Business Law
CHAPTER TWO
NATURE AND FORMATION OF
CONTRACT
The Function of Contract Law
• No aspect of modern life is entirely free of
contractual relationships, for example, when
you borrow funds, when you buy or lease a
house, when you obtain insurance, and
when you purchase goods or services.
Contract law is designed to provide stability
and predictability, as well as certainty, for
both buyers and sellers in the marketplace
Contract
• A contract is an agreement that can be
enforced in a court of law. It’s formed two or
more parties who promise to perform or refrain
from performing some acts now or in the future.
• Contracts are form of everyday life. Every time
you purchase a CD, ride a bus or go into a
restaurant. We don’t even realize when we are
making into such contracts.
Contract
• Contract is agreements enforceable by law
know that contract is a voluntary agreement
between two or more than two parties that
creates legal relationship and creates legally
enforceable obligation. Thus a contract has
consists of two main elements
• An agreement
• Legal obligation
DEFINITION OF
OBLIGATIONS
• obligation as ‘a legal duty or moral duty
to do or not to do something’.
• Fredrick Pollock defines obligation in its
popular sense as merely synonym for
‘duty’.
Legal versus moral
obligation
• John Salmond (year) defined obligation in its
more general acceptation as ‘something the law
command a person to do a command that is
made effective by the imposition of sanction if a
person failed to comply such a command’
• moral duty or obligations are not enforceable,
because a moral obligation does not constitute
legally sufficient consideration.
Legal versus moral
obligation
• A binding contract is usually in the
nature of a commercial bargain,
involving some exchange of goods or
service for a price.
• However moral or social agreements
are social agreements which do not give
rise legal consequence
Sources of legal obligations
• A) Contract :- An obligation from
contract it means you are legally
obligated to undertake the contractual
terms that you have agreed upon
through your own consent.
•
Sources of legal obligations
• b) Law:- law imposes obligations on persons to
give or not to give, to do or not to do some acts
recognized in almost all-legal systems.
• Obligation arising from the law it imposed on
citizens without their consent. It includes
hereunder
• Obligation to pay income taxes etc.
• Obligation to care one’s children
Types of Obligations
1. Divisible obligation:- This is one
whereby a party undertakes to perform
its obligations by dividing into parties.
For instance, if A and B owed C 1,000$
such parties to the obligation perform or
discharge the obligations by paying half
(part) of the debt to C, which is 500$
each.
Types of Obligations
2. Indivisible obligations
In this type of obligation, the performance of the
obligation undertaken cannot be divided into
parts. Hence, in this type of obligation partial
performance is impossible given the conditions
and circumstances of its formation.
Types of Obligations
3. Positive obligation
This is a situation where a person’s obligation is
to do or to give some thing to another. It
requires an action from the debtor.
4. Negative obligation.
This is a situation where a person’s obligation
does not to do some thing or it refrains from
doing some thing.
Types of contract
1. Unilateral Contracts
If the offer is phrased so that the offeree
can accept the offer only by completing
the contract performance, the contract
is a unilateral contract. Hence, a
unilateral contract is a “promise for an
act.”
Unilateral Contracts
• For example, Ali says to Omer, “If you
drive my car from Berbera to Hargiesa,
I’ll give you $1,000.” Only on Omer’s
completion of the act—bringing the car
to Hargiesa—does he fully accept Ali’s
offer to pay $1,000. If he chooses not to
accept the offer to drive the car to
Hargiesa, there are no legal
consequences.
Types of contract
2. Bilateral Contracts
If the offeree can accept simply by
promising to perform, the contract is a
bilateral contract. Hence, a bilateral
contract is a “promise for a promise.” No
performance, such as payment of funds
or delivery of goods, need take place for
a bilateral contract to be formed.
Bilateral Contracts
• For example, Abdi offers to buy Liban
digital camera for $200. Abdi tells Liban
that he will give his $200 for the camera
next Friday, when he gets paid. And he
accepts that offer and promises to give
him the camera when he pays her on
Friday. both have formed a bilateral
contract.
Types of contract
Express versus implied
• An express contract is one that which
terms of the agreement are fully
explicitly stated in words, oral or written.
• A contract that is implied from the
conduct of the parties are called an
implied in fact or by conduct (impliedly)
Types of contract
Formal versus informal contract
• Formal contracts are contracts that require a
particular or special form or method of creation
(formation) to be enforceable.
