Breach, Remedies, and Defenses

Overview

Description

Contracts are a common and important part of business operations. For example, people enter into business agreements, purchase real property, buy or rent homes, shop, or subscribe to cable television. Sometimes a party to a contract breaches their obligations under that contract. When this happens, the law provides various remedies depending on the type of contract. Although not every contract breach results in a court awarding damages, it is important for business leaders to know their rights and responsibilities before they sign contracts.

At A Glance

  • Mistakes can make the contract void or voidable, depending on the type of mistake and whether it was operative—in other words, whether it was such a serious error that the entire contract is invalid.
  • Contract fraud can be fraud in the inducement, which involves deliberate trickery, or fraud in the factum, which involves one party misleading the other. To prove fraud, these facts must be proven: one party knowingly misrepresented a material fact, that party did so with the intent to deceive or defraud the other party, the other party relied on the misrepresentation, and the misrepresentation caused loss.
  • Duress is coercion applied to enter into a contract, usually through a wrongful or unlawful threatened act or acts. Duress means the coerced party can void the contract.
  • Capacity is the legal ability to enter into binding contracts. Most people have the capacity to enter into binding contracts, but minors, intoxicated persons, and mentally incompetent persons do not. Minors, however, will be required to fulfill certain contracts, including payments for necessities such as food, shelter, and education.
  • A contract with a minor is enforceable if the minor reaches the age of majority and expressly or impliedly indicates intention to be bound by a contract made as a minor.
  • Undue influence arises when, in a confidential relationship, someone exerts control in such a way that dominates the free will of the contracting person and benefits the person exerting the influence.
  • A contract is typically discharged when it has been fulfilled and all parties have performed the main obligations under the contract. A contract can also be terminated through agreement, court order, breach of contract, or frustration of contract.
  • The statute of frauds is a requirement that certain types of contracts must be in writing to be valid: ones for the sale of an interest in land; ones for goods sold for $500 or greater, under the Uniform Commercial Code; ones in consideration of marriage; ones that cannot be performed within a year of making the agreement; ones for a type of insurance called suretyship; and ones where an estate executor personally pays estate debts.
  • A contract is performed when the obligations under the contract are fulfilled by all parties according to the terms of the contract.
  • Breach of contract happens when one party to a valid contract fails to fulfill the promises that he, she, or it made in the contract. There are four types of breach: actual, anticipatory, material, and minor.
  • A contract remedy, or compensation for harm, aims to put the injured party in the same position as if the contract had been performed. This is achieved through expectation damages. The other remedies for breach of contract are restitution, punitive damages, and—rarely—specific performance.
  • The remedies available to a business under international law mirror many of the remedies available under domestic law. For example, for the international sales of goods, remedies include payment, monetary damages, specific performance, interest payable, suspension of performance, and the right to avoid or set aside the contract.