CHAPTER 8: BREACH OF CONTRACT AND REMEDIES Emond Montgomery Publications 1

Chapter 8: Breach of Contract and Remedies Learning Outcomes Define breach of contract. Distinguish between the repudiation of a contract and an anticipatory breach. Explain the difference between a contract condition and a warranty and the difference between a breach of condition and a fundamental breach. List and explain at least four different types of remedies available in the wake of a breach of contract. Describe the circumstances in which a court might order the remedy of specific performance. Describe the remedies that courts can use to compensate a party for partial completion of contract obligations. Emond Montgomery Publications 2

Introduction Breach of Contract: failure to perform any promise that forms part of a contract Different types of breaches have different consequences The method of the breach must be examined and the seriousness of the breach examined to determine the appropriate remedy Emond Montgomery Publications 3

Method of Breach A contract may be repudiated resulting in a breach There are two types of repudiation: 1. Express repudiation/express breach: the failure or refusal to perform the obligations of a contract when they come due 1. Anticipatory breach: an express repudiation that occurs before the time of performances of a contract  Implied repudiation: a type of anticipatory breach which is a repudiation that is not express and is implied from the circumstances. Emond Montgomery Publications 4

Nature of Breach Once a contract has been breached the nature and effect of the breach must be examined The nature of the breach is determined primarily based on the seriousness of the breach Must determine whether there was a breach of a warranty, a condition, or a fundamental condition Must examine the contract as a whole Emond Montgomery Publications 5

Remedies Remedies available in the event of a breach of contract include: Damages Specific performance Injunctions Rescission Restitution Discharge Quantum meruit Substantial performance Emond Montgomery Publications 6

Remedies DAMAGES Sum of money awarded to compensate the injured party Most common remedy for breach of contract. Court will attempt to put the party in the position she would have been in had the contract been performed Emond Montgomery Publications 7

Remedies DAMAGES (cont’d) Damages can either be: liquidated (easily quantifiable and ascertainable based on the terms of the contract) or unliquidated (cannot be determined mathematically and require information outside the contract) Consequential damages: secondary damages that flow from the breach of the contract (e.g., lost future profits) Expectancy damages: damages based on loss of expected profits Lost opportunity damages: damages based on long-term business losses Emond Montgomery Publications 8

Remedies DAMAGES (cont’d) In all cases of breach of contract, the injured party has a duty to mitigate her losses The party must take positive steps to minimize the loss suffered as a result of the breach Failure to mitigate may result in the court refusing to award damages for the full loss suffered For example, an employee dismissed without notice must still take reasonable steps to find a new job Emond Montgomery Publications 9

Remedies SPECIFIC PERFORMACE Specific performance: an equitable remedy requiring the party who is in breach to perform her obligations under the contract Refusal to comply with an order for specific performance will result in the party being in contempt of court Usually only available when the contract is for the sale of unique goods or real property Will NOT be awarded in contracts for personal services and the courts can require the party seeking the remedy to have “clean hands” Emond Montgomery Publications 10

Remedies INJUNCTIONS Injunction: court order that prohibits someone from doing an act or compels someone to do an act Two types of injunctions: 1. Prohibitory injunction 2. Mandatory injunction Main consideration: whether the injured party could be adequately compensated by damages instead of an injunction and whether granting an injunction is fair Injunctions can be permanent or temporary Emond Montgomery Publications 11

Remedies RESCISSION Rescission is the cancellation, nullification, or revocation of a contract Purpose is to put the parties in the position they would have been in had the contract never been made Available when the contract is void or voidable Will not be awarded if damages would adequately compensate for the injury Often awarded in cases of fraud, misrepresentation, or duress Emond Montgomery Publications 12

Remedies RESTITUTION Restitution involves restoring the party to their pre-contract position Restitution is sometimes accomplished through rescission or it may require further action to put the party in the pre-contract position The measure of restitutionary recovery is the amount by which the other party was unjustly enriched as a result of the breach Emond Montgomery Publications 13

Remedies DISCHARGE In some circumstances, the injured party may treat the contract as discharged as a result of the breach Used where the injured party has not completed their performance under the contract The injured party can treat the contract as complete and may claim for damages for breach of contract Emond Montgomery Publications 14

Remedies QUANTUM MERUIT Quantum meruit: doctrine that states that no one should unjustly benefit from the labour and materials of another. Under those circumstances the law implies a promise to pay a reasonable amount Usually applied in two situations: 1. Contract is silent as to consideration for goods and services 2. Contract has been partially performed and the value of performance must be determined Emond Montgomery Publications 15

Remedies SUBSTANTIAL PERFORMANCE Substantial performance: performance of contractual obligations that does not entirely meet the terms of the contract but nevertheless confers a benefit on a party Available where a party repudiates an agreement Emond Montgomery Publications 16

Choice of Remedies Primary consideration in choosing a remedy: whether damages can adequately compensate the injured party If not, the courts will examine the nature of the breach and determine which equitable remedy is appropriate in the circumstances Emond Montgomery Publications 17