• On the other hand informal contracts include all
other contracts. Such contracts as are called
simple contracts, no particular form is required
(except for certain types of contracts that must
be in writing).
FORMATION OF
CONTRACTS
• Consent is a declaration of intention to be
bound by an obligation. A person has to
express his willingness to create an obligation
on himself. Contract is one of the major areas
of law that recognizes autonomy of individuals..
Such individual autonomy is expressed through
consent i.e. an individual can determine his own
fate (freedom of contract).
FORMATION OF
CONTRACTS
• So in a contract, a person should know the
obligation he is going to carryout and the
benefit he is going to get / or lose. Knowledge is
not enough, he should also agree to such
obligation/ benefit.
• Unless a person clearly knows what rights and
obligation are to be created, it is impossible to
claim that he has agreed.
Basic requirement of
formation of contract
• Agreement. An agreement includes and offer
and acceptance. One party must offer enter into
a legal agreement, and another party must
accept the terms of the offer
• Consideration. Any promise made by the
parties must be supported by legally sufficient
and bargained-for consideration (something of
value received or promised, such money, to
convince a person to make a deal)
Basic requirement of
formation of contract
• Contractual capacity. Both parties entering to the
contract must have the contractual capacity to do so.
• Free and genuine consent. Both parties must agree
the same thing/thing in the same sense, in addition to
the consent of both parties shall be free, that means
free from any outside pressure.
• Legality of the object: the contract and contracts
purpose must be to accomplish some goal that is a
legal and not unlawful or against public policy.
•
Basic requirement of
formation of contract
In addition to above these are also important
1. Voluntary consent. The consent of both
parties must be voluntary. For example, if a
contract was formed as a result of fraud,
undue influence, mistake, or duress, the
contract may not be enforceable.
2. Form The contract must be in whatever form
the law requires; for example, some contracts
must be in writing to be enforceable.
1. AGREEMENT
• agreement
consists
(offer
and
acceptance). The agreement doesn’t
necessarily have to be in writing. Both
parties however must manifest their
assent to the same bargain.
A. Offer
• An offer is a specific serious proposal
that, if accepted, leads to a contract...
The offeror or proposer expresses his
willingness :to do : or :not to do
something with view to obtain
acceptance of the other party offeree,
thus the parties may agree in either
through express or implied acts.
Elements necessary for an
offer to be effective:
1. The offeror must have a serious
intention to become bound by the offer.
2.The terms of the offer must be
reasonably certain, or definite, so that
the parties and the court can ascertain
the terms of the contract.
3.The offer must be communicated to the
offeree
Elements necessary for an
offer to be effective
• 4. INTENTION The first requirement for
an effective offer is a serious intent on
the part of the offeror. Serious intent is
not determined by the subjective
intentions, beliefs, and assumptions of
the offeror.
The concept of intention can
be further clarified
Through types of expressions and
statements that are not offer
• Expressions of Opinion.
• Statements of Future Intent.
• Preliminary Negotiations
• Advertisements.
• Auctions.
Elements necessary for an
offer to be effective
5. DEFINITENESS OF TERMS
An offer must have reasonably definite
terms so that a court can determine if a
breach has occurred and give an
appropriate remedy.
Generally, a contract must
include the following terms,
1.The identification of the parties.
2.The identification of the object or subject
matter of the contract (also the quantity, when
appropriate), including the work to be
performed, with specific identification of such
items as goods, services, and land.
3.The consideration to be paid.
4.The time of payment, delivery, or performance
Elements necessary for an
offer to be effective
• The Sixth requirement for an
effective offer is communication—
the offer must be communicated to
the offeree. Ordinarily, one cannot
agree to a bargain without knowing
that it exists.
Types of offer
• It may be made verbally i.e by word of mouth either in
the presence of each other or by telephone, as well
as by fax message or by writing.
Types of an offer
• Specific offer: It is specific if made to a definite or
particular person, and he alone may accept it.
• General offer: An offer is general if addressed to the
public or world at large or to a class of persons.
Offer Distinguished from
Invitation to Treat
It is necessary to distinguish a true offer from an
“Invitation to treat”.
• offer a true offer, the offeror must have
completed his part in the formation.
• An invitation to treat, is a preliminary to an offer
such expressions or acts of a person to which
no legal consequence are intended to attach.
The following situations usually
involve invitation to treat
• Display of goods in shelves in a shop
supermarket, self-service shops, etc.
