contracts and breaching of contracts

8/3/2019 Contracts and Breaching of Contracts

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Contracts and breaching of contracts

Submitted by :-

Umer Mahmood -5246

Mohd. Ali Maalik-5114


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Abstract

Legal obligations are created in a business contract, and they must be fulfilled by the both

parties. Depending on the specific terms of the contract, a breach may occur when one

party fails to perform on time, does not perform in accordance with the agreement's terms,

or does not perform at all. Usually, a breach of contract will be categorized as either

"material" or "immaterial" in order to decide the appropriate "remedy" or legal solution.

A breach of contract is defined as a failure to fulfill the duties under the agreed upon terms.

A contract can be breached if:

- One party does not perform as promised

- One party does something making it impossible for the other one to perform the duties of

the contract

- One party makes it clear that he or she will not perform the contract's duties


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INTRODUCTION

When one files an action in court seeking relief against another party, (the complaint) the

legal action is normally based on allegations of wrong doing caused by a party or parties (thedefendants) who have caused the injured party (the plaintiff) damage. The colloquial

term for filing such an action is filing suit or commencing legal action.

The overwhelming majority of such legal actions allege a wrongful act based on negligence

or intentional wrongdoing (an action known as tort and discussed in a separate article)

or/and are based on breach of a written or oral agreement between the parties (breach of

contract.)

A contract is a binding obligation between two or more persons predicted on a mutual

understanding (agreement) of the parties. If one of the parties fails to conform to the

obligations of the contract, that is called a breach of contract. Such agreements may be oral

or written and can even be implied by the court in certain circumstances discussed later in

this article.


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Contract

In law, a contract is a binding legal agreement that is enforceable in a court of law or by

binding arbitration. That is to say, a contract is an exchange of promises with a specific

remedy for breach.

Agreement is said to be reached when an offer capable of immediate acceptance is

met with a "mirror image" acceptance (i.e., an unqualified acceptance). The parties must

have the necessary capacity to contract and the contract must not be either trifling,

indeterminate, impossible, or illegal. Contract law is based on the principle expressed in the

Latin phrase pacta sunt servanda (usually translated "pacts must be kept", but more literally

"agreements are to be kept"). Breach of contract is recognized by the law and remedies can

be provided.

As long as the good or service provided is legal, any oral agreement between two

parties can constitute a binding legal contract. The practical limitation to this, however, is

that only parties to a written agreement have material evidence (the written contract itself)

to prove the actual terms uttered at the time the agreement was struck. In daily li fe, most

contracts can be and are made orally, such as purchasing a book or a sandwich. Sometimes

written contracts are required by either the parties, or by statutory law within various

jurisdiction for certain types of agreement, for example when buying a house or land.

Contract law can be classified, as is habitual in civil law systems, as part of a general

law of obligations (along with tort, unjust enrichment or restitution).

According to legal scholar Sir John William Salmond, a contract is "an agreement

creating and defining the obligations between two or more parties".

As a means of economic ordering, contract relies on the notion of consensual

exchange and has been extensively discussed in broader economic, sociological and

anthropological terms (see "Contractual theory", below). In American English, the term

extends beyond the legal meaning to encompass a broader category of agreements.


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This mainly concerns contract law in common law jurisdictions (approximately

coincident with the English-speaking world and anywhere the British Empire once held

sway). However, contract is a form of economic ordering common throughout the world,

and different rules apply in jurisdictions applying civil law (derived from Roman law

principles), Islamic law, socialist legal systems, and customary or local law.

ELEMENTSOF A CONTRACT

While each state in the United States has slightly different criteria as to how to create an

enforceable agreement, all are essentially identical in their basic requirements. Contractual

requirements are essentially commonsense as seen below.

FIRST, the parties must have intended to create a binding obligation between themselves.

Unless unusual events occur, one can not enter into a contract by mistake. While

ambiguity of terms or errors as to facts that lead one to create a contract are discussed

below, the parties must have determined between themselves to enter into a binding

agreement.

The above necessarily requires that the contracting parties be of legal age to contract (18 or

21 depending on the State), of sound mind, and with the requisite state of mind to intend to

form an agreement which the Courts will have the power to enforce. Moral obligations, in

which a party does not intend to be legally bound but feels morally obligated to perform, do

not meet that requisite legal intent.

