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Reliance Damages and Restitution in Contract Law When a contract is breached, the injured party may suffer a loss in more than one way. Sometimes the loss is the value of the bargain that was never received. That is the territory of expectation damages. But sometimes the more immediate problem is that a person spent money, changed their position, or transferred something because they relied on the agreement. In other situations, one party has already Read more

Expectation Damages in Contract Law When a contract is broken, one of the first questions the law must answer is simple but fundamental: What should the injured party receive as compensation? The most important answer in contract law is the doctrine of expectation damages. Expectation damages are designed to put the injured party in approximately the economic position they would have occupied if the contract had been properly performed. Rather than punishing the breaching party, Read more

Capacity to Contract: Who Can Enter a Binding Contract? Contract law generally assumes that people who make agreements understand what they are doing and have the legal ability to make binding commitments. But that assumption is not always justified. A person may be too young to make certain contracts fully binding. A person may lack sufficient mental capacity to understand the transaction. A person may be so intoxicated that they cannot understand the nature and Read more

Assignment vs. Delegation: What’s the Difference? Contracts are usually made between specific parties. But contractual relationships do not always remain exactly the same throughout their entire existence. A party may want to transfer the right to receive payment to someone else. Another party may want someone else to perform a contractual obligation. A business may sell a contract, transfer receivables, subcontract performance, or reorganize its operations. Contract law therefore recognizes two important mechanisms: The distinction Read more

Third-Party Beneficiary Rights in Contract Law A contract does not always benefit only the people who sign it. Sometimes two parties enter into an agreement specifically to provide a legal or financial benefit to someone else. That person may never have negotiated the contract, signed it, or provided consideration. Yet the law may allow that person to enforce the agreement. This is the doctrine of the third-party beneficiary. Third-party beneficiary law is one of the Read more

Privity of Contract: Who Can Enforce a Contract? A contract can affect many people, but that does not mean every person affected by a contract has the right to enforce it. This simple observation lies at the heart of the doctrine of privity of contract. Privity generally means that a person must be a party to a contract before that person can sue to enforce the contractual rights or obligations created by it. A contract Read more

Specific Performance as a Contract Remedy When one party breaches a contract, the most familiar remedy is money damages. A court calculates the injured party’s legally recoverable loss and orders the breaching party to pay. But money is not always enough. Sometimes the thing promised under the contract is so unique, difficult to replace, or difficult to value that financial compensation cannot adequately repair the harm. In those circumstances, a court may order the breaching Read more

Liquidated Damages vs. Penalties in Contract Law When parties enter into a contract, they sometimes know that a breach could cause financial harm. Instead of waiting for a dispute to occur and calculating damages afterward, they may agree in advance on the amount that will be payable if a particular breach occurs. Such a provision is known as a liquidated damages clause. Liquidated damages can provide certainty, reduce litigation, and make it easier for the Read more

Mitigation of Damages in Contract Law When a contract is breached, the injured party may be entitled to damages. But the law does not generally allow an injured party to sit back, allow avoidable losses to accumulate, and then demand that the breaching party pay for all of them. This principle is known as the duty to mitigate damages, or more precisely, the rule requiring a nonbreaching party to take reasonable steps to avoid or Read more