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 If a contracting
party fails to perform an absolute duty
owed under a contract.
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Types of Performance
Complete
Performance
Substantial
Performance

Inferior Performance

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Summary: Types of Performance

Type of Performance

Legal Consequence

Complete Performance

The contract is discharged.

Substantial Performance The non-breaching party may recover damages caused by

(minor breach)
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.

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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 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
Damages

Nominal
Damages

Consequential
Damages

Liquidated
Damages

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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
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.

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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 nonbreaching 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 Attachment
Writ of Garnishment

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Enforcement of Remedies
(continued)

Writ of
of Attachment
Attachment
Writ
Orders the
the sheriff
sheriff to
to
Orders
Seize property
property in
in the
the
Seize
possession of
of the
the
possession
breaching party
party that
that he
he
breaching
or she
she owns,
owns, and
and
or
Tosell
sell the
the property
property at
at
To
auction to
to satisfy
satisfy the
the
auction
judgment.
judgment.

Writ
Writ of
of Garnishment
Garnishment
Orders
Orders that
that
Wages,
Wages, bank
bank accounts,
accounts,
or
or other
other property
property of
of the
the
breaching
breaching party
party that
that isis
in
in the
the hands
hands of
of third
third
parties
parties be
be paid
paid over
over to
to
the
the non-breaching
non-breaching party
party
to
to satisfy
satisfy the
the judgment.
judgment.

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Rescission and Restitution

Rescission
Rescission
An action
action to
to undo
undo the
the
An
contract.
contract.
Available ifif there
there has
has
Available
been:
been:
material breach
breach of
of
AAmaterial
contract
contract
Fraud
Fraud
Undue influence
influence
Undue
Mistake
Mistake

Restitution
Restitution
Returning
Returning of
of goods
goods or
or
property
property received
received from
from
the
the other
other party
party to
to
rescind
rescind aa contract.
contract.
IfIf the
the actual
actual goods
goods or
or
property
property is
is not
not
available,
available, aa cash
cash
equivalent
equivalent must
must be
be
made.
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 Remedy Description

Specific Performance

Court orders the breaching party to perform the

acts promised in the contract.
The subject matter of the contract must be unique.

Reformation

Court rewrites a contract to express the parties

true intentions.
Usually used to correct clerical errors.

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Types of Equitable Remedies

(2 of 2)

Type of Equitable Remedy Description

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

Court order that prohibits a party from doing a

certain act.
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
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.

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