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126
“Contracts must not be sports of an idle hour, mere matters of pleasantry and badinage,
never intended by the parties to have any serious effect whatsoever.”
Lord Stowell
I. Teacher to Teacher Dialogue
original contract can still be enforced, less the price of the current doorknob. Compare this with a
house with no doors. The failure to provide doors may be construed as only partial performance
because of lack of security. The nonbreaching party may then sue for rescission or recover
damages.
The majority of remedies provided by the courts for contract breach fall into the category of a
repair using monetary damages. In this repair process, there is an attempt to provide the innocent
party with a financial replacement for the benefits that he or she had under the original contract.
Think of monetary damages as an ascending staircase, starting at the bottom with token or
benefit of the bargain by providing a monetary substitute for what was lost due to the breach. For
example, if Jack had a deal with Fried Motors to buy a new car for $20,000 but had to buy a
comparable model from Fox Motors for $30,000 due to Fried Motors’s breach, the actual measure
of compensatory damages would be $10,000. If Jack had a resale contract for the car to Linda for
BREACH OF CONTRACT AND
REMEDIES
16
Remedies for Breach of Traditional and E-Contracts
The other two paths available to the nonbreaching party are going backwards or going
forward with the contract. In going backwards, a court is asked to return the parties to their
precontract position by way of rescission or restitution, i.e., undo the contract. A common
example of rescission is found in return of deposit clauses in purchase contracts or in consumer
the buyer.
Another category of remedies involves going forward with the original terms of the
agreement. These remedies are classified as equitable remedies because the breach cannot be
adequately compensated by normal economic damage measures. The underlying theory is that the
contract must somehow be enforced as a matter of equity and fair play rather than substituted by
injunctive relief.
The last category of remedies is in regards to contract-related torts. Where the contract is
II. Chapter Objectives
1. Describe complete, substantial, and inferior performance of contractual duties.
traditional and e-contracts.
3. Explain rescission and restitution.
4. Define the equitable remedies of specific performance, reformation, and injunction.
5. Describe torts associated with contracts.
III. Key Question Checklist
What are the basic performance covenants under this contract?
Are these covenants subject to any conditions?
Assuming no conditions are in effect, are there any excuses to enforcing this contract?
Have the parties changed their performance obligations?
Chapter 16
IV. Text Materials
The three levels of performance of a contract are complete, substantial, and inferior. Complete
performance discharges the duties under the contract. Substantial performance constitutes a minor
Performance and Breach
If the duty under a contract has not been discharged or excused, an absolute duty of performance
is owed.
Complete Performance – Strict performance occurs when a party tenders performance exactly
Substantial Performance: Minor Breach – This occurs when the contracting party renders
performance that slightly deviates from the contractual obligations. The nonbreaching party may
Inferior Performance: Material Breach – When there has been an inferior performance, the
Case 16.1 Breach of Contract: Turner Broadcasting System, Inc. v. McDavid
693 S.E.2d 873, 2010 Ga. App. Lexis 317 (2010), Court of Appeals of Georgia
Facts: McDavid sued Turner for breach of contract. Turner denied the existence of any binding
contract with McDavid, arguing that the parties had not executed a final written agreement.
Issue: Is there an enforceable contract between McDavid and Turner?
Decision: The court of appeals affirmed the trial court’s judgment. There was evidence from
Ethics Questions: In an objective theory of contract, one party’s intention is deemed to be that
meaning a reasonable man in the position of the other contracting party would ascribe to the first
party’s manifestations of assent. Yes, Turner manifested the intent to enter into a contract with
McDavid. Turner probably backed out of this deal since the negotiator already signed a final
Anticipatory Breach – When one party tells the other that they will not be performing their
Remedies for Breach of Traditional and E-Contracts
Monetary Damages
The nonbreaching party may recover monetary damages whether the breach was minor or
material.
Compensatory Damages
Sale of a Good – Under the UCC, the usual measure of damages is the difference between the
Construction Contracts – The recoverable damages vary in construction contracts depending on
Employment Contracts – Breaches of employment contract will allow recovery of lost wages or
Consequential Damages
Disclaimer of Consequential Damages – The breaching party is not responsible to pay
consequential damages. Disclaimer of consequential damages is lawful in most instances.
Nominal Damages
Mitigation of Damages
The nonbreaching party has a duty to mitigate damages.
remedy.
Liquidated Damages
When damages are difficult to ascertain in advance, parties may agree to liquidated damages in
they are excessive or unconscionable.