While mistakes as to facts can lead a party to foolishly or mistakenly enter into an

agreement, assuming that the party intentionally intended to enter into a binding

agreement, the courts will normally still enforce the agreement since the other party relied

on the commitment.

For example, if a defendant made an error in reading the map and entered into a contract to


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dig a trench not realizing that the ground was not sand but solid rock, thus it will cost twice

as much to dig, the court will ignore the fact that the defendant entered into the contract

based on an error in judgment and will compel the defendant to perform. Error of fact is not

a defense unless both parties were in error in which case some courts have held that the

parties failed to agree since both were in error as to the true facts. Error caused by the

intentional misrepresentation of the plaintiff can also void a contract since the court will not

encourage such fraudulent acts.

SECOND, the parties must contract to perform a legal act. No court will enforce a contract to

engage in illegal or immoral activities. Thus, for example, a contract to import illegal goods

or to evade taxes will be unenforceable in a court of law in the United States.

THIRD, each party must either give up something or transfer some benefit to the other party

before a binding agreement is created. This is called consideration and simply means that

the contract involves mutual obligations of the parties in which each side achieves some

benefit from the other. A typical example is that one party buys a house by paying money to

the other. One party gives up money to buy the house. The other party gives up the house

to get the money. It is an enforceable contract.

A related concept to consideration is mutuality. That concept is that if one party seeks to

enforce a contract, that party, itself, must be bound to the contract. Mutuality is actually no

more than another way of insisting that each side must surrender something of value to

create a binding contract. (An exception to mutuality is third party beneficiary contracts

discussed below.)

It is important to note that the consideration need not be identical or of equal value. The

courts allow great freedom of contract and will not try to impose the courts idea of value

on the parties. Nevertheless, unless there is some exchange, and the exchange is more than

nominal, the Courts will look with disfavor upon the contract.

All these concepts seek to impose fairness...the idea that one must pay something or give

up something to bind another. Failure of consideration can eliminate a contract. Thus if I sell


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you a house which, unbeknownst to you, you already own (you were unaware that you had

inherited it) then I can not enforce the contract to have you pay me even if you signed that

contract in mistake since I have really given nothing up.

Some courts have held that if one reasonably relies on promised performance of another,

and the other had grounds for knowing of that reliance, that the contract is enforceable

even if the consideration is one way. Thus, if I promise to give you an automobile as a gift

and based on that you move to a distant location, the courts may enforce that obligation

because you relied on my promise even though you had not obligated yourself to pay me

anything or give me anything in return, i.e. it was a gift. This doctrine is called promissory

estoppel.

FOURTH, the basic essential terms of the contract must be agreed between the parties.

Those terms usually include: who are the bound parties; who gives up precisely what and

when. If the parties failed to agree on these key terms, or on only one or two of them, the

court will usually void the attempted agreement on the grounds of uncertainty or a failure

of the parties to have a meeting of the minds. Except under unusual circumstances, an

American court will NOT substitute its judgment for those of the parties and write in

critical clauses. The parties are free to contract or not to contract and this freedom to

contract is not lightly abridged or taken over by the court.

Breach of contract

Breach of contract is a legal concept in which a binding agreement or bargained-for

exchange is not honored by one or more of the parties to the contract by non-performance

or interference with the other party's performance. If the party does not fulfill his

contractual promise, or has given information to the other party that he will not perform his

duty as mentioned in the contract or if by his action and conduct he seems to be unable to

perform the contract, he is said to breach the contract.


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Minor breaches

A minor breach, a partial breach or an immaterial breach, occurs when the non-breaching

party is unentitled to an order for performance of its obligations, but only to collect the

actual amount of their damages. For example, suppose a homeowner hires a contractor toinstall new plumbing and insists that the pipes, which will ultimately be sealed behind the

walls, be red. The contractor instead uses blue pipes that function just as well. Although the

contractor breached the literal terms of the contract, the homeowner can only recover the

amount of his damages. Generally, this means the difference in value between the red pipe

and the blue pipe. Since the pipes are identical value, the difference is zero; therefore, there

are no damages and the homeowner receives nothing.

Material breaches

A material breach is any failure to perform that permits the other party to the contract to

either compel performance, or collect damages because of the breach. If the contractor in

the above example had been instructed to use copper pipes, and instead used iron pipes

which would not last as long as the copper pipes would have, the homeowner can recover

the cost of actually correcting the breach - taking out the iron pipes and replacing them with

copper pipes.

