Performance and Breach
‹
If a contractual duty has not been discharged
or excused
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 nonnon-breaching party may recover damages caused by
(minor breach)
the breach.
Inferior Performance
(material breach)
The nonnon-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 nonnon-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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2
Types of Monetary Damages
Compensatory
Damages
Nominal
Damages
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Consequential
Damages
Liquidated
q
Damages
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Compensatory Damages
Award of money intended to compensate a
non--breaching
non
b
hi party
t ffor th
the lloss off the
th
bargain.
‹ They place the nonnon-breaching party in the
same position as if the contract had been
fully performed by restoring the “benefit
benefit of
the bargain.”
‹
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3
Compensatory Damages (continued)
‹
The amount of that will be awarded for
b
breach
h off contract
t t depends
d
d 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
i
t
outside
t id th
the contract.
t t
‹ 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
i advance
d
if the
th contract
t t is
i breached.
b
h d
‹ 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
d
damages
iin th
their
i commercial
i l contracts,
t t
which help to:
Provide certainty,
„ Avoid lawsuits, and
„ Provide an incentive to enter into contracts
contracts.
„
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Nominal Damages
Damages awarded when the nonnon-breaching
party
t sues the
th breaching
b
hi party
t even th
though
h
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 nonnon-breaching party is under a legal duty
t avoid
to
id or reduce
d
d
damages caused
db
by a
breach of contract.
‹
The extent of mitigation depends on the type
contract involved
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
Generally,
recoverable for breach of contract.
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