CHAPTER 9
Contract Performance,
Breach, and Remedies
© 2007 by West Legal Studies in Business / A Division of Thomson Learning
Performance & Discharge
• A party may be discharged from a
valid contract by:
– Full performance or material breach
by the other party.
– A condition occurring or not
occurring.
– Agreement of the parties.
– Operation of law.
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Conditions
• Possible future event, the occurrence or
nonoccurrence of which will trigger the
performance of a legal obligation or
terminate an existing obligation under a
contract.
• Types of Conditions:
– Conditions Precedent.
– Conditions Subsequent.
– Conditions Concurrent.
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Miller • Cross 5th Ed.
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Discharge by Performance
• The contract comes to an end when both
parties fulfill their respective duties by
performing the acts they have promised.
• Complete vs. Substantial Performance:
– Complete: strict performance.
– Substantial: performance does not vary greatly and
create substantial benefit. Other party must pay.
– Performance to the Satisfaction of One of the Parties
or a Third Party.
THE LEGAL ENVIRONMENT TODAY
Miller • Cross 5th Ed.
© 2007 by West Legal Studies in Business / A Division of Thomson Learning
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Material Breach
of Contract
• The nonperformance of a
contractual duty.
– Material breach occurs when there has
been a failure of consideration.
– Discharges the non breaching party
from the contract.
– Case 9.1 Shah v. Cover-It, Inc.
(2004).
THE LEGAL ENVIRONMENT TODAY
Miller • Cross 5th Ed.
© 2007 by West Legal Studies in Business / A Division of Thomson Learning
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Anticipatory Repudiation
• If before performance is due, one party
refuses to perform his or her contractual
obligation.
• Results in material breach.
– The nonbreaching party should not be
required to remain ready and willing to
perform.The nonbreaching party should have
the opportunity to seek a similar contract
elsewhere.
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Miller • Cross 5th Ed.
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Discharge by Agreement
•
•
•
•
Rescission.
Novation.
Substituted Agreement.
Accord and Satisfaction.
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Miller • Cross 5th Ed.
© 2007 by West Legal Studies in Business / A Division of Thomson Learning
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Discharge by
Operation of Law
•
•
•
•
•
•
Alteration of a contract.
Statutes of Limitations.
Bankruptcy.
Impossibility.
Commercial Impracticability.
Frustration of Purpose.
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Types of Damages
• Compensatory Damages.
– Compensate injured party for damages
actually sustained.
– Sale of Goods: difference between the
contract and market price.
– Sale of Land: same as sale of goods.
– Construction Contracts: depends on
when and who breaches.
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Types of Damages
• Consequential Damages.
– Foreseeable damages the breaching party is
aware--or should be aware—of that cause
damage as a consequence of the original injury;
can cause the injury party additional loss.
• Punitive Damages.
– Designed to punish the wrongdoer and deter
similar activity in the future.
• Nominal Damages.
– No financial loss.
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Mitigation of Damages
• When breach of contract occurs, the
innocent injured party is held to a duty to
reduce the damages that he or she
suffered.
• Duty owed depends on the nature of the
contract.
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Liquidated Damages
vs. Penalties
• Liquidated:
– Amount of damages determined by
agreement or court order.
– Enforceable.
• Penalty:
– Designed to punish the breaching party.
– Generally not enforceable.
• Case 9.2 Green Park Inn, Inc. v.
Moore (2002).
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Miller • Cross 5th Ed.
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Equitable Remedies
• Rescission.
– A remedy whereby a contract is canceled
and the parties are restored to the original
positions that they occupied prior to the
transactions.
• Restitution.
– Both parties must return goods, property,
or money previously conveyed.
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Miller • Cross 5th Ed.
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Specific Performance
• Equitable remedy calling for the performance
of the act promised in the contract.
• Remedy in cases where the consideration is:
– Unique, e.g., Sale of Land: Case 9.3
Stainbrook v. Low (2006).
– Scarce; or
– Not available remedy in contracts for
personal services.
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Miller • Cross 5th Ed.
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Reformation
• Equitable remedy allowing a contract
to be reformed, or rewritten to reflect
the parties true intentions.
• Available when an agreement is
imperfectly expressed in writing.
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Recovery Based on
Quasi Contract
• Equitable remedy imposed by courts to obtain
justice and prevent unjust enrichment. Requires:
– A benefit was conferred to the other party.
– Party conferring did so with the reasonable
expectation of being paid.
– The benefit was not volunteered.
– Retaining benefit without paying for it would
result in unjust enrichment of the party receiving
the benefit.
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Election of Remedies
• Doctrine created to prevent double
recovery.
• Nonbreaching party must choose which
remedy to pursue.
• UCC rejects election of remedies.
– Cumulative in nature and include all the
available remedies for breach of
contract.
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Waiver of Breach
• Waiver: Knowing relinquishment of a
legal right.
• Consequences of Waiver of Breach?
• Reasons for Waiving a Breach.
• Subsequent Breaches.
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Miller • Cross 5th Ed.
© 2007 by West Legal Studies in Business / A Division of Thomson Learning
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Contract Provisions
Limiting Remedies
• Exculpatory clauses.
– Provisions stating that no damages can
be recovered.
• Limitation of liability clauses.
– Provisions that affect the availability of
certain remedies.
– Case 9.4 Lucier v. Williams (2004).
THE LEGAL ENVIRONMENT TODAY
Miller • Cross 5th Ed.
© 2007 by West Legal Studies in Business / A Division of Thomson Learning
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