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 – If a contracting party
fails to perform an absolute duty owed under
a contract.
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Summary: Types of Performance
Type of Performance
Legal Consequence
Complete Performance
The contract is discharged.
Substantial Performance The non-breaching party may recover damages caused by
(minor breach)
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.
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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.
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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.
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Types of Monetary Damages
Compensatory
Damages
Nominal
Damages
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Consequential
Damages
Liquidated
Damages
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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.”

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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

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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.
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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.

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Liquidated Damages (continued)

Many businesses include liquidated
damages in their commercial contracts,
which help to:
Provide certainty,
 Avoid lawsuits, and
 Provide an incentive to enter into contracts.

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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.”

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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.
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Punitive Damages

Damages that are awarded to:
Punish the defendant
 Deter the defendant from similar conduct in
the future
 Set an example for others


Generally, punitive damages are not
recoverable for breach of contract.
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