete PerformancePerformance

Substantial Substantial PerformancePerformance

Inferior PerformanceInferior Performance

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Complete Performance

• Strict performance– Contract is executed. – Performing party discharged.

• Most contracts completely performed.• Tender of performance also discharges

contractual obligations.

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Substantial Performance

• Minor breach of contract.– Performance deviates slightly from complete

performance.– Nonbreaching party may recover damages.

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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.

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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.

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Anticipatory Breach

• Party repudiates – indicates that he or

she will not perform duties.

• Nonbreaching party immediately

discharged.

• Nonbreaching party may sue immediately.

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Monetary Damages

• Available to nonbreaching party upon any breach.– Minor breach

– Material breach

• Intended to compensate nonbreaching party for loss of bargain.

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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

• 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.

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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

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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.

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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.

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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.

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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.”

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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.

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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.

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Equitable Remedies

• Equitable remedies available if legal remedy (money damages) inadequate.

• Also available to prevent unjust enrichment.

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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.

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Reformation

• Court rewrites contract to express the parties’ true intentions.

• Usually used to correct clerical errors.

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Injunction

• Court order prohibiting a party from doing a certain act.– To prevent irreparable injury.

• Available in contract actions only in limited 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

• 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.

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Breach of Implied Covenantof 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.