Contracts Lecture Thirteen: Breach of Contract

A breach of contract occurs when a party to a valid agreement fails to perform their obligations without a legal excuse. A party can commit a breach through non-performance, where they simply do not do what was promised, or through defective/partial performance, where they do something but not in the agreed-upon way.

A minor breach is insignificant and allows the contract's overall purpose to be fulfilled, requiring the non-breaching party to continue performance while suing for damages. A material breach, however, is so severe it defeats the contract's essential purpose, allowing the non-breaching party to terminate the contract and sue for full damages.

Anticipatory breach occurs when a party clearly indicates they will not perform their future obligations before performance is due. The non-breaching party can immediately treat it as a breach and sue, or they can wait for the performance date, though the latter carries the risk of losing the right to terminate if performance eventually occurs.

A failure of condition is when a prerequisite event for a party's duty to perform does not occur, thus discharging that duty without the party being at fault. A breach of contract, conversely, involves a failure to perform a duty that was owed, indicating a wrongful non-compliance with the contract terms.

Frustration of purpose excuses performance when an unforeseen event destroys the underlying reason for entering the contract, even if performance remains technically possible. For example, if you rent a room specifically to watch a parade, and the parade is canceled (frustration), it differs from the building burning down (impossibility).

The Perfect Tender Rule (UCC § 2-601) states that a buyer can reject goods if they fail to conform to the contract in any respect. A common exception is the seller's right to cure (UCC § 2-508), allowing them to correct defective performance within the contract time or under certain conditions.

The main objective of compensatory damages is to place the non-breaching party in the financial position they would have been in had the contract been fully performed. This aims to protect the injured party's expectation interest by covering losses incurred due to the breach.

A court might order specific performance when monetary damages are inadequate to compensate the injured party, such as in cases involving unique goods (e.g., rare art, custom-made items) or real estate. This remedy ensures the aggrieved party receives the exact performance promised in the contract.

The duty to mitigate damages requires the non-breaching party to take reasonable steps to minimize their losses after a breach occurs. This concept is important because it prevents economic waste and ensures that damages awarded are only for unavoidable losses, encouraging efficient behavior.

Restitution, as a remedy for breach of contract, aims to restore any benefit conferred by the non-breaching party to the breaching party. It primarily prevents unjust enrichment, ensuring that a party does not unfairly profit from another's loss or from an unenforceable contract.