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Guide To Understanding
Contracts

... Continued From Previous Page

REMEDIES FOR BREACH OF CONTRACT

A breach of contract is failure to perform as stated in the contract. There are many ways to remedy a breached contract assuming it has not been waived. Typically, the remedy for breach of contract is an award of money damages. When dealing with unique subject matter, specific performance may be ordered.

As for many governments, it was not possible to sue the Crown in the U.K. for breach of contract before 1948. However, it was appreciated that contractors might be reluctant to deal on such a basis and claims were entertained under a petition of right that needed to be endorsed by the Home Secretary and Attorney-General. S.1 Crown Proceedings Act 1947 opened the Crown to ordinary contractual claims through the courts as for any other person.

Damages

There are four different types of damages.

  • Compensatory damages which are given to the party which was detrimented by the breach of contract. With compensatory damages, there are two kinds of branches, consequential damages and direct damages.

  • Nominal damages which include minimal dollar amounts (often sought to obtain a legal record of who was at fault).

  • Punitive damages which are used to punish the party at fault. These are not usually given regarding contracts but possible in a fraudulent situation.

  • Exemplary damages which are used to make an example of the party at fault to discourage similar crimes. Fines can be multiplied by factors of up to 50 for such damages.

Whenever you have a contract that requires completing something, and a person informs you that it will not be completed before they begin your project, this is referred to anticipatory breach. When it is either not possible or desirable to award damages measured in that way, a court may award money damages designed to restore the injured party to the economic position that he or she had occupied at the time the contract was entered (known as the "reliance measure"), or designed to prevent the breaching party from being unjustly enriched ("restitution").

Specific performance

There may be circumstances in which it would be unjust to permit the defaulting party simply to buy out the injured party with damages. For example where an art collector purchases a rare painting and the vendor refuses to deliver, the collector's damages would be equal to the sum paid.

The court may make an order of what is called "specific performance", requiring that the contract be performed. In some circumstances a court will order a party to perform his or her promise (an order of "specific performance") or issue an order, known as an "injunction," that a party refrain from doing something that would breach the contract. A specific performance is obtainable for the breach of a contract to sell land or real estate on such grounds that the property has a unique value.

Both an order for specific performance and an injunction are discretionary remedies, originating for the most part in equity. Neither is available as of right and in most jurisdictions and most circumstances a court will not normally order specific performance. A contract for the sale of real property is a notable exception. In most jurisdictions it is enforceable by specific performance. However, even in this case the defenses to an action in equity (such as laches, the bona fide purchaser rule, or unclean hands) may act as a bar to specific performance.

Related to orders for specific performance, an injunction may be requested when the contract prohibits a certain action. Action for injunction would prohibit the person from performing the act specified in the contract.

Procedure

In the United States, in order to obtain damages for breach of contract or to obtain specific performance or other equitable relief, the aggrieved injured party may file a civil (non-criminal) lawsuit in state court (unless there is diversity of citizenship giving rise to federal jurisdiction). If the contract contains an arbitration clause, however, the aggrieved party must submit an arbitration claim in accordance with the procedures set forth in the agreement.

Many contracts provide that all disputes arising thereunder will be resolved by arbitration, rather than litigated in courts. Customer claims against securities brokers and dealers are almost always resolved by arbitration because securities dealers are required, under the terms of their membership in self-regulatory organizations such as the NASD or NYSE, require use of brokerage agreements that contain arbitration clauses. On the other hand, certain claims have been held to be non-arbitrable if they implicate a public interest that goes beyond the narrow interests of the parties to the agreement (i.e., claims that a party violated a contract by engaging in illegal anticompetitive conduct or civil rights violations). Arbitration judgments may generally be enforced in the same manner as ordinary court judgements. However, arbitral decisions are generally immune from appeal in the United States unless there is a showing that the arbitrator's decision was irrational or tainted by fraud. Virtually all states have adopted the Uniform Arbitration Act to facilitate the enforcement of arbitrated judgements. Notably, New York State, where a sizable portion of major commercial agreements are executed and performed, has not adopted the Uniform Arbitration Act.

In England and Wales, a contract may be enforced by use of a claim, or in urgent cases by applying for an interim injunction to prevent a breach. Likewise, in the United States, an aggrieved party may apply for injunctive relief to prevent a threatened breach of contract, where such breach would result in irreparable harm that could not be adequately remedied by money damages.

THIRD PARTIES

The doctrine of privity of contract means that only those involved in striking a bargain would have standing to enforce it. In general this is still the case, only parties to a contract may sue for the breach of a contract, although in recent years the rule of privity has eroded somewhat and third party beneficiaries have been allowed to recover damages for breaches of contracts they were not party to A recent example is in England, where the Contract (Rights of Third Parties) Act 1999 was introduced.

CONTRACTUAL THEORY

Contract theory is the body of legal theory that addresses normative and conceptual questions in contract law. One of the most important questions asked in contract theory is why contracts are enforced. One prominent answer to this question focuses on the economic benefits of enforcing bargains. Another approach, associated with Charles Fried, maintains that the purpose of contract law is to enforce promises. This theory is developed in Fried's book, Contract as Promise. Other approaches to contract theory are found in the writings of legal realists and critical legal studies theorists.

Another dimension of the theoretical debate in contract is its place within, and relationship to a the wider law of obligations. Obligations have traditionally been divided into contracts, which are voluntarily undertaken and owed to a specific person or persons, and obligations in tort which are based on the wrongful infliction of harm to certain protected interests, primarily imposed by the law, and typically owed to a wider class of persons.

Recently it has been accepted that there is a third category, restitutionary obligations, based on the unjust enrichment of the defendant at the plaintiff’s expense. Contractual liability, reflecting the constitutive function of contract, is generally for failing to make things better (by not rendering the expected performance), liability in tort is generally for action (as opposed to omission) making things worse, and liability in restitution is for unjustly taking or retaining the benefit of the plaintiff’s money or work.

Compare with the U.S. context, the Uniform Commercial Code defining "Contract" as "the total legal obligation which results from the parties agreement" and does not attempt to state what act is essential to create a legal duty to perform a promise. The common law describes the circumstances under which the law will recognise the existence of rights, privilege or power arising out of a promise.


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