• An advertisement of goods in a
catalogue.
• Invitations of tender.
Termination of an Offer
• REVOCATION:- An offer can be revoked (i.e.
withdrawn) at any time before it is accepted.
2. REJECTION:- Rejection of an offer terminates
the offer, and makes it incapable of acceptance.
For example if Osman offers to sell a house to
Fadumo for $50000 and Fadumo says, “No,
thank you” Fadumo’s rejection puts Osman’s
offer to an end.
Termination of an Offer
Rejection of an offer may occur in two:• A) By a direct intentional refusal of the offer
• B)
By a counter offer.
• In respect of a counter offer, it happens when
the offeree attempts to accept the offer on new
terms, not contained in the offer.
a genuine request for further information should
not be construed as a counter offer.
Termination of an Offer
• Secondly, a counter-offer replaces the
original offer and becomes a new offer
capable of acceptance. Thus the
original offeree becomes the offeror and
the original offeror becomes the new
offeree
Termination of an Offer
C. LAPSE OF TIME: - If an offer is
stated to be open for a fixed time, it
clearly cannot be accepted after that
time. Where there is no fixed time within
which the offer should be accepted, the
offer must be accepted within a
reasonable time.
•
Termination of an Offer
D. DEATH BEFORE ACCEPTANCE: a) Death of both the offeror and the
offeree before acceptance terminates
the offer.
b) Death of the offeree before
acceptance terminates the offer whether
death is notified to the offeror or not
B. Acceptance
Acceptance is a positive response to an offer. In short
acceptance is a “Yes” answer to all the contents of the
offer.
There are three answers to an offer, the “yes” answer
which means accepting the offer; the “No” answer
which means totally rejecting the offer or “acceptance
with reservation” which means having reservation or
alternative proposals for some of the contents of the
offer.
Conditions of a valid
acceptance
1. An acceptance must be made by the
offerree only:- an offer made by to a person
cannot be accepted another.
2. Unconditional acceptance: acceptance is
expression of assent.any attempt to introduce a
new term amounts not an acceptance of an
offer. But in fact becomes it self counter-offer,
which as recall, terminates the original offer.
•
Conditions of a valid
acceptance
4. Communication of acceptance: It must be
communicated to the offerror. Offer can be
communicated in writing, oral or by signal.
5. Modes of communication Where a particular
mode is prescribed it or whatever communication is
preferred by the parties. Must be obeyed an
acceptance must be made in the way the offeror
specified. Any other form of acceptance other then the
demanded by the offeror will not be valid acceptance.
•
SILENCE AS ACCEPTANCE
• Ordinarily, silence cannot constitute
acceptance, even if the offeror states,
“By your silence and inaction, you will
be deemed to have accepted this offer.
• Silence may be an acceptance when an
offeree takes the benefit of offered
services, pre existing contractual
relationships and
2. CONSIDERATION
• Consideration is usually defined as the value (such as
money) given in return for a promise (such as a
promise to sale a house). Often, consideration is
broken down into two: (1) something of legal value
must be given in the exchange for the promise, and
(2) there must be bargained for the exchange.
•
Adequacy of consideration
• Legal sufficiency of consideration
involves
the
requirement
that
consideration be something of legally
sufficient value in the eyes of the law.
Essentially, adequacy of consideration
concerns the fairness of the bargain
Courts Typically Will Not
Consider Adequacy
• Under the doctrine of freedom of
contract, courts leave it up to the parties
to decide what something is worth, and
parties are usually free to bargain as
they wish.
Courts Typically Will Not
Consider Adequacy
• When there is a large disparity in the
amount or value of the consideration
exchanged,
the
inadequate
consideration may indicate that fraud,
duress, or undue influence was involved
or that the element of bargained-for
exchange was lacking.
Executory versus Executed
Consideration
• Consideration is termed executory, When the offer
and acceptance consist of promises – the offeree
making a promise in return for the offeror’s promise
consideration is regarded as executory.
• Executed consideration is when an act is performed
already in return for a promise.
Past consideration
• Promises made with the respect to
events that have already taken place
are unenforceable.
Because
the
element for bargained-for exchange is
missing, these promises lack legal
consideration.
Therefore,
past
consideration is no consideration
3. CONTRACTUAL
CAPACITY
• Capacity to a contract is the ability to make
legally binding agreements.
• Not all individuals are legally entitled to enter
into contractual agreements.
Who Are Competent To
contract?
