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IN COLLABORATION WITH

SOUTHERN NEW HAMPSHIRE UNIVERSITY


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BUSINESS LAW [BUS 206]

LECTURE 12
LAW OF CONTRACTS [4A]

CONTRACT REMEDIES

Remedy action or procedure that is followed in order to enforce a right or to obtain


damages for injury to a right

Primary objective to compensate the injured party for the loss resulting from breach

A court can give as relief what it regards as an equivalent of the promised


performance
MONETARY DAMAGES

Most frequently granted judicial remedy for breach of contract

Will be awarded only for losses that are foreseeable, established with reasonable
certainty and unavoidable

Commonly classified as compensatory damages, nominal damages and punitive


damages

Nominal Damages injured parties that do not sustain an actual loss because of a
breach of contract are entitled to a judgment of a small sum of money such as $1

Punitive Damages Damages in excess of actual loss, imposed for the purpose of
punishing or making an example of the defendant also known as Exemplary
Damages

MONETARY DAMAGES
(a) Compensatory Damages

Contract damages placing the injured party in a position as good as the one he would have
held had the other party performed

(i) Direct and Consequential Damages

Direct Damages or called general damages - losses that are caused by breach of a
contract include incidental damages, which are extra expenditures made by injured
party to rectify the breach or mitigate damages

Consequential Damages or called special damages are those that do not


necessarily flow from the type of breach of contract involved but happen to do so in a
particular case as a result of the injured partys particular circumstances

Consequential Damages may be recovered only if it was reasonably foreseeable to the


defendant that the kind of loss in question could be sustained by the nonbreaching party if
the contract were broken

(ii) Mitigation of Damages

Injured party is under the duty to mitigate damages if reasonably possible West Pinal
Family Health Centre, Inc V. McBride (1989)

Damages must not be permitted to increase if an increase can be prevented by


reasonable efforts

Injured party must generally stop any performance under the contract to avoid running up
a larger bill

Effect of failure to mitigate damages to limit recovery by the nonbreaching party to the
damages that would have been sustained had this party mitigated the damages where it
was possible to do so

RESCISSION

When one party commits a material breach of the contract, the other party
may rescind the contract

If the party in default objects the aggrieved party may bring an action for
rescission

A breach is material when it is so substantial that it defeats the object of the


parties in making the contract Greentree Properties, Inc V. Kissee
(2003)

Injured party may recover the reasonable value of the performance


rendered

Money paid by the injured party may also be recovered

Purpose to restore the injured party to the position occupied before the
contract was made

REMEDIES IN EQUITY & RESTITUTION


At times an award of money damages may be inadequate remedy
1. SPECIFIC PERFORMANCE
An equitable remedy that compels the defaulting party to perform her
contractual obligations
Ordinarily granted only if the subject matter of the contract is
unique
2. INJUNCTION
Order of a court of equity to refrain from doing (negative injunction)
or to do (affirmative or mandatory injunction) a specified act
When a breach of contract consists of doing an act prohibited by the
contract, a possible remedy is an injunction against doing the act
RESTITUTION
Act of returning to the aggrieved party the consideration or its value
which he gave to the other party
Purpose to restore the injured party to the position he occupied
before the contract was made

LIMITATION ON REMEDIES
Contract of the parties may contain provisions that affect the
remedies available or the recovery of damages
LIQUIDATED DAMAGES
Provision stipulating the amount of damages to be paid in the event
of default or breach of contract
Validity clause must satisfy two (2) requirements:
(i) the situation must be one in which it is difficult or impossible to
determine the actual damages; and
(ii) the amount specified must not be excessive when compared with
the probable damages that would be sustained Southeast Alaska
Construction Co. V. Alaska (1990)
Validity is determined on the basis of the facts existing when the
clause was agreed to
Effect injured party cannot collect more than the amount specified
by the clause proof as to damages sustained not required