Module III·Article II·~2 min read
Liability for Breach of Contract and Remedies
Contract Law
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Types of Breach of Contract
Non-performance — complete refusal to fulfill the obligation.
Improper performance — performance that violates the terms (delay, defects, incomplete volume).
Anticipatory breach — a clear statement by a party that it will not perform the contract. In common law, this allows the other party to sue immediately without waiting for the due date.
Remedies
Damages — the main remedy. The goal is to put the injured party in the position they would have been in had the contract been properly performed.
- Actual damages (direct losses)
- Lost profits
- Moral damages (only for individuals in most systems)
Limitations: (1) Causation; (2) Foreseeability of losses at the time of entering into the contract (the rule from Hadley v. Baxendale); (3) Duty of the injured party to mitigate damages.
Liquidated Damages / Penalty Clause — a pre-agreed amount for breach. In Russia — fine or penalty. In common law — liquidated damages (a reasonable pre-estimate of loss) are valid; penalty clauses (punitive penalties) — courts may reduce.
Specific Performance — the court requires the breaching party to perform the contract. Applied when monetary compensation is insufficient (unique goods, real estate).
Termination/Rescission — the parties return to their original positions. Applied in case of material breach.
Force Majeure and Change of Circumstances
Force Majeure — circumstances of irresistible force (war, natural disaster, epidemic), making performance impossible. Upon the occurrence of force majeure, the party is released from liability, but not from the obligation. COVID-19 generated thousands of disputes over force majeure.
Hardship (Significant Change of Circumstances) — performance of the contract has become excessively burdensome (but not impossible). Requires negotiations and possible revision of the contract.
Practical Task
A construction contractor was six months late in completing a project due to rising prices for materials. The contract contains a penalty of 0.1% of the contract price for each day of delay. Analyze: (1) Is the increase in prices a force majeure? (2) Can the contractor demand a revision of the price? (3) How can the penalty be reduced in court?
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