Breach of Contract and Remedies

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Breach of Contract and Remedies

• Chapter 9

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Breach of Contract

• Breach of contract is the failure to perform what
  a party is under a duty to perform.
• When this happens, the nonbreaching party can
  choose one or more remedies.
• Unless damages would be inadequate a court will
  award money damages

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Damages

• A breach of contract entitles the nonbreaching
  party to sue for money (damages). As
• In the context of contract law, damages
  compensate the nonbreaching party for the loss of
  the bargain.
• Damages place the innocent party in the same
  position they would have occupied had the
  contract been fully performed

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Types of Damages

• There are basically four broad categories of
  damages
• 1.Compensatory (to cover direct losses and
  costs).
• 2.Consequential (to cover indirect and
  foreseeable losses).
• 3.Punitive (to punish and deter wrongdoing).
• 4.Nominal (to recognize wrongdoing when no
  monetary loss is shown).

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Compensatory Damages.

• These damages compensate the injured party for
  damages arising directly from the loss of the
  bargain caused by the breach of contract.
• The difference between the promised
  performance and the actual performance.
• They replace what was lost because of the breach
  of contract.

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Consequential Damages.

• Damages caused by special circumstances beyond
  the contract itself. They flow from the
  consequences, or results, of a breach.
• The breaching party must know (or have reason to
  know) that special circumstances will cause the
  additional loss.
• (Hadley v. Baxendale)

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Punitive Damages.

• Punitive, or exemplary, damages are generally not
  awarded in an action for breach of contract.
• Punitive damages are designed to punish.
• Contract damages are to compensate.
• Some intentional torts, such as fraud, are a
  bases for recission and a tort allowing punitive
  damages for the commission of the tort,

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Nominal Damages.

• When no actual damages result from a breach of
  contract and only a technical injury is involved
• Jackson contracts to buy potatoes from Stanley at
  fifty cents a pound. Stanley breaches the
  contract and does not deliver the potatoes. In
  the
• meantime, the price of potatoes has fallen.
  Jackson is able to buy them in the open market at
  half the price he contracted for with Stanley. He
  is clearly better off because of Stanley's
  breach. Thus, in a suit for breach of contract,
  Jackson may be awarded only nominal damages for
  the technical injury he sustained, because no
  monetary loss was involved.

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Mitigation of Damages

• When a breach of contract occurs, the innocent
  injured party is held to a duty to mitigate, or
  reduce, the damages that he or she suffers.
• Example persons whose jobs have been wrongfully
  terminated have a duty to seek other
• jobs. The damages they receive are their
  salaries, less the income they received (or would
  have received) in similar jobs (Parker v.
  Twentieth Century-Fox Film Corp.)

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Liquidated Damages

• An amount, stipulated in the contract, that the
  parties to a contract believe to be a reasonable
  estimation of the damages that will occur in the
  event of a breach.
• Example a provision requiring a construction
  contractor to pay 300 for every day he or she is
  late in completing the construction is a
  liquidated damages provision.

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Liquidated Damages

• Liquidated damages provisions are enforceable if
  they are not found to be a penalty.
• To determine if a particular provision is for
  liquidated damages or for a penalty, two
  questions must be answered
• 1.When the contract was entered into, was it
  apparent that damages would be difficult to
  estimate in the event of a breach?
• 2.Was the amount set as damages a reasonable
  estimate and not excessive?
• If the answers to both questions are yes, the
  provision will be enforced. If either answer is
  no, the provision will not be enforced.

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ADDITIONAL REMEDIES

• Rescission terminates a contract and Restitution
• returns the contracting parties to the
  positions they occupied prior to the contract.
• Specific Performance requires the performance of
  the act promised in the contract
• Reformation allows the contract to be rewritten
  to reflect the parties' true intentions.