Chapter 16
Case 16.2 Liquidated Damages: 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
Facts: Environs, Inc. is an architectural firm that designs commercial and business buildings.
breached its contract by providing negligent architectural services, and sought to recover its loss
of more than $4.2 million. The U.S. district court found that Environs had been negligent and
breached the contract, but the court enforced the liquidated damages clause and awarded SAMS
$70,000. SAMS appealed.
Issue: Is the liquidated damages clause enforceable?
construction contract of a commercial building.
Ethics Questions: SAMS could have further negotiated the liquidated damages clause, could
Rescission and Restitution
received under a rescinded contract.
Enforcement of Remedies
The court will enter a judgment in favor of a successful nonbreaching party. If the breaching
Equitable Remedies
Equitable remedies are available if there has been a breach of contract that cannot be adequately
Specific Performance – Courts will award this remedy to force the breaching party to perform
when the subject matter of the contract is unique.
Remedies for Breach of Traditional and E-Contracts
types of contracts.
Case 16.3 Specific Performance: Alba v. Kaufmann
27 A.D.3d 816, 810 N.Y.S.2d 539, 2006 N.Y. App. Div. Lexis 2321 (2006), Supreme Court of
New York, Appellate Division
experiencing. Kaufmann refused to close and the Albas sued seeking specific performance and
filed a motion for summary judgment. The Supreme Court denied and the Albas appealed.
Issue: Is an order of specific performance of the real estate contract warranted in this case?
Decision: The appellate court reversed the lower court’s decision, granting their motion for
claiming that his wife’s disease was worsened by the impending sale was also unethical, because
the property sale was unlikely to cause this.
Reformation – This equitable doctrine allows a court to rewrite the contract to express the true
intentions of the parties.
Arbitration of Contract Disputes
Critical Legal Thinking – Students’ answers will vary regarding how many contracts they enter
into which have arbitration clauses. Arbitration clauses are so popular because of the limit risk
system.
Although discussed in prior chapters of this textbook, some arbitration clauses are binding on the
parties meaning that parties have no rights to appeal decisions which arise from the arbitration
Case 16.4 Arbitration of a Contract Dispute: 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
Facts: A customer bought a Mercedes through a retail installment contract which provided for
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Decision: The court held that the arbitration clause was binding between the parties.
Torts Associated with Contracts
If a party can prove a contract-related tort, they may recover tort damages including
compensation for personal injury, pain and suffering, emotional distress, and possible punitive
Intentional Interference with Contractual Relations – A third party who intentionally
interferes with a contractual relationship and causes injury is guilty of a tort. There must have
bad faith.
Critical Legal Thinking – It can be hard to establish bad faith through the facts of a case. An
implied covenant of good faith protects consumers.
Decision: The trial court awarded a significant damage award including $15M in punitive
damages. The Supreme Court of South Carolina affirmed the decision of the trial court but did
slightly reduce the punitive damages’ award.
Ethics Questions: Yes, I think it does make insurers behave more ethically. A bad faith tort in
V. Key Terms and Concepts
Anticipatory breach—A breach that occurs when one contracting party informs the other that
rights to appeal.
Breach of contract—If a contracting party fails to perform an absolute duty owed under a
contract.
Compensatory damages—Damages that are generally equal to the difference between the
Remedies for Breach of Traditional and E-Contracts
contract not only are held to the express terms of the contract but also are required to act in
“good faith” and deal fairly in all respects in obtaining the objective of the contract.
Disclaimer of consequential damages—This means that the breaching party is not responsible
to pay consequential damages.
arbitration agreements.
Inferior performance—Occurs when a party fails to perform express or implied contractual
obligations that impair or destroy the essence of the contract.
Injunction—A court order that prohibits a person from doing a certain act.
Intentional interference with contractual relations—A tort that arises when a third party
established in advance.
Material breach—A breach that occurs when a party renders inferior performance of his or
her contractual duties.
Minor breach—A breach that occurs when a party renders substantial performance of his or
her contractual duties.
Monetary damages—An award of money.
Nominal damages—Damages awarded when the nonbreaching party sues the breaching party
Penalty—A liquidated damages clause is considered a penalty if actual damages are clearly
parties’ true intentions.
Rescission—An action to rescind (undo) the contract. Rescission is available if there has been
Restitution—Returning of goods or property received from the other party in order to rescind
a contract; if the actual goods or property is not available, a cash equivalent must be made.
complete performance.
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distress, and possibly punitive damages.
Tort of bad faith—A breach of the covenant of good faith and fair dealing. It is a tort for
which tort damages are recoverable.
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.
satisfy a judgment.
