Chapter 16: Breach of Contract and Remedies

anticipatory breach

(anticipatory repudiation) a breach that occurs when a contracting party informs the other that he or she will not perform his or her contractual duties when due; type of material breach that can be implied or stated; the non-breaching party is relieved under the contract immediately (there's no need to wait until performance is due) and can sue

consequential damages

(special damages) foreseeable damages that arise from circumstances outside a 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; these damages are often disclaimed in a sales license or license agreement (i.e. Walmart purchases dolls from Maytell ... dolls are in high demand and if Maytell fails to deliver the dolls to Walmart, Walmart can not purchase the dolls elsewhere because Maytell holds copyright ... Walmart can recover lost profits on each lost sale)

complete performance

(strict performance) a situation in which a party to a contract renders performance exactly as required by the contract; complete performance discharges that party's obligations under the contract

tender of performance

(tender) an unconditional and absolute offer by a contracting party to perform his or her obligations under a contract (i.e. Ashley contracts to purchase a lot of jeans from manufacturer...at the time of performance, Ashley tenders the $75,000 to the manufacturer and the manufacturer will tender the jeans to Ashley when required to do so)

material breach

a breach that occurs when a party renders inferior performance of his or her contractual duties → the non-breaching party may rescind the contract and seek restitution of any compensation paid under the contract to the breaching party ... the non-breaching party is discharged from any further performance under the contract (ie. a general contractor completes a building that cannot support more than 100 students because they used inferior materials ... the defect cannot be repaired without building a new structure, thus, the university can rescind the contract, recover any money paid to contractor, and require the contractor to remove the building)

minor breach

a breach that occurs when a party renders substantial performance of his or her contractual duties

injunction

a court order that prohibits a person from doing a certain act .... the requesting party must show that he or she will suffer irrefutable injury if the injunction is not issued (ie. a pro basketball team can file an injunction against player wanting to play for another team during a period of time in which they're in privity of contract)

executed contract

a fully performed contract

penalty

a liquidated damages clause is considered a penalty if actual damages are clearly determinable in advance or if the liquidated damages are excessive or unconscionable

mitigation of damages

a non-breaching party's legal duty to avoid or reduce damages caused by a breach of contract; if an employer breaches an employment contract, the employee owes a duty to mitigate damages by trying to find substitute employment (employees are only required to accept comparable employment) ... if an employee who has been dismissed improperly and accepts a job that is not comparable, the employee can sue the prior employer for damages

arbitration

a nonjudicial, private resolution of a contract dispute [in other words, it's a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute] (ie. credit-card agreements, mortgages, sales contracts, etc)

specific performance

a remedy that orders the breaching party to perform the acts promised in the contract; this is usually awarded in cases in which the subject matter is unique such as in contracts involving land, heirlooms, and paintings (ie. Won-Suk enters into a contract to buy a home and brings money to the closing ... Geraldine does not appear to closing and thereafter, refuses to sell house to Won-Suk ... Won-Suk can bring an action against Geraldine of specific performance); specific performance of personal service contracts is not granted because courts would find it difficult to supervise or monitor performance of such a contract (i.e. a rap artist refuses to perform at concert hall ... the concert hall can not require them to perform since it's a personal service contract, however, they could sue to recover any payments made to them prior)

inferior performance

a situation in which a party fails to perform express or implied contractual obligations and impairs or destroys the essence of a contract

breach of contract

a situation that occurs if one or both of the parties do not perform their duties as specified in the contract; remedies for a breach of contract is an award of monetary damages or equitable remedies (based on the concept of fairness) such as reformation, injunction, etc.

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 (1) a valid, enforceable contract (2) third party knowledge of this contract, and (3) third party inducement to breach the contract (ie. a football team trying to get player from another team [while he's in contract with that other team] to come play for them ... offers him money and more playing time ... if player breaches his contract with first team, they can recover tort damages from the second team)

equitable remedy

an action prescribed by the court to resolve the matter when there's no money to be given to the non-breaching party; a remedy that is available if there has been a breach of contract that cannot be adequately compensated through a legal remedy or to prevent unjust enrichment → (1) rescission (2) specific performance and (3) reformation

rescission

an action to rescind (undo) a contract; it is available if there has been a material breach of contract, fraud, duress, undue influence, or mistake

compensatory damages

an award of money intended to compensate a non-breaching party for the loss of the bargain; these damages place the non-breaching party in the same position as if the contract had been fully performed by restoring the "benefit of the bargain" (ie. company hires Wei with a 3 year contract, $20,000/month salary ... if they fire her after 1 year and Wei can not find work, Wei can sue the company and recover $480,000 [24 months x $20,000] ... even if Wei finds a job 6 months later, she can still recover $120,000 [6 months x $20,000])

monetary damages

an award of money; available for either minor or material breaches

employee contract

an employee whose employer breaches an employment contract can recover lost wages or salary as compensatory damages

reformation

an equitable doctrine that permits the court to rewrite a contract to express the parties' true intentions → could be due to a mistake or error [ie wrong address in real estate contract] or could be intentional misrepresentation

covenant of good faith and fair dealing

an implied covenant under which the parties to a contract not only are held to the express terms of the contract but also required to act in "good faith" and deal fairly in all respects in obtaining the objective of the contract

writ of attachment

an order of the court that enables a government officer to seize property of the breaching party and sell it at auction to satisfy a judgment

writ of garnishment

an order of the court that orders that wages, bank accounts, or other property of the breaching party held by third persons be paid to the non-breaching party to satisfy a judgment

compensatory damages for sale of a good

breach involving goods are governed by the UCC; the measure of damages is usually the difference between the contract price and the market price of the goods (ie. Revlon contracts to buy equipment for $80,000 but company doesn't deliver goods when required ... Revlon is now forced to buy equipment from some other company for $100,000 ... Revlon can recover $20,000 from original company)

nominal damages

damages awarded when the non-breaching party sues the breaching party even though no financial loss has resulted from the breach; these damages are usually $1 or some other small amount; courts disfavor these lawsuits because they use valuable court time and resources

liquidated damages

damages that parties to a contract agree in advance should be paid if the contract is breached → enforceable damages are an exclusive remedy even if actual damages are later determined to be different (ie. parties place a clause in a contract that states that Tundra will pay $20,000 per day in liquidated damages for each day after July 1, 2018 that the equipment is not delivered) ... liquidated amount must be reasonable

Federal Arbitration Act

enacted by US Congress; promotes the arbitration of contract disputes, whether the dispute involves federal or state law

substantial performance

performance by a contracting party that deviates only slightly from complete performance → if the breaching party does not correct the breach, the non-breaching party can sue to recover damages by (1) deducting the cost to repair the defect from the contract price or (2) suing the breaching party to recover the cost to repair

restitution

the return of goods or property received from the other party to rescind a contract; if the actual goods or property are not available, a cash equivalent must be made