Chapter 16 Remedies for Breach of Traditional and
Chapter 16: Remedies for Breach of Traditional and Online Contracts © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 1
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 occurs when a contracting party fails to perform an absolute duty owed under a contract. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 2
Types of Performance Complete Performance Substantial Performance Inferior Performance © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 3
Complete Performance • Most contracts are discharged by strict performance. • A fully performed contract is an executed contract. • Tender of performance discharges contractual obligations. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 4
Substantial Performance • This occurs when there is a minor breach of contract. – Performance deviates slightly from complete performance. – Nonbreaching party may recover damages. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 5
Inferior Performance • This is a material breach of contractual obligations. • Nonbreaching party may rescind contract and seek restitution. • Nonbreaching party is excused from any further performance. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 6
Summary: Types of Performance Type of Performanc e Legal Consequence Complete The contract is discharged. Performance Substantial The non-breaching party may Performance recover damages caused by the (minor breach) Inferior The non-breaching party may Performance either: (material (1) Rescind the contract and breach) recover restitution, or (2) Affirm the contract and recover damages. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 7
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. • Also called anticipatory repudiation. • Nonbreaching party’s duties are immediately discharged. • Nonbreaching party may sue repudiating party at time of breach. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 8
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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 9
Types of Monetary Damages Compensatory Damages Consequential Damages Nominal Damages Liquidated Damages © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 10
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. ” © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 11
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 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 12
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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 13
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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 14
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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 15
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. ” © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 16
Enforcement of Remedies • If the breaching party refuses to pay the court ordered judgment, the court may issue: – Writ of Attachment – Writ of Garnishment © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 17
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 nonbreaching party to satisfy the judgment. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 18
Rescission and Restitution Rescission • Returning of goods • An action to or property received undo the from the other party contract. to rescind a • Available if there contract. has been: • If the actual goods – A material breach of contract – Fraud – Undue influence – Mistake or property is not available, a cash equivalent must be made. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 19
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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 20
Specific Performance • Court orders the breaching party to perform the acts promised in the contract. • The subject matter of the contract must be unique. • Specific performance of personal contracts are usually not granted because it will be difficult to monitor performance. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 21
Reformation • Court rewrites a contract to express the parties’ true intentions. • Usually used to correct clerical errors. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 22
Injunction • Court order that prohibits a party from doing a certain act. • Available in contract actions only in limited circumstances. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 23
Torts Associated With Contracts • Intentional Interference with Contractual Relations • Breach of the Implied Covenant of Good Faith and Fair Dealing © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 24
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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 25
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. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 16 - 26
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