1. 16 - 1 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Chapter 16: Remedies for Breach of Traditional and Online Contracts

2. 16 - 2 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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.

3. 16 - 3 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Types of Performance Complete Performance Substantial Performance Inferior Performance

4. 16 - 4 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Complete Performance Most contracts are discharged by strict performance. A fully performed contract is an executed contract. Tender of performance discharges contractual obligations.

5. 16 - 5 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Substantial Performance This occurs when there is a minor breach of contract. –Performance deviates slightly from complete performance. –Nonbreaching party may recover damages.

6. 16 - 6 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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.

7. 16 - 7 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Summary: Types of Performance Type of Performance Legal Consequence Complete Performance The contract is discharged. Substantial Performance (minor breach) The non-breaching party may recover damages caused by 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.

8. 16 - 8 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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 partys duties are immediately discharged. Nonbreaching party may sue repudiating party at time of breach.

9. 16 - 9 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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.

10. 16 - 10 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Types of Monetary Damages Compensatory Damages Consequential Damages Liquidated Damages Nominal Damages

11. 16 - 11 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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.

12. 16 - 12 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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

13. 16 - 13 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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.

14. 16 - 14 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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.

15. 16 - 15 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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.

16. 16 - 16 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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.

17. 16 - 17 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Enforcement of Remedies If the breaching party refuses to pay the court ordered judgment, the court may issue: –Writ of Attachment –Writ of Garnishment

18. 16 - 18 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Enforcement of Remedies (continued) Writ of Attachment Orders the sheriff to –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. Writ of Attachment Orders the sheriff to –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. Writ of Garnishment Orders that –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. Writ of Garnishment Orders that –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.

19. 16 - 19 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Rescission and Restitution Rescission An action to undo the contract. Available if there has been: –A material breach of contract –Fraud –Undue influence –Mistake 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. 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.

20. 16 - 20 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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.

21. 16 - 21 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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.

22. 16 - 22 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Reformation Court rewrites a contract to express the parties true intentions. Usually used to correct clerical errors.

23. 16 - 23 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Injunction Court order that prohibits a party from doing a certain act. Available in contract actions only in limited circumstances.

24. 16 - 24 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Torts Associated With Contracts Intentional Interference with Contractual Relations Breach of the Implied Covenant of Good Faith and Fair Dealing

25. 16 - 25 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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.

26. 16 - 26 © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 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.