The Penalties of Breaching a Contract

A contract is a legal agreement. The parties to the contract have made an obligation to fulfil a promise they made to each other. Example, Mary promised to sell her car to Mike for a certain price. Mike agrees to buy the car at the price and promise to pay Mary the money the following day. Later before the transaction takes place, Mary got a better offer for the car from another friend, Chris. Mary then sells the car to Chris. Mike finds out about this transaction and is upset. Here we have a classic situation of breach of a contractual agreement. Mary by promising her car to Mike for a fixed price is the offeror [the person making the offer] and Mike is the offeree [the person accepting the offer]. There is this general misconception that perhaps Mike should have gotten this agreement in writing to prove his point or that he should have given Mary some sort of deposit when he entered into the agreement.

The truth is, a contract can be made orally or in written form, or a combination of both. The law does not particularly expect a contract to be evidenced in writing unless it is for the sales of land. Naturally, a written agreement is easier to prove. So in this situation between Mary and Mike, there is a case of breach of contract. Mike might seek some form of remedy.

One possible form of remedy is that Mike might legally force Mary to re-acquire the car from Chris and resell it to him at the original agreed price. Another possibility is that Mike might seek some form of damages from Mary for the breach of contract. In this case it might be difficult to ascertain what would be a good sum to be paid in damages. The law classify damages as either being restitutionary or discretionary.

Restitutionary damages – as the word suggest is to try to restore the affected party to a position he would have been if the default did not occur. In this case the court will assess the damage suffered by the party to the contract and order the other party to compensate accordingly. In a way this kind of damage is based on things that are tangible. Example if Bill sold a defective laptop to Sam, and Sam realizes that the laptop is defective after the purchase, it is very possible for Sam to void the contract and claim back the sum he paid to Bill.

Discretionary damages – here the court will decided what would be an appropriate sum that should be paid for any damage that is not easily assessable. Example, you were told by your travel agent that you have been booked into a five star hotel. However, it so happen that the hotel did not meet up to your expectation. You had a bad holiday and it was because your travel agent did not quite deliver on the promise he made. If you decide to bring an action the court would decided based on their discretion what would be a reasonable sum that should be paid to you.

There are other forms of penalty such as specific performance. This is where you can order the person who breach the contract to come back and complete the portion of the contract that he did not perform. Example, you go a contractor to lay marble flooring for your home. After a few days some of the marble tiles started to show cracks and began popping out of the floor. In this case you can order the contractor to come back and specifically request him to rectify the problem areas.

Another form of penalty is called quantum meruit. This is a Latin phrase meaning ‘payment for work done’. Therefore if one party only partially had performed the contract and the other party decide to terminate the contract then it is possible for a partial payment to be made based on quantum meruit. Example, Cindy agreed to teach Sean to play the guitar. Cindy told Sean that he would need a minimum of 10 lessons to master the playing of the guitar. Sean agreed to pay $100 per lesson with the full payment being made at the end of the 10 lessons. After the fourth lesson, Sean lost interest in playing the guitar. He decided to discontinue the lesson. In this case Cindy can claim from Sean for the four lessons on a quantum meruit basis.