BU231 Chapter Notes - Chapter 13: Institute For Operations Research And The Management Sciences, Expectation Damages, Specific Performance
Breach of Contract and Its Remedies
Implications of Breach
• A breach of any term of a contract entitles the non-breaching party to claim damages, but serious
breaches may also discharge the contract and release the non-breaching party from any further
performance of their contractual obligations
o The breach must undermine the whole contract or a substantial part of it for discharge to be
an option
o Discharge is done at the option of the non-breaching party, not automatically
• There are two situations where the non-breaching party can not discharge their obligations:
o When they continue to proceed with and accept benefits under the contract despite the
breach
o The innocent party may have received the benefit of the contract and not learned of the
breach until this party's performance was already complete
• In all disputes concerning a breach, the first task is to determine the importance of the term
breached
o Minor breach - a breach of a non-essential term of a contract or of an essential term in a
minor contract
o Major breach - a breach of the whole contract or of an essential term so that the purpose of
the contract is defeated
How Breach May Occur
A party to a contract may break it by:
• Expressly repudiating (rejecting) its obligations
• Acting in a way that makes it impossible to perform its promises
• 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 parties advises the other that it does not intend to perform
as promised
• The promisee may find a new party to perform and reserve his rights to sue for damages of
breach, so long as he informs the other party before finding a new performer
Anticipatory breach - an express repudiation that occurs before the time agreed for performance
• The non-breaching party has a choice to accept it or insist on performance
One Party Renders Performance Impossible
• Any willful or negligent act by the promisor that destroys its ability to fulfill its contractual
promises amounts to breach of contract and leads to repudiation, unless it is an involuntary
response to forces beyond its control
Failure of Performance
Types of Failure
• May be a total failure to perform, a grossly inadequate performance, or it may be very minor
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• Inadequate performance by one party will trigger the decision of whether the other party is
excused or still must perform
• Before claiming to be discharged of her own obligations, the innocent party should seek legal
advice
The Doctrine of Substantial Performance
• Substantial performance - performance that does not comply in some minor way with the
requirements of the contract
• The promisor can enforce a contract as long it has been substantially performed, however his
claim is still subject to reduction of damages caused by his defective performance
• The doctrine prevents a promisee from using a trivial failure of performance to avoid his
obligations
Mistakes in Performance
• When a contract is over performed and more is paid than is required, the "lucky" recipient will be
ordered by the court to restore the benefit
• Quasi-contract - an obligation that may arise, not as a result of contractual relations, but because
one party has received an unjust enrichment (unfair benefit) at the expense of the other
Exemption Clauses
Purpose
• Allocate the risk so parties know who should insure against what
• Allo suppliers to charge loer prices, since they don’t hae to increase prices to coer the costs
and damages arising from customer lawsuits
• If the supplier is in the position of using a standard form contract, it will, in most circumstances,
have a distinct advantage over its customer and can design the clause in its favour
• Exemption clauses usually make good sense and work reasonably well when the bargaining power
and knowledge of the law are relatively equal between the parties
Analytical Approach
Step 1: Interpretation of Exemption Clauses
• "Does the clause apply to the facts?"
• If there is ambiguity in the wording, it must be interpreted against the drawing party because they
had every chance to make the ambiguity more clear
o Drawing party - the contracting party that prepared the agreement and/or the particular
clause
• If an exemption clause applies to the breach that has occurred, the injured party has no remedy
Step 2: Unconscionable Clauses
• Even if the clause covers the circumstances, it may still be unenforceable if one party has
significant bargaining power and is taking advantage of the weaker party by extracting
unconscionable terms
o Unconscionable - terms agreed to be parties of unequal bargaining power that give an
unfair advantage to the powerful party over the weaker party
Step 3: Public Policy and Public Interest
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Document Summary
Anticipatory breach - an express repudiation that occurs before the time agreed for performance: the non-breaching party has a choice to accept it or insist on performance. Types of failure: may be a total failure to perform, a grossly inadequate performance, or it may be very minor. Inadequate performance by one party will trigger the decision of whether the other party is excused or still must perform: before claiming to be discharged of her own obligations, the innocent party should seek legal advice. Purpose: allocate the risk so parties know who should insure against what, allo(cid:449) suppliers to charge lo(cid:449)er prices, since they don"t ha(cid:448)e to increase prices to co(cid:448)er the costs and damages arising from customer lawsuits. If an exemption clause applies to the breach that has occurred, the injured party has no remedy. Types of remedies: damages, equitable remedies - specific performance, injunction, and rescission, quantum merit.
