5.2. Remedies for Breach

5.2. Remedies for Breach of Contract

Part A: Concept & Terminology

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When a contract is breached, the innocent party seeks a remedy. In Anglo-American law, remedies are divided into two main categories: Common Law Remedies (Damages) and Equitable Remedies.

1 Damages (Legal Remedies)

Monetary compensation. Aim: Put the innocent party in the position they would have been in if the contract had been performed (Benefit of the Bargain).

• Compensatory Damages: Covers actual loss.

  • General Damages: Losses flowing naturally from breach.
  • Consequential (Special) Damages: Indirect foreseeable losses (e.g., lost profits). Rule from Hadley v Baxendale.
• Liquidated Damages: Pre-agreed specific sum. Must be a reasonable estimate. If excessive/punitive, it is a Penalty Clause (unenforceable in Common Law).
• Punitive (Exemplary) Damages: To punish the defendant. Extremely rare in contract law.

Mitigation of Damages: The innocent party has a legal duty to take reasonable steps to minimize their loss.

2 Equitable Remedies

Used when money is not enough. Based on court discretion.

Specific Performance

Court orders the party to perform duties. Only for unique items (land, art). Never for employment.

Injunction

Court orders a party to stop doing something (e.g., enforcing a non-compete).

PART B: INTERACTIVE EXERCISES

Exercise 1: Match the Types of Damages

Select the correct type of damage for each scenario.

1. "If building not finished by Dec 1st, builder pays $1000/day." (Reasonable estimate).

-- Select Type -- Punitive Damages Liquidated Damages Consequential Damages Compensatory Damages

2. Factory stops due to no steel. Factory sues for "lost profits".

-- Select Type -- Punitive Damages Liquidated Damages Consequential Damages Compensatory Damages

3. Fraudulent car sale. Court orders extra payment to punish behavior.

-- Select Type -- Punitive Damages Liquidated Damages Consequential Damages Compensatory Damages

4. Buyer pays $100 extra for substitute machine. Sues for difference.

-- Select Type -- Punitive Damages Liquidated Damages Consequential Damages Compensatory Damages

Exercise 2: Legal or Equitable?

Click the correct classification.

1. Specific Performance: Ordering seller to hand over a Picasso.

2. Compensatory Damages: Paying for repairing a roof.

3. Injunction: Ordering musician NOT to play for rival.

4. Liquidated Damages: Paying pre-agreed sum for delay.

Exercise 3: The Penalty Rule

Clause: "In the event that the Tenant is one day late in paying the $1,000 rent, the Tenant shall pay the Landlord a fixed sum of $50,000 immediately."

Is this Enforceable under Common Law?

Reason: This is likely a Penalty Clause. It is not a genuine pre-estimate of loss ($50k vs $1k rent) and is designed to terrorize. Common Law courts generally do not enforce penalties.

Exercise 4: Gap Fill (Mitigation)

WORDS: minimize | sue | reasonable | duty

"If a supplier fails to deliver goods, the buyer has a (1) to mitigate damages. This means the buyer must take (2) steps to (3) the loss, for example, by trying to buy the goods from another supplier. If the buyer does nothing, they cannot (4) for the full loss of production."

PART C: WRITING TASK

Scenario

Client: "TechStart Inc." hired artist Mr. X ($20k) for a lobby mural. Mr. X refuses to paint. Client wants the art, not money.

Draft your email here:

Structure Guide:

• Step 1: State issue (Breach).
• Step 2: Explain general rule (Damages).
• Step 3: Explain exception (Specific Performance).
• Step 4: Apply to facts (Mural is unique, but it's a personal service).
• Step 5: Give advice.

To: CEO, TechStart Inc.
Subject: Breach of Contract by Mr. X

Dear Client,

Regarding Mr. X's refusal to paint the mural, you have asked if we can force him to perform.

Generally, the remedy is Damages. However, in cases involving Unique items, courts may order Specific Performance.

While the artwork is unique, courts are reluctant to order Specific Performance for Personal Services as it's hard to supervise.

Therefore, I advise we sue for Monetary Damages to hire another artist.

Sincerely, [Your Name]

Exercise 1: 1-B (Liquidated), 2-C (Consequential), 3-A (Punitive), 4-D (Compensatory).

Exercise 2: 1. Equitable, 2. Legal, 3. Equitable, 4. Legal.

Exercise 3: Unenforceable (It is a Penalty, excessive compared to loss).

Exercise 4: 1. duty, 2. reasonable, 3. minimize, 4. sue.