Breach of Contract and

Remedies

At the conclusion of this lesson, the student should be able to: Determine a breach of contract Explain the various remedies for breach of

contract Differentiate between the different remedies

for breach of contract

Overview Contract

Agreement, Consideration, Capacity, Legality Breach

Non-performance Failure to perform an absolute duty required

under the K Remedy

Relief provided to the innocent party

Breach of Contract What is it? How does it occur?

be sure to be able to distinguish between a breach and situation where party says other is breaching when in actuality a defense has been raised to enforcement

e.g., Statute of Frauds, Genuineness of Assent

Failure to perform agreement, or failure of consideration

Remedies... At Law

classic compensation for injury limited to

land items of value money

In Equity based on principles of

justice and fairness relief provided through

specific performance injunctions rescission and

restitution

Remedies at Law Damages... RM.RM.RM.RM Compensation for loss of the Benefit of the

Bargain Most common remedy “... innocent party to be placed in the position

they would have occupied had the contract been fully performed...”

Four Types of Damages

Compensatory

Consequential

Punitive

Nominal

Compensatory Damages Compensation for the loss of the benefit of

the bargain Injuries must be actually sustained Must arise directly from the loss of the

bargain Generalized examples

Sale of Goods contract Land contract Construction contract

Compensatory Damages

Sale of Goods contract

e.g., Seller Breach

Benefit of Bargain?

Twenty RM

RM100

RM80

Market Price

K Price

Compensatory Damages

Sale of Land contract Best remedy: Specific Performance.... why?

Because each parcel of land is unique... But what if land has been sold after breach? Will RM damages be enough if the new

owner won’t sell?

Compensatory Damages

Construction Contract Breach by owner can occur at essentially

three different times Before (profits) During (profits and costs incurred) After (Contract price + interest)

Event of Contractor Breach? all costs by owner to complete construction...

w/o waste

Four Types of Damages Compensatory

Consequential (Specials)

Punitive

Nominal

Consequential Damages Key issue

FORESEEABILITY must know or have reason to know as by special

relationship Defendant must be able to reasonably foresee

injury as a probable result.... injury or damage?

Four Types of Damages

Compensatory

Consequential

Punitive

Nominal

Punitive Damages Inconsistent with contract theory

contract as a civil relationship between two parties

business has its own way to punish... ... are awarded usually only in connection

with torts

Four Types of Damages

Compensatory

Consequential

Punitive

Nominal

Nominal Damages Technical injury only No actual damages suffered

but has an injury been suffered? Typically RM1

what about lawyers fees? “A matter of principle”

Mitigation of Damages “...cause to be less harsh...” injured party must use reasonable means to

mitigate loss some examples

employment rental apartments

what are “reasonable means”... what is an “acceptable tenant”... etc.

Liquidated Damages Sum certain... calculable... determined...

specified amount Cannot be punitive... as already noted

penalties have no place in contract law The Test:

When contract entered into, was it apparent that damages would be difficult to estimate in event of breach?

Was amount set reasonable and not excessive? Estimation of damages? Reasonable?

Construction Contract example:

California earthquake destruction of major public roads

Contract to rebuild Per day costs of road closing Contract awards extra RM for early completion Contract payment decreases for late

completion

Remedies... At Law

classic compensation for injury limited to

land items of value money

In Equity based on principles of

justice and fairness. relief provided through

specific performance injunctions rescission and

restitution reformation

Equitable RemediesUsually only awarded if legal remedies are inadequate

Specific Performance

Injunctions

Rescission & Restitution

Reformation

Specific Performance

Contracts don’t usually provide a good case for the granting of this remedy major exception: Contract for the sale of land

because of uniqueness of parcel

Specific Performance Appropriate where the legal remedy (RM

damages) is inadequate “... an order to perform what was promised...” Injured party gets what was agreed to under

the contract Why is SP not usually appropriate where the

dispute centers around the sale of goods?

Injunctions

“... forbids defendant to do some act... which he is threatening or attempting to commit, or restraining him in the continuance thereof, such act being unjust and inequitable, injurious to the plaintiff, and not as such as can be adequately redressed by an action at law...”

Injunctions Not a typical remedy in contract disputes Difference between positive and negative Some use in a negative fashion in personal

services contracts e.g., Contract dispute between a performing

artist and promoter... prohibition on performing in same area for a different promoter

Requirements for an Injunction

Remedies at law inadequate, thus causing irreparable harm...

Plaintiff must demonstrate at least a reasonable likelihood of success at trial

Threatened injury to the plaintiff outweighs the threatened harm the granting of the injunction may inflict on the defendant

Whether by granting the preliminary injunction the public interest would be disserved

Rescission and Restitution Purpose of rescission is restitutionary

a dissolution or “undoing” of the contract... restoration of the parties to their positions

before the contract was entered into “status quo ante”

If not mutually decided upon, the rescission must be grounded in something that makes the contract voidable Example: genuineness of assent problems

Remember Genuineness of assent…..

Even if all the elements of a contract are present according to the objective theory of contracts, a contract may be unenforceable if there is not Genuine Assent by the Parties. If assent is not genuine, the contract can be avoided by the party whose assent was not genuine

Contracts That May Lack Genuineness of Assent Contracts Entered Into on the Basis of

Mistakes Misrepresentation Undue Influence Duress

Rescission and Restitution Unilateral

rescission must be grounded in something that makes the contract voidable

What would these be?

Mutual no need to have a GOA problem is there a need for it to be completely

executory?

Restitution is payment ordered by a criminal court after the offender has been found guilty.  Civil damages are ordered when someone has won a lawsuit in civil court. 

Difference between Mutual & Unilateral Rescission One discharges the contract the other is available as a remedy for breach

of contract

Reformation

Another Equitable Remedy... Differs from R&R most significantly in that it

does not try to undo the contract... ... but rather attempts to reform, correct or

modify the contract so that it accurately reflects the agreement of the parties

Reformation

Plaintiff must show by “clear and convincing” evidence that the parties had reached agreement on a term and that because of a mutual mistake (or unilateral mistake + misconduct by the other) the term wasn’t included. e.g., “scrivener’s error”- A clerical error in a

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