• Art 112.of Somaliland civil code
provides that “every person is
competent to contract who is the age
of majority according to the law
which he is the subject, and who is
of sound mind, and is not
disqualified from contracting by any
law which he is subject”.
Who Are Incompetent to
contract?
• Thus incompetent to a contract may
arise from (A) minority (b) mental
incompetency
(C)
juridical
interdicted person
1. Minor
• A minor is a person of either sex below the
age of fiftheen. To this effect minors are
considered to be incapable of entering into
contract.
• According to, article Art 109. A contract with
or by a minor is void and a minor therefore,
cannot bind himself to a contract.
A MINOR’S RIGHT TO
DISAFFIRM
• To disaffirm, a minor must express his
or her intent, through words or conduct,
not to be bound to the contract. The
minor must disaffirm the entire contract,
not merely a portion of it. For example,
the minor cannot decide to keep part of
the goods purchased under a contract
and return the remaining goods.
EXCEPTIONS TO A MINOR’S
RIGHT TO DISAFFIRM
• Misrepresentation of Age
• Contracts for Necessaries
2. Intoxication
• Intoxication is a condition in which a
person’s normal capacity to act or think
is inhibited by alcohol or some other
drug.
• For the contract to be voidable, the
person must prove that the intoxication
impaired her or his reason and judgment
so severely that she or he did not
comprehend the legal consequences of
entering into the contract
3. Mental incompetent
person
Contracts made by mentally incompetent persons can
be void, voidable, or valid. We look here at the
circumstances that determine which of these
classifications apply.
When the contract will be void
If a court has previously determined that a person is
mentally incompetent and has appointed a guardian to
represent the individual, any contract made by the
mentally incompetent person is void—no contract
exists.
When the contract will be voidable
If a court has not previously judged a
person to be mentally incompetent but
in fact the person was incompetent at
the time the contract was formed, the
contract may be voidable. A contract is
voidable if the person did not know he
or she was entering into the contract or
lacked
the
mental
capacity
to
comprehend its nature, purpose, and
consequences.
When the contract will be valid
• A contract entered into by a mentally
incompetent person (whom a court has
not previously declared incompetent)
may also be valid if the person had
capacity at the time the contract was
formed.
4. Juridical and legal
interdicted person
there are also some other persons who
are incompetent to contract, partially or
wholly, so that contracts of such
persons are void. In this case there is
no mental incapability or disorder, he is
normal person but the court of law has
imposed restriction the ability to into a
contract.
4. FREE AND GENUINE
CONSENT
Free consent means there must be a
meeting of the minds whereby
parties to a contract have a mutual
understanding of the terms of a
contract, and intend to be bound by
the terms. When two or more
persons agree upon the same in the
same sense, they are said to be
consent.
FREE AND GENUINE
CONSENT
• Consent is free when it is not
caused, Mistake, Misrepresentation,
Undue influence, duress.
FREE AND GENUINE
CONSENT
A. Mistake
In certain circumstances, contract
law allows a contract to be avoided
on the basis of mistake. It is
important to distinguish between
mistakes of fact and mistakes of
value or quality. Only a mistake of
fact makes a contract voidable.
KINDS OF MISTAKES
• Mistakes of Fact:- Mistakes of fact occur in
two forms—bilateral and unilateral.
• Bilateral Mistakes
When both parties are mistaken about the
same material fact, the contract can be
rescinded by either party. Normally, the
contract is voidable by the adversely
affected party.
Example
• Ahmed contracts to sell Fadumo three areas
of undeveloped land for $1 million on the
basis of a surveyor’s report showing the
layout and acreage. After agreeing to the
price, the parties discover that the surveyor
made an error and that the tracts actually
contain 10 percent more acreage than
reported. In this situation, Ahmed can seek
rescission (cancellation) of the contract based
on mutual mistake.
KINDS OF MISTAKES
B. UNILATERAL MISTAKES OF FACT
Unilateral mistake occurs when only one of the
contracting parties is mistaken about a material fact.
For example, Warsame intends to sell his home for $32,500.
When he learns that Keyse is interested in buying the home,
Warsame faxes Keyse an offer to sell to him. When typing the
fax, however, Warsame mistakenly keys in the price of
$23,500. Keyse immediately sends Warsame a fax accepting
the offer. Even though Warsame intended to sell his home for
$32,500, his unilateral mistake falls on him.
