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Chapter 13

Chapter 13 BU231.docx

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Valerie Irie

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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 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 BU231 Chapter 13 – Breach of Contract and its Remedies consequence of breach 2. Mitigation of Damages -Mitigation – action by the injured party to reduce the extent of loss caused by the other party’s breach -An injured party can only recover for the losses resulting from the breach that could not be reasonably avoided The Measurement of Damages Liquidated Damages
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