BUSINESS LAW

Chapter 16
Breach of Contract
and Remedies
 Learning Objectives
 Describe complete, substantial, and inferior
performance of contractual duties.
 Describe compensatory, consequential, and
nominal damages awarded for the breach of
traditional and e-contracts.
 Explain rescission and restitution.
 Define the equitable remedies of specific
performance, reformation, and injunction.
 Describe torts associated with contracts.

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 Performance and Breach
 Breach of contract: If one or both of the parties do
not perform their duties as specified in the
contract
 Types of performances
 Complete performance (strict performance)
 Substantial performance (minor breach)
 Inferior performance (material breach)
 Complete Performance: Party to a contract renders
performance exactly as required by the contract

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 Performance and Breach (cont.)
 Tender of performance: Unconditional and
absolute offer by a contracting party to perform
his or her obligations under a contract
 Substantial performance: Performance by a
contracting party that deviates only slightly from
complete performance
 Minor breach: Occurs when a party renders
substantial performance of his or her contractual
duties

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Exhibit 16.1 – Substantial Performance: Minor
Breach

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 Performance and Breach (cont.)
 Inferior Performance: Party fails to perform
express or implied contractual obligations and
impairs or destroys the essence of a contract
 Material breach: Occurs when a party renders
inferior performance of his or her contractual
duties
 Nonbreaching party is permitted to:
 Rescind contract and seek restitution, or
 Sue to enforce contract and seek damages

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Exhibit 16.2 – Inferior Performance: Material
Breach

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 Case 16.1: Breach of Contract
 Case
 Turner Broadcasting System, Inc. v. McDavid
 693 S.E.2d 873, Web 2010 Ga. App. Lexis 317
(2010)
 Court of Appeals of Georgia
 Issue
 Is there an enforceable contract between McDavid
and Turner?

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 Case 16.1: Breach of Contract
 “It is undisputed that the parties intended to sign written documents
that memorialized the terms of their oral agreement.”
 McDavid intended to buy the Hawks, Thrashers and Philips arena from
Ted Turner for $96 million
 During a conf call, Turner even said “We have a deal” and Turner’s
principal negotiator said “deal is done” and directors approved the
deal
 After these statements, Turner opposed the deal as his son-in-law
approached Turner about buying the assets…TBS began negotiations
(under essentially the same terms) with son in law
 McDavid sued and won $281 million. Did not end up with the team…

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 Performance and Breach (cont.)
 Anticipatory Breach:
 Party indicates that he or she will not perform
duties
 Nonbreaching party is immediately discharged
 Nonbreaching party may sue immediately

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 Monetary Damages
 Monetary damages: An award of money
 Available to nonbreaching party upon:
 Minor breach
 Material breach
 Types
 Compensatory damages
 Consequential damages
 Liquidated damages
 Nominal damages

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 Compensatory Damages
 Award of money intended to compensate a
nonbreaching party for the loss of the bargain
 Purposes
 To place the nonbreaching party in the position it
would have had if contract had been fully
performed
 Restore benefit of the bargain

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 Compensatory Damages (cont.)
 Amount awarded depends on:
 Type of contract
 Party that breached the contract
 Contracts where compensatory damages are
applied
 Sale of goods
 Construction contracts
 Employment contracts

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 Consequential Damages
 Foreseeable damages that arise from
circumstances outside the contract
 Can be disclaimed in a sales or license agreement
 The breaching party is not responsible to pay
disclaimed consequential damages
 Disclaimer of consequential damages is mostly
lawful

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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 one
dollar
 Cases involving nominal damages are usually
brought on principle
 Disfavored by most courts

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 Mitigation of Damages
 Nonbreaching party has a duty to avoid or reduce
damages caused by a breach of contract
 Extent of mitigation depends on the type of
contract
 If an employer breaches an employment contract,
the employee:
 Must try to mitigate damages
 Should try to find substitute employment
 Can accept only comparable employment

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 Liquidated Damages
 Parties agree in advance that certain damages will
be available if contract is breached
 Actual damages must be difficult or impracticable
to determine
 Liquidated amount must be reasonable in the
circumstances
 Considered a penalty if actual damages can be
determined in advance

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 Case 16.2: Liquidated Damages
 Case
 SAMS Hotel Group, LLC v. Environs, Inc.
 716 F.3d 432, 2013 U.S. App. Lexis 11047 (2013)
 United States Court of Appeals for the Seventh
Circuit
 Issue
 Is the liquidated damages clause enforceable?

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 Case 16.2: Liquidated Damages
 “The general rule of freedom of contract includes the
freedom to make a bad bargain.”
 Environs designed a building for SAMS hotel group. They
were paid $70,000 and their liability for breach was
$70,000.
 Once the building was close to being complete, there were
serious structural defects discovered.
 The building had to be destroyed and SAMS lost $4.2
million.
 SAMS tried to sue Environs for that amount but could not
because of the liquidated damages clause.

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 Rescission and Restitution
 Rescission: An action to undo a contract
 Available if there has been:
 A material breach of contract
 Fraud
 Duress
 Undue influence
 Mistake

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 Rescission and Restitution (cont.)
 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
 Adequate notice must be given
 Rescission and restitution restore the parties to
the positions they occupied prior to the contract

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 Enforcement of Remedies
 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
 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 nonbreaching party to
satisfy a judgment

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 Equitable Remedies
 Remedy available if there has been a breach of
contract that cannot be adequately compensated
through a legal remedy
 Also available to prevent unjust enrichment
 Types
 Specific performance
 Reformation
 Injunction

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 Equitable Remedies (cont.)
 Specific Performance: Remedy that orders the
breaching party to perform the acts promised in
the contract
 Reformation: Equitable doctrine permitting the
court to rewrite a contract to express the parties’
true intentions
 Injunction: A court order that prohibits a person
from doing a certain act

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 Case 16.3: Specific Performance
 Case
 Alba v. Kaufmann
 27 A.D.3d 816, 810 N.Y.S.2d 539, Web 2006 N.Y.
App. Div. Lexis 2321 (2006)
 Supreme Court of New York, Appellate Division
 Issue
 Is an order of specific performance of the real
estate contract warranted in this case?

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 Arbitration of Contract Disputes
 Arbitration: A nonjudicial, private resolution of a
contract dispute
 Arbitration agreements stipulate binding
arbitration

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 Case 16.4: Arbitration of a Contract
Dispute
 Case
 Mance v. Mercedes-Benz USA
 901 F.Supp.2d 1147, 2012 U.S. Dist. Lexis 140778
(2012)
 United States District Court for the Northern
District of California
 Issue
 Is the arbitration clause enforceable?

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 Torts Associated With Contracts
 Intentional Interference with Contractual
Relations: Arises when a third party induces
contracting party to breach the contract
 Elements
 A valid, enforceable contract between the contracting
parties
 The third-party’s knowledge of this contract
 The third-party’s inducement to breach the contract

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 Torts Associated With Contracts (cont.)
 Covenant of Good Faith and Fair Dealing:
 Parties held to the express terms of the contract
 Also required to act in good faith, deal fairly in all
respects
 A breach of this implied covenant is a tort for
which tort damages are recoverable
 Implied in contracts where the parties have a
special relationship that involves a fiduciary
duty

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