BU231 Chapter Notes - Chapter 13: Opportunity Cost, Bona Fide Purchaser, Judgment Debtor

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26 Jan 2013
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BU231 Chapter 13 Breach of Contract and its Remedies
Implications of Breach
-Any breach of a term in a contract entitles the non-breaching party to claim damages
-To discharge a contract, the breach must undermine the whole contract or a fundamental term of the
contract; only then is the option to discharge the contract available
-Even when a breach is sufficient to discharge the contract, the non-breaching party must choose to
treat the contract as discharged and communicate its choice to the breaching party
-We can see that if the breach is of a significant or essential term, the party committing the breach is still
bound, but the injured party may elect to discharge the contract or to affirm the contract so that it
continues to bind both parties
-Minor breach a breach of a non-essential term of a contract or of an essential term in a minor respect
-Major breach a breach of the whole contract or of an essential term so that the purpose of the
contract is defeated
-A minor term may be breached in a major way
-It is not always easy to decide whether a term of a contract is essential or of lesser importance, or
whether the breach is a serious one
-Condition an essential term of a contract
-Warranty a non-essential term of a contract
How Breach May Occur
-A party to a contract may break it
-by expressly repudiating (rejecting) its obligations
-by acting in a way that makes it impossible to perform its promises, or
-by either failing to perform at all or tendering an actual performance that falls short of its
promise
Express Repudiation
-Express repudiation one of the contracting arties advises the other that it does not intend to perform
as promised
-If the repudiation is of the whole contract or a fundamental part of it, the promise is entitled to treat
the contract as being immediately at an end, to find another party to perform, and to sue or whatever
damage it sustains
-Anticipatory breach an express repudiation that occurs before the time agreed for performance
-Major breach amounting to repudiation may also occur at the time set for performance, and it too will
free the aggrieved party from further obligations
One Party Renders Performance Impossible
-A wilful or negligent act by the promisor that destroys its ability to fulfill its contractual promises
amounts to breach of contract this does not include an act that is an involuntary response to forces
beyond its control
Failure of Performance
Types of Failure
-Failure of performance usually becomes apparent only at the time set for performance
-The degree of failure may vary: it may be a total failure to perform, it may be a grossly inadequate
performance, or it may be very minor
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BU231 Chapter 13 Breach of Contract and its Remedies
The Doctrine of Substantial Performance
-Substantial performance performance that does not comply in some minor way with the
requirements of the contract
Mistakes in Performance
-Quasi contract an obligation that may arise, not as a result of contractual relations, but because one
party has received an unfair benefit at the expense of the other
-Unjust enrichment an unfair benefit
-Restitution repayment or recovery of a loss
Exemption Clauses
-A clause in a contract that exempts a party from liability
Attitude of the Courts
-There are three circumstances when a court will refuse to apply an exemption clause to protect a
breaching party from liability
-First, when the clause does not apply to the circumstances; second, when the clause was
unconscionable at the time of contracting; and third, when there is a strong public policy reason against
enforcement
-Drawing party the contracting party that prepared the agreement and/or the particular clause
-Unconscionable terms terms agreed to by parties of unequal bargaining power that give an unfair
advantage to the powerful party over the weaker party
Types of Remedies
-An injured party may have several other remedies available, depending on the type of breach and the
subject matter of the contract.
-They are:
-Damages
-Equitable remedies specific performance, injunction, and rescission
-Quantum meruit
Damages
The Purpose of an Award of Damages
-Damages a monetary award to compensate an injured party for the loss caused by the other party’s
breach
-The award is intended to compensate an injured party for the loss caused by failure to perform, not to
punish the party liable for the breach
Prerequisites for an Award of Damages
1. Loss must flow from the breach
-A loss resulting from breach must be within the foreseeable limits of what the parties would have
expected as a likely consequence of a failure to perform, had they thought about it when they drew up
their contract
-Damages are not generally awarded to compensate an injured party for some unusual or unexpected
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