Performance and Breach of Contract

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Performance

• contract must be performed in order to be complete
  • means each party must fulfill his or her promises to one another
• if parties complete their promises, they are discharged
  • means that each party is freed from his or her contractual requirements

3 Types of Contractual Performance

• Complete performance
  • party performs all of his or her contract promises
• Substantial performance
  • party’s performance of all material contract promises
• Incomplete performance
  • party’s failure to perform his or her contract promises
  • results in a material breach of contract

Breach of Contract

• may sue a party for breach of contract if party does not fulfill all of his or her promises
  • may sue for both a minor breach of contract and a material breach of contract
• court reviews the parties’ contractual performance for breach

Remedies

• legal remedies in a contract law case:
  • money damages
  • specific performance
  • contract rescission
  • contract reformation
• damages are the most common remedy
  • typically used to make a non-breaching party whole
    • compensate a party and put him or her in the same position as if the breach never occurred
  • A duty to mitigate is the non-breaching party’s obligation not to aggravate the harm caused by a breach
    • must take reasonable actions to limit the amount of harm caused by the breaching party

4 Types of Money Damages

• Compensatory damages
  • compensates a non-breaching party for the other party’s breach
  • place the non-breaching party in the same position he or she would have been in had the contract been fully performed
• Consequential damages
  • compensates the non-breaching party for foreseeable damages that arise from circumstances outside of the contract
  • cannot mitigate
• Liquidated damages
  • contractual grant of money damages
  • parties predetermine the amount of damages before entering into the contract
  • contract specifically states the amount of damages that a non-breaching party is entitled to
• Nominal damages
  • money award to the non-breaching party even though he or she has not suffered any financial loss because of a breach of contract
  • recognizes that a breach occurred

Note

Specific performance is an equitable remedy.

• An equitable remedy forces a person to do (or not do) some act
  • usually are awarded by courts only if legal remedies are inadequate
  • Legal remedies are requests for money damages

Specific Performance

Specific performance is a legal term that refers to situations where a court orders a party to complete his or her contractual duties.

• do not usually award specific performance unless the underlying contractual transaction is unique
  • hard to determine the damages amount
• Non-breaching parties usually do not ask for specific performance
  • if people are forced to perform their contractual duties, they sometimes perform them poorly

Contract Rescission

• Courts can rescind a contract
• undoes the contract and puts the parties in the same position that they would have been in if there had been no contract at all
• often available if there has been a material breach of contract
• to rescind a contract, parties must return any consideration that they each received

Contract Reformation

• courts can reform a contract
• rewrites the contract to express the true intent of the parties to a contract
• parties are then expected to perform the contract as rewritten
• often use reformation to fix contracts that have obvious clerical errors
• Contract reformation is an equitable remedy

Contract Repudiation

• Repudiation is a refusal to perform a contract duty
  • occurs when one party either denies the existence of a contract or refuses to perform his or her contractual obligations
  • also called anticipatory breach of contract
• Under the common law, a nonrepudiating party can react in three ways:
  • Immediately consider the contract terminated
    • does not have to perform any of his or her own contractual obligations
  • Wait and see if the other party decides to perform his or her obligations after all
  • Immediately sue the repudiating party for breach of contract
• If one party repudiates a contract
  • party who is relying on the contract bears the burden of proving that the contract is valid
• party to a contract can always repudiate a contract on the basis that another person forged his or her signature
  • If one party claims that the signature is not authentic
  • other party has the burden of proving that the signature is authentic