Ch. 7 - Breach of Contract Flashcards
Breach
failure by one party to perform their obligations. May be fundamental or simple. Caused by:
1) inability of one party to perform, perhaps due to financial problems
2) inadvertence - unintentionally failed to perform
3) disagreement as to the requirements of the contract
4) anticipated financial losses
Remedies include:
1) damages
2) specific performance
3) injunctions
4) declaratory orders
Disagreement
two parties to the contract interpret the meaning of the contract differently. if one party (owner) requires the other party (contractor) to perform more work that is deemed by the contractor to be outside the scope of the work, they can perform the duties under protest, which communicates through written notice that they will perform the work but are entitled to additional payment for that work.
Damages
most common remedy for all breaches of contract. Amount awarded is supposed to put the innocent party in the same financial position as the final outcome of the contract if no breach had occurred. Subject to 3 limitations:
1) Mitigation
2) Cannot be speculative - prove that anticipated profits would have been earned and how much
3) Remoteness
Specific Performance
where court orders one party to perform specific acts. Rare in architectural and engineering contracts
injunction
prohibits a party from doing something
declaratory order
the court determines the rights of the parties but does not require either of the parties to do anything, like pay damages
Mitigation
the party who has suffered an injury or loss must take reasonable steps to reduce, or mitigate, the injury or loss
Remoteness
the lack of a connection between a breach and an injury or loss. if a loss was not reasonably foreseeable at the time the contract was made, it may be considered to remote
consequential damages
indirect losses, such as business interruption losses. more common in supplier sales contracts or contracts involving repair or maintenance.
Liquidated damages
genuine pre-estimates of loss and compensation agreed to by the parties at the time of contract formation. Unrealistically high liquidated damages may be considered a penalty.
Penalty
a sum of money included in a contract as punishment for breach of contract rather than compensation for the breach.
Bonus clause
clause that entitles one party to additional payment if its performance exceeds what has been promised. Not required in the same contract as a liquidated damages clause to make the liquidates damages clause enforceable.
Contracts may end by?
1) Complete performance
2) frustration
3) mutual agreement
4) breach, either simple of fundamental
fundamental breach
breach that goes to the root of the contract and deprives the innocent party of all or substantially all of the benefit of the contract. The innocent party can:
1) continue to perform and sue for damages, or
2) declare contract termination and sue for damages
Simple breach
less significant than a fundamental breach. breach that doesn’t entitle the innocent party to treat the contract as ended or permit the innocent party to stop performing its part of the contract. Only remedy is suing for damages.
