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Business Law
Principles
and Practices 8e
Arnold J. Goldman William D. Sigismond
Chapter 14: The Termination of Contracts: Breach of Contract
Types of Breach
Actual breach: when one party fails to perform the obligations required by a contract.
Anticipatory breach: breach of contract occurring before stated time of performance.
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Remedy
Remedy: course of action an injured party may take to get satisfaction for breach of contract.
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Remedies for Breach
Material breach.
Waiver.
Legal remedies.
Equitable remedies.
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Material Breach
The injured party may treat the contract as ended and thereby be relieved from his duty to perform.
Material breach: violation of contract so substantial that it destroys the value of the contract and therefore excuses further performance by the injured party.
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Waiver
Waiver: voluntary surrender of a given right.
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Legal Remedies
Compensatory.
Consequential.
Punitive.
Nominal.
Liquidated.
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Compensatory Damages
Damages awarded to the injured party as compensation for a direct (actual) loss or injury caused by the breach of contract are called compensatory damages.
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Mitigation of Damages
Mitigation: attempt to hold damages down once a breach of contract occurs.
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Consequential Damages
Consequential damages: indirect damages awarded for breach of contract because they were or should have been forseeable by the breaching party.
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Liquidated Damages
Liquidated damages: damages set in advance by the parties and stated in the contract.
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Nominal Damages
Nominal damages: damages awarded for breach of contract when no real loss or injury occurs.
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Punitive Damages
Money damages awarded to the injured party in the contract to punish the breaching party for wrongful conduct and to deter similar future conduct by that party are called punitive damages (or exemplary damages).
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Equitable Remedies
Rescission.
Specific performance.
Injunction.
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Rescission
Rescission: voluntary mutual surrender and discharge of each party’s contractual rights under a contract.
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Specific Performance
Specific performance: court order requiring a party to carry out a contract according to its original terms.
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Defenses for a Breach of Contract Suit
Fraud.
Duress.
Undue influence.
Mistake.
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Fraud
Fraud: entering into a contract intentionally making a false statement about a material fact or concealing a material fact.
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Documents Necessary to Establish Fraud
A false statement or concealment of a material fact must be made.
The false statement or concealment must be intentional.
The victim actually relied on the false statement or concealment.
The victim must offer proof of damages.
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False Statement or Concealment of a Material Fact
The false statement, oral or written, must be about a material fact.
A person who conceals a material fact is also guilty of fraud.
Generally, silence is not fraud.
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Intentional Misstatement or Concealment
This aspect of fraud is the most difficult to prove.
Reckless use of the truth.
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Reliance on False Statement or Concealment
The victim of fraud must actually rely on the false statement or concealment and suffer a loss or injury.
There has been no reliance on the false statement or concealment.
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Victim Must Offer Proof of Damages
The victim of fraud is entitled to bring a lawsuit.
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Duress
Duress: forcing one to enter into a contract by using violence or threats of violence.
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Undue Influence
Undue influence: power or dominance used to make persons enter into a contract against their will.
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Mistake
Unilateral mistake: error about certain facts made by only one party to a contract.
Mutual mistake: error about certain facts made by both parties to a contract.
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Mutual Mistake About the Existence of the Subject Matter
The subject matter must exist at the time the contract is made.
If it does not, there can be no contract.
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Mutual Mistake About the Identity of the Subject Matter
If both parties are mistaken about the subject matter that is the basis of the contract, there can be no meeting of the minds and therefore no contract.
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Remedies for Fraud, Duress, and Undue Influence
The victim may either rescind or ratify the contract.
In Rescission, the victim must return any consideration received and is entitled to recover anything given as consideration.
In Ratification, the contract is valid.
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