Breach of contract - contract law

1) Breach of contract: SPANISH CONTRACT LAW PROVIDES A BROAD NOTION OF BREACH OF CONTRACT FOR ANY BEHAVIOR THAT DEPARTS FROM THE SPECIFIED BEHAVIOR IN THE CONTRACT IN ANY WAY (TIME, QUALITY, SUBSTANCE, ETC.) OR IS NOT SPECIALLY JUSTIFIED ON LEGAL GROUNDS (ACTIONS FORBIDDEN BY THE GOVERNMENT ARE NOT BREACHES SINCE THEY ARE JUSTIFIED ON A LEGAL GROUND).

THE GENERAL BENCHMARK TO DETERMINE BREACH IS THE CONTRACT AGREED BY THE PARTIES THEMSELVES, AND NOT EXTERNAL NOTIONS. HOWEVER, EXTERNAL NOTIONS ARE USED IN IMPORTANT SITUATION SUCH AS THE CONSUMER'S MARKET WHERE THE CONSUMER'S EXPECTATIONS ARE THE PRIMARY BENCHMARKS TO ASSESS QUALITY AND PERFORMANCE SINCE THERE IS NOT AN EXPLICIT CONTRACT. EXTERNAL NOTIONS ARE ALSO IMPORTANT IN OTHER MARKET, WHERE A THIRD PARTY MAY HAVE SOME DUTY OR RESPONSIBILITY OVER THE CONTRACT, AND THEREFORE, IS RESPONSIBLE (AT LEAST IN PART) FOR ANY POTENTIAL BREACH. THE REASON FOR BREACH DOES NOT EXCLUDE THE BREACH. WHAT MATTERS IS THE BREACH.

THE ANALYSIS OF  BREACH TAKES PLACE IN OBJECTIVE TERMS. SUBJECTIVE FACTORS GENERALLY DO NOT EXCLUDE BREACH, ALTHOUGH  THEY MAY AFFECT REMEDIES. IN CERTAIN CONTRACTUAL AREAS, BREACH OF DUTY AND FAULT ARE GENERALLY  REQUIRED (PROFESSIONAL CONTRACTS, MANAGEMENT CONTRACTS: BREACH REQUIRES VIOLATION OF A DUTY OF CARE OR A DUTY OF LOYALTY). IN PROFESSIONAL CONTRACTS, THE FAULT MAY BE OF A PROFESSIONAL WHO WAS IN CONTRACT WITH THE FIRM, AND IN MANAGEMENT CONTRACTS, IT MAY BE THE FAULT OF THE MANAGER. 2) Remedies: SPANISH CONTRACT LAW PROVIDES A WIDE RANGE OF GENERAL REMEDIES FOR BREACH OF CONTRACT: •SPECIFIC PERFORMANCE: THE COURT FORCES THE BREACHER TO ACT AS IT WAS ESTABLISHED IN THE CONTRACT. IF FOR EXAMPLE, THE CONTRACT STIPULATED THAT THE PROMISER HAD TO GIVE THE PROMISEE A PRODUCT OF QUALITY 2 AND HE DELIVERS A GOOD OF QUALITY 1, THEN AS REMEDY THE COURT FORCE THE PROMISER TO DELIVER A GOOD OF QUALITY 2. •DAMAGES: THE COURT FORCE THE BREACHER TO PAY A CERTAIN AMOUNT OF MONEY (DAMAGES) TO THEOTHER PARTY AS COMPENSATION. IT IS A MONETARY REMEDY. THE COURT CALCULATE THE AMOUNT TO BE PAID.•LIQUIDATED DAMAGES: THESE ARE ALSO MONETARY COMPENSATION, BUT WITH THE DIFFERENCE THAT THEY

ARE NOT CALCULATED BY THE COURT, BUT THEY ARE INSTEAD SPECIFIED IN THE CONTRACT ITSELF. ONE EXAMPLE ARE THE SOCCER PLAYERS' CONTRACTS, OR SALE CONTRACTS THAT SPECIFIES THE AMOUNT TO BE PAID FOR EACH DAY OF DELAY.OTHER GENERAL REMEDIES THAT WE CAN FIND ARE:•TERMINATION: IF A PARTY SUFFERS A BREACH, IT CAN CONTRACT WITH ANOTHER PARTY AND ABANDON ITS

