PowerPoint Slides to Accompany BUSINESS LAW E-Commerce and Digital Law International Law and Ethics 5th Edition

by Henry R. Cheeseman

Chapter 16 Remedies for Breach of Traditional and Online Contracts

Slides developed by Les Wiletzky Wiletzky and Associates, Puyallup, WA
Copyright 2004 by Prentice-Hall. All rights reserved.

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
Complete Performance

Legal Consequence
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 Consequential Damages

Nominal 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 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.

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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 Attachment Orders the sheriff to

Writ of Garnishment Orders that

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.

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.
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Rescission and Restitution

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.
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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. Court rewrites a contract to express the parties true intentions. Usually used to correct clerical errors.

Reformation

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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.
Court order that prohibits a party from doing a certain act. Available in contract actions only in limited circumstances.

Injunction

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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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