KINDS OF MISTAKES
2. Mistakes of Value:- If a mistake
concerns the future market value or
quality of the object of the contract,
the mistake is one of value. Mistakes
of value can be bilateral or unilateral,
and
the
contract
normally
is
enforceable.
KINDS OF MISTAKES
MISTAKE OF VALUE
• For example, Ahmed buys a violin from
Ali for $250. Although the violin is very
old, neither party believes that it is
particularly valuable. Later, however, an
antiques dealer informs the parties that
the violin is rare and worth thousands of
dollars.
FRAUDULENT MISREPRESENTATION
Misrepresentation that is consciously false and is
intended to mislead another. The person
making the fraudulent misrepresentation knows
or believes that the assertion is false or knows
that he or he does not have a basis.
ELEMENTS OF FRAUDULENT
MISREPRESENTATION
1. A misrepresentation of a material fact
must occur.
2. There must be an intent to deceive.
3. The innocent party must justifiably rely
on the misrepresentation.
NEGLIGENT FRAUDULENT
MISREPRESENTATION
If the party fails to exercise reasonable care in
uncovering or disclosing the facts or does not
use the skill and competence that her or his
business or profession requires, such a
mispresentation may constitute negligent
misrepresentation. For example, an operator of
a weight scale certifies the weight of Sneed’s
commodity, even though the scale’s accuracy
has not been checked in more than a year.
INNOCENT
MISREPRESENTATION
• If a person makes a statement that she or he
believes to be true but that actually
misrepresents material facts, the person is
guilty only of an innocent misrepresentation, not
of fraud.
INNOCENT
MISREPRESENTATION
• For example, Barwaaqo tells Ridwaan that a
tract of land contains 250 acres. Barwaaqo is
mistaken—the tract contains only 215
acres—but Barwaaqo had no knowledge of
the mistake.
• Ridwaan relies on the statement and
contracts to buy the land. Even though the
misrepresentation is innocent, Ridwaan can
avoid the contract if the misrepresentation is
material.
UNDUE INFLUENCE
• There are various types of relationships in
which one party may dominate another party,
thus unfairly influencing him or her. Minors
and elderly people,
• undue influence arises. In a relationship of
trust and confidence, such as that between
an attorney and a client, the dominant party
(the attorney) must exercise the utmost good
faith in dealing with the other party.
DURRES
• The use of threats to force a party to
enter into a contract is referred to
as duress. In addition, blackmail or
extortion to induce consent to a
contract constitutes duress. Duress
is both a defense to the enforcement
of a contract and a ground for the
rescission of a contract
LEGALITY
• For a contract to be valid and
enforceable, it must be formed for a
legal purpose. A contract to do
something that is prohibited by law
is illegal and, as such, void from the
outset and thus unenforceable.
PERFORMANCE OF THE
CONTRACT
• Performance of the contract refers the
fulfillment of the obligations by the parties. It is
normal that people carry out their obligation
voluntarily. For instance If the obligation is to
“do something”, doing what was provided in the
contract exactly in the same way as provided,
must to be done it for their contractual
obligations.
Who Must Perform?
• The contract can be performed by the promiser him
self, or his agent or legal representatives. However;
the law never mention about performance of a
contract by a third party.
• However, there are two cases under which the
promiser him self must perform his obligation
personally.
Who Must Perform?
• First one is where the contractual terms
imposes on such restriction. For instance If the
contracting parties has originally agreed saying
that he/she by him/her self and no one else will
perform the obligations he/she assumed.
• Second where the performance of the
obligation involves or special qualification
To whom shall performance
be made?
• The performance can be validly made to
the promisee or any third person
authorized by the promisee or the law.
•
•
WHAT TO PERFORM
It is a rule of law that performance must
exactly be with the same with the
contract. Failure to comply with the
terms of the agreement amounts to nonperformance of the contract.
•
When Performance shall be
made:
• Where the time of performance has
been specified and the promisor has
undertaken to perform it without the
application of the creditor, the debtor
must perform on the fixed day during
the usual business hours.
Where performance shall be
carried out:
It is natural that the parties consent or agreed into the place of
performance of their contractual obligation. performance must
apply for the proper place prescribed in the contract.
• Example
Muna offers to deliver certain goods to fadumo at her business
place in hargaisa on 15-1-2011 within the usual business hour.
