Substantial performance: A plaintiff who has “substantially performed” (but not fully performed) may sue for expectation damages arising from the defendant’s breach of contract. However, the defendant may counterclaim for damages arising from the plaintiff’s incomplete performance.
Suits in quasi-contract: Restitution and reliance damages are frequently awarded in so-called “quasi contract” suits. These are suits where recovery “on the contract” is unavailable. Two common quasi-contract scenarios:
“Duty to mitigate”: A plaintiff loses his ability to recover if he has not made reasonable efforts to avoid damages. (Examples: An employee must try to find another job; an aggrieved buyer must attempt to “cover” by purchasing substitute goods.)
Liquidated damages: A provision in a contract setting the amount of damages in case of a breach by one of the parties is called a “liquidated damages” clause. Such clauses are usually enforceable if they are a reasonable estimate of damages, viewed as of either the time of the contract or in hindsight when the actual loss is known.
- Contract is unenforceable. Quasi-contract is available where a contract is (or later becomes) unenforceable or voidable. (Examples: (1) A contract that violates the Statute of Frauds, but that is partly performed; (2) a contract that is discharged for impossibility.)
- Recovery by breaching plaintiff. Quasi-contract is available where a plaintiff who has committed a “material” breach (i.e., a plaintiff who has not substantially performed), has nonetheless performed enough to render some value to the defendant. The suit is sometimes said to be in “quantum meruit.” (Example: A contractor who only partially completes work on the construction of a building may recover for the value of the partial construction.)
A. Recovery on and off the contract: In analyzing the remedies available to a party, one crucial distinction must be kept in mind: that between a suit brought on the contract, and a suit brought off the contract, i.e., in quasi-contract.
1. Suit “on the contract”: Where the parties have formed a legally enforceable contract, and the defendant (but not the plaintiff) has breached the contract, the plaintiff will normally sue “on the contract.” That is, he will bring a suit for damages for breach of contract, and the terms of the contract will control for purposes of judging the defendant’s wrongful conduct, and calculating damages.
2. Suit in “quasi-contract”: But in other circumstances, the plaintiff will bring a suit in what is called “quasi-contract.” His damages will normally be based upon the actual value of the performance he has rendered, irrespective of any price set out in the contract. Situations in which a quasi-contractual recovery may be available include those in which:
- the contract is unenforceably vague;
- the contract is illegal;
- the parties are discharged from the contract because of impossibility, impracticability or frustration of purpose; and, most important,
- the plaintiff has himself materially breached the contract.
A fuller discussion of quasi-contractual recovery appears later in this chapter (see p. 325). The material prior to that deals exclusively with recovery on the contract, a fact which you must constantly keep in mind.