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 Non-performance Failure to perform an absolute duty required under the K Relief provided to the innocent party

Breach

Remedy

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 Market Price

RM80

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 wont 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
Punitive
Nominal

(Specials)

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

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

Contract to rebuild

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 Remedies
Usually only awarded if legal remedies are inadequate

Specific Performance Injunctions Rescission & Restitution Reformation

Specific Performance

Contracts dont 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 wasnt included.

e.g., scriveners error- A clerical error in a legal document