CONTRACTUAL OBLIGATION. IF THE BREACHER DOES NOT AGREE WITH THIS, COURT IS NECESSARY.•REDUCTION OF PRICES: IN CASE OF BREACH OF A PARTY, A GENERAL REMEDY IS TO REDUCE THE PRICE TO EQUILIBRATE THE CONTRACT. GENERALLY, IT IS THE AGGRIEVED PARTY WHO CHOOSES THE REMEDY TO BE IMPOSED. 3) Specific performance: SPECIFIC PERFORMANCE IS A REMEDY FOR BREACH CHARACTERIZED BY THE FACT THAT A FAILED PERFORMANCE OR DEPARTURE FROM REQUIRED ACTION BY THE CONTRACT WILL BE IMPOSED UPON BREACHING PARTY. IT IS ALSO CHARACTERIZED BY SEVERAL MATERIAL VARIANTS OF THE REMEDY SUCH AS: FORCED DELIVERY, FORCED ACTION, INJUNCTION NOT TO DO, REPAIR DEFECTIVE PERFORMANCE AND REPLACE NON-CONFORMING GOOD. IN THE CASE OF THE INJUNCTION NOT TO DO, THE COURT OBLIGE THE BREACHER NOT TO DO SOMETHING, SUCH AS OBLIGING A CEO TO WORK FOR THE COMPETITION IF IN THE CONTRACT IT WAS STIPULATED THAT HE CANNOT. SPECIFIC PERFORMANCE CONCEPTUALLY INCLUDES REPAIR AND REPLACEMENT OF CONSUMER GOODS.

THE MAIN ISSUE WITH SPECIFIC PERFORMANCE, WHEN IT IS FEASIBLE, IS THE ISSUE OF THE BALANCE OF BENEFITS AND COSTS OF THE REMEDY. SPECIFIC PERFORMANCE IMPLIES THAT THE BREACHER PERFORM AS THE CONTRACT ESTABLISHES. HOWEVER, SOMETIMES, THE COST OF THIS PERFORMANCE MAY BE HIGHER THAN THE BENEFIT IN SOCIAL WELFARE TERMS. TAKE THE EXAMPLE OF THE MINING FIRM, WHICH HAS A CONTRACT WITH THE OWNER OF THE LAND TO MINE FOR 10 YEARS AND THEN CLEAN THE LAND. WHEN THE 10 YEAR PASS, THE FIRMS BREACHES THE CONTRACT AND REFUSE TO CLEAN. THE COST OF CLEANING THE LAND IS 20 MILLIONS, AND THE BENEFIT FOR THE OWNER IS 1 MILLION. SO IF THE COURT IMPOSES A SPECIFIC PERFORMANCE TO FIRM, SOCIETY WILL LOOSE 19 MILLIONS. A GOOD ALTERNATIVE WOULD BE TO IMPOSE DAMAGES TO THE FIRM, WHICH WOULD BE PREFERRED BY THE OWNER, SINCE AN AGREEMENT BETWEEN THE FIRM AND THE OWNER WILL BE REACHED THAT MAXIMIZE THE SOCIAL WELFARE. IN THESE CASES, PERFORMANCE MAY BE MORE COSTLY THAN ITS VALUE FOR PROMISEE: PERFORMANCE MAY BE EX POST INEFFICIENT. THERE ARE BOTH POSITIVE AND NEGATIVE FEATURES OF SPECIFIC PERFORMANCE AS A REMEDY. AS POSITIVE FEATURES, WE CAN DISTINGUISH LOW INFORMATIONAL REQUIREMENTS TO APPLY REMEDY (AVOIDS COST OF ERROR LINKED TO ESTIMATING DAMAGES) AND THE PARTY AGGRIEVED BY BREACH APPEARS TO BE SATISFIED IN ITS PROMISSORY EXPECTATION. AS NEGATIVE FEATURES, WE FIND PERFORMANCE MAY BE MORE COSTLY THAN ITS VALUE FOR PROMISEE (PERFORMANCE MAY BE EX POST INEFFICIENT), REQUIRES A COURT ORDER AND TAKES TIME, FOR COMPLEX PERFORMANCES REQUIRES COSTLY AND DIFFICULT SUPERVISION BY COURT AND PERFORMANCE BY A PARTY FORCED TO COMPLY WITH CONTRACT MAY BE PERFUNCTORY (LOWEST EFFORT) AT BEST. 4) Damages: DAMAGES ARE UNDERSTOOD AS GENERAL REMEDIES THAT CAN BE APPLIED TO ALL TYPES OF CONTRACTS AND BREACHES OF CONTRACTS. IT IS A REMEDY DEFINED IN VERY BROAD TERMS: AMOUNT OF MONEY TO COMPENSATE ANY HARM SUFFERED BY THE INJURED PARTY AS A CONSEQUENCE OF ANY BREACH OF CONTRACT. WE CAN DIFFERENTIATE BETWEEN TWO KINDS OF DAMAGES: EXPECTATION AND RELIANCE DAMAGES. THIS IS WHY IT IS A REMEDY WITH A VARIABLE EXTENSION. EXPECTATION DAMAGES:

