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.