Chapter 16: Remedies for

Breach of Traditional and

Online Contracts

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Performance and Breach
• If a contractual duty has not
been discharged or excused,
the contracting party owes
an absolute duty (covenant)
to perform the duty.
• Breach of contract occurs
when a contracting party
fails to perform an absolute
duty owed under a contract.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Types of Performance

Complete
Performance

Substantial
Performance

Inferior Performance

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Complete Performance
• Most contracts are
discharged by strict
performance.
• A fully performed contract is
an executed contract.
• Tender of performance
discharges contractual
obligations.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Substantial Performance
• This occurs when there is a
minor breach of contract.
– Performance deviates slightly
from complete performance.
– Nonbreaching party may
recover damages.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Inferior Performance
• This is a material breach of
contractual obligations.
• Nonbreaching party may
rescind contract and seek
restitution.
• Nonbreaching party is
excused from any further
performance.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Summary: Types of Performance
Type of Legal Consequence
Performance

Complete The contract is discharged.

Performance

Substantial The non-breaching party may recover

Performance damages caused by the breach.
(minor breach)

Inferior The non-breaching party may either:

Performance (1) Rescind the contract and recover
(material restitution, or
breach) (2) Affirm the contract and recover
damages.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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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.
• Also called anticipatory repudiation.
• Nonbreaching party’s duties are
immediately discharged.
• Nonbreaching party may sue
repudiating party at time of breach.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Monetary Damages
• A non-breaching party may
recover monetary damages
from a breaching party.
• Monetary damages are
available whether the
breach was minor or material.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Types of Monetary Damages
Compensatory Consequential
Damages Damages

Nominal Liquidated
Damages Damages

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Compensatory Damages
• Award of money intended to
compensate a non-
breaching party for the loss
of the bargain.
• They place the non-
breaching party in the same
position as if the contract
had been fully performed by
restoring the “benefit of the
bargain.”

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Compensatory Damages (continued)
• The amount of that will be
awarded for breach of
contract depends on:
– The type of contract involved,
and
– Which party breached the
contract.
• Special types of contracts:
– Sale of Goods
– Construction Contracts
– Employment contracts
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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 Mitigation of Damages
• A non-breaching party is
under a legal duty to avoid
or reduce damages caused
by a breach of contract.
• The extent of mitigation
depends on the type
contract involved.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Consequential Damages
• Foreseeable damages that
arise from circumstances
outside the contract.
• 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.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Liquidated Damages
• Damages to which parties to
a contract agree in advance
if the contract is breached.
• To be lawful,
– The actual damages must be
difficult or impracticable to
determine, and
– The liquidated amount must be
reasonable in the
circumstances.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Nominal Damages
• Damages awarded when
the non-breaching party sues
the breaching party even
though 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.”

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Enforcement of Remedies
• If the breaching party refuses
to pay the court ordered
judgment, the court may
issue:
– Writ of Attachment
– Writ of Garnishment

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Enforcement of Remedies
(continued)

Writ of Attachment Writ of Garnishment

• Orders the sheriff • Orders that
to – Wages, bank
– Seize property in accounts, or
the possession other property
of the of the
breaching party breaching party
that he or she that is in the
owns, and hands of third
– To sell the parties be paid
property at over to the non-
auction to breaching party
satisfy the to satisfy the
judgment. judgment.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Rescission and Restitution
Rescission Restitution
• An action to • Returning of
undo the goods or property
contract. received from the
other party to
• Available if rescind a
there has contract.
been: • If the actual
– A material goods or property
breach of is not available, a
contract
cash equivalent
– Fraud must be made.
– Undue
influence
– Mistake
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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 Equitable Remedies
• Equitable remedies are
available if there has been a
breach of contract that
cannot be adequately
compensated by a legal
remedy.
• They are also available to
prevent unjust enrichment.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Specific Performance
• Court orders the breaching
party to perform the acts
promised in the contract.
• The subject matter of the
contract must be unique.
• Specific performance of
personal contracts are
usually not granted because
it will be difficult to monitor
performance.
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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 Reformation
• Court rewrites a contract to
express the parties’ true
intentions.
• Usually used to correct
clerical errors.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Injunction
• Court order that prohibits a
party from doing a certain
act.
• Available in contract actions
only in limited circumstances.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Torts Associated With Contracts
• Intentional Interference with
Contractual Relations
• Breach of the Implied
Covenant of Good Faith and
Fair Dealing

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Intentional Interference with
Contractual Relations
• A tort that arises when a third
party induces a contracting
party to breach the contract
with another party.
• The following elements must be
shown:
– A valid, enforceable contract between the
contracting parties.
– Third-party knowledge of this contract.
– Third-party inducement to breach the contract.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Breach of the Implied Covenant
of Good Faith and Fair Dealing
• Under this covenant:
– The parties to a contract are held to
the express terms of the contract,
and
– They are also required to act in good
faith and deal fairly in all respects in
obtaining the contract.
• A breach of this implied
covenant is a tort for which tort
damages are recoverable.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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