EXPECTATION DAMAGES IS THE SUM OF MONEY THAT WILL GIVE THE PARTY DAMAGED THE SAME AMOUNT OF WELFARE AND UTILITY THAN IF THE CONTRACT WOULD NOT HAVE BEEN BREACHED AND THE FINAL RESULT WOULD HAVE BEEN ATTAINED. THEREFORE, THE BREACH PARTY WOULD HAVE TO PAY THE AGGRIEVED PARTY AN AMOUNT OF MONEY THAT WOULD COMPENSATE FOR THE HARM CAUSED AND IN ADDITION AN AMOUNT OF MONEY EQUAL TO THE VALUE OF THE PERFORMANCE FOR THIS PARTY. THERE ARE HOWEVER SOME PROBLEMS WITH EXPECTATION DAMAGES SINCE THEY ARE DIFFICULT TO COMPUTE AND SOME INSTANCES OF MORAL HAZARD MAY APPEAR. THOSE WHO SEEK FOR DAMAGES HAVE TO PROVIDE EVIDENCE OF BOTH THE EXISTENCE AND AMOUNT OF DAMAGES. THIS REQUIREMENT HAS SOME EXCEPTIONS IN CASE OF HARM IN RE IPSA: ILLEGITIMATE USE OF A PRODUCTIVE GOOD, DEPRIVATION OF A PRODUCTIVE GOOD, AND FEW OTHER EXAMPLES. EXPECTATION DAMAGES IS THE GENERAL RULE IN SPANISH LAW FOR BREACH OF CONTRACT. IT IS THE DAMAGE MEASURE THAT ACCOMPANIES TERMINATION FOR BREACH AND THE REPLACEMENT MEASURE OF SPECIFIC PERFORMANCE. IT IS AWARDED WHEN THERE IS A BREACH OF REPRESENTATIONS AND WARRANTIES, ADVERTISING AND PROMOTIONAL COMMUNICATIONS AND IN CASES OF PRE-CONTRACTUAL FRAUD THAT ARE EQUIVALENT TO BREACH OF CONTRACTS. HOW CAN WE COMPUTE EXPECTATION DAMAGES? WHEN GOODS OR SERVICES ADMIT SUBSTITUTES OR COVER TRANSACTIONS TO AVOID THE NEGATIVE CONSEQUENCES OF THE OTHER PARTY’S BREACH OF CONTRACT, THE PRICE OF THESE TRANSACTIONS IS RELEVANT. IF THE SELLER BREACHES THE CONTRACT AND THE BUYER HAS BOUGHT A GOOD, GENERALLY FUNGIBLE, THEN THE EXPECTATION DAMAGES WILL BE EQUAL TO THE DIFFERENCE BETWEEN THE PRICE OF THE SUBSTITUTE AND THE PRICE ESTABLISHED IN THE CONTRACT: PSUB-PC. IF THE BUYER BREACHES THE CONTRACT AND THE SELLER CELEBRATES A COVER SALE THE EXPECTATION DAMAGES WOULD BE EQUAL TO THE DIFFERENCE BETWEEN THE PRICE ESTABLISHED IN THE CONTRACT AND THE PRICE OF THE NEW SALE: PC-PSUB. OTHER WAYS OF COMPUTING EXPECTATION DAMAGES ARE THE FOLLOWING: MARKET DAMAGES: (FOR FUNGIBLE GOOD WITH MARKET PRICE) BUYER WILL RECEIVE EXPECTATION DAMAGES CONSISTING OF THE DIFFERENCE BETWEEN THE MARKET PRICE WHEN THE BREACH OF CONTRACT TOOK PLACE (PM) AND THE CONTRACT PRICE (PC). SELLER WILL RECEIVE THE OPPOSITE DIFFERENCE.