The Restatement (Second) of Contracts lists the following criteria to determine whether a

specific failure constitutes a breach:

In determining whether a failure to render or to offer performance is material, the following

circumstances are significant: (a) the extent to which the injured party will be deprived of

the benefit which he reasonably expected; (b) the extent to which the injured party can be

adequately compensated for the part of that benefit of which he will be deprived; (c) the

extent to which the party failing to perform or to offer to perform will suffer forfeiture; (d)

the likelihood that the party failing to perform or to offer to perform will cure his failure,

taking account of all the circumstances including any reasonable assurances; (e) the extent

to which the behavior of the party failing to perform or to offer to perform comports with

standards of good faith and fair dealing.


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Fundamental Breach

A fundamental breach (or repudiatory breach) is a breach so fundamental that it permits

the aggrieved party to terminate performance of the contract, in addition to entitling that

party to sue for damages.

Anticipatory breach

A breach by anticipatory repudiation (or simply anticipatory breach) is an unequivocal

indication that the party will not perform when performance is due, or a situation in which

future non-performance is inevitable. An anticipatory breach gives the non-breaching party

the option to treat such a breach as immediate, and, if repudiatory, to terminate the

contract and sue for damages (without waiting for the breach to actually take place).

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 UK 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.

Here are most common remedies sought:

Consequential

The breaching party pays the non-breaching party an amount that brings that party back to


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the same position they would have been in if the contract was performed.

Punitive

The breaching party makes a payment to the other party as punishment for breaching the

contract.

Liquidated

This type of damages is agreed upon as part of the contract itself, before signing. It

stipulates that if one party breaches the contract, that party must pay a specified amount.

NominalThis minimal amount is provided in the event that the non-breaching party wins the case

but suffers only minimal financial losses.

Other remedies for breach of contract may include:

Specific performance

In some circumstances, a court can require the breaching party to perform their duties as

agreed upon in the contract.

Rescission

Either party is required to perform the contrac's obligations, as if there were no agreement

signed. If one party has performed some of his duties, the court tries to bring that party

back to the same position he or she was in before the contract.

The statute of limitations on filing a breach of contract lawsuit varies by state. If a party

does not file within the state's specified time limit, he or she loses the ability to seek

damages through a breach of contract lawsuit.


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Damages

There are five different types of damages.

Compensatory damageswhich are given to the party which was detrimented by the breach of contract. With

compensatory damages, there are two heads of loss, consequential damage and direct

damage.

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. Some jurisdictions do not allow

exemplary damages for breach of contract

Liquidated damages

Are really a pre-estimate of loss agreed upon in the contract, so that the court is saved the

process of calculating compensatory damages and the parties have greater certainty.

Liquidated damages clauses are often called "penalty clauses" in ordinary language, but the

law distinguishes between liquidated damages (legitimate) and penalties (invalid). A penalty

clause is one which is intended to operate "in terrorem" to deter breach and are typically

excessive in amount compared with the greatest loss which the parties could have

anticipated as resulting from breach at the time the contract was made (though it will still

be an invalid penalty if circumstances change and the sum is reasonable by the time of the

actual breach). The parties' terminology is not determinative and the court will decide

whether the clause is a penalty or one for liquidated damages. A test for determining which

category a clause falls into was established by the English House of Lords.


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Nominal damages

which consist of a small cash amount where the court concludes that the defendant is in

breach but the plaintiff has suffered no quantifiable pecuniary loss (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. Again, these are not permitted in all jurisdictions, with

England & Wales, for instance, prohibiting them.

Limits on damages and remedies

Typically, the judicial remedy for breach of contract is monetary damages. See damages.

Where the failure to perform cannot be adequately redressed by money damage, the court

may enter an equity decree awarding an injunction or specific performance.

The aggrieved person has a duty to mitigate or reduce damages by reasonable means.

Liquidated Damages may be limited to a specific amount. In the United States, punitive

damages are generally not awarded for breach of contract but may be awarded for other

causes of action in a lawsuit. Limitation of Liability (Exculpatory) clauses. [Private agreement

is permissible.] [Invalid when public interest is involved and there is willful conduct or gross

negligence.]

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