Breach of Contract and Remedies

Chapter 9

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

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

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).

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.

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)

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,

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.

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.)

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.

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.

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.