And Faadumo accepts the offer.In such case the performance
is valid only where muna has performed her contractual
obligation as in the manner prescribed to terms of their
agreement. The law encourages the parties to determine place
of performance in their contract
DISCHARGE OF
CONTRACTS
•
•
•
•
•
The cases in which the contract is
discharged may be classified as fallows:
By performance
By mutual consent
By subsequent impossibility
By operation of law
By breach of contract
A. By Performance
• In most cases, a contract is completed, or
discharged, when both parties have completed
their obligations under the terms of the contract.
This is known as discharge by performance.
Thus where Ayaan contracts to sell her car to
C.fatah for $1550 as soon as the car is
delivered to C.fatah. And C.fatah pays the
agreed price for it; the contract comes to an end
by performance
B. By mutual consent
• Know that when parties to a contract
mutually agree not to complete a
contract, the result is discharge by
mutual agreement. If the parties to a
contracts agree to substitute a new
contract for it , or to rescind it or alter it,
the original contract is discharged
B. By mutual consent
A contract may terminate by mutual consent in any of
the following ways.
1. Substitution of a new contract for the original one.
2. Rescission: rescission means cancelation of all or
some of the terms of the terms of the contract.
3. Remission: is the acceptance of lesser sum then
what was contracted for or lesser fulfillment of the
promise made
C. By subsequent impossibility
Impossibility of performance, whereby
conditions change to the extent that
contractual fulfilment cannot result in
the original intentions of the parties to a
contract
D. By operation of law
Discharge by operation of law may take
place as follows:
1. By death. Death of the promisor
results in termination of the contract in
cases involving personal skill or ability
2. By insolvency. The insolvency acts
provide for discharge of a contracts
under certain circumstance
E. By breach of a contract
• A contract terminates by breach of a
contract. Breach of a contract may arise
into two ways (a) anticipatory breach (b)
actual breach
1. Anticipatory breach of a
contract
• Anticipatory breach of a contract when a
party repudiates it before time fixed for
the performance has arrived or when
party his own act disables himself from
performing the contract
2. Actual breach of contract
• The actual breach may take place
(a) at the time when the performance is
due, If a person doesn’t perform his part
of the contract at the stipulated time. He
will be liable for its breach.
(b) during the performance of the contract
if one party fails or refuses to perform
his obligation under the contract.
•
GENERAL REMEDIES OF
BREACH OF CONTRACTS
• When one party breaches a
contract, the other party— the nonbreaching party—can choose one or
more of several remedies. A remedy
is the relief provided for an innocent
party when the other party has
breached the contract.
DAMAGES
TYPES OF DAMAGES
There are 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
• Damages that compensate the nonbreaching party for the loss of the
bargain are known as compensatory
damages.
Example
• Medik Laboratories contracts to buy ten model UTS
network servers from Cal Industries for $4,000 each.
Cal Industries, however, fails to deliver the ten
servers to Medik. The market price of the servers at
the time Medik learns of the breach is $4,500, plus
any incidental damages (expenses) caused by the
breach. When the buyer breaches and the seller has
not yet produced the goods, compensatory damages
normally equal lost profits on the sale, not the
difference between the contract price and the market
price.
CONSEQUENTIAL
DAMAGES
• Foreseeable damages that result from a
party’s breach of contract are called
consequential damages, or special
damages. They differ from compensatory
damages in that they are caused by
special circumstances beyond the
contract itself. They flow from the
consequences, or results, of a breach
PUNITIVE DAMAGES
• punitive damages are designed to
punish a wrongdoer and set an example
to deter similar conduct in the future,
NOMINAL DAMAGES
• When no actual damage or financial
loss results from a breach of contract
and only a technical injury is involved,
the court may award nominal damages
to the innocent party.
RESCISSION AND
RESTITUTION
• Rescission is essentially an action to
undo,When fraud, a mistake, duress,
undue influence, misrepresentation, or
lack of capacity to contract is present.
• RESTITUTION Generally, to rescind a
contract, both parties must make
restitution to each other by returning
goods, property, or funds previously
conveyed.
SPECIFIC PERFORMANCE
• specific performance calls for the
performance of the act promised in the
contract.
• specific performance will not be granted
unless the party’s legal remedy
(monetary damages) is inadequate.
REFROMATION
• Reformation is an equitable remedy
used when the parties have imperfectly
expressed their agreement in writing.
Reformation allows a court to rewrite the
contract to reflect the parties’ true
intentions. Courts order reformation
most often when fraud or mutual
mistake (for example, a clerical error) is
present.
END