BLaw Ch16 Breach of Contract and Remedies
Tort of bad faith/breach of the implied covenant of good faith and fair dealing
A breach of this implied covenant is a tort for which tort damages are recoverable. This covenant is usually implied in contracts where the parties have a special relationship that involves a fiduciary duty. This tort, which is sometimes referred to as the tort of bad faith, is an evolving area of the law. e.g. Contracts between insurance companies and insureds, publishing agreements between publishers and authors, and employment contracts.
material breach 重大违约
A breach that occurs when a party renders inferior performance of his or her contractual duties.
minor breach轻微违约
A breach that occurs when a party renders substantial performance of his or her contractual duties. The nonbreaching party may try to convince the breaching party to elevate his or her performance to complete performance. If the breaching party does not correct the breach, the nonbreaching party can sue to recover damages by (1) deducting the cost to repair the defect from the contract price and remitting the balance to the breaching party or (2) suing the breaching party to recover the cost to repair the defect if the breaching party has already been paid. e.g. Donald Trump contracts with Big Apple Construction Co. to have Big Apple construct an office building for $100 million. The architectural plans call for installation of three-ply windows in the building. Big Apple constructs the building exactly to plan except that it installs two-ply windows. There has been substantial performance. It would cost $5 million to install the correct windows. If Big Apple agrees to replace the windows and does so, its performance is elevated to complete performance, and Trump must pay the entire contract price. However, if Trump has to hire someone else to replace the windows, he may deduct this cost of repair of $5 million from the contract price of $100 million and remit the difference of $95 million to Big Apple. If Trump had already paid the $100 million and Big Apple refuses to install the proper windows, Trump can sue and recover the $5 million.
anticipatory breach (anticipatory repudiation)期前违约
A breach that occurs when one contracting party informs the other that he or she will not perform his or her contractual duties when due. This type of material breach can be expressly stated or implied from the conduct of the repudiator. Where there is an anticipatory repudiation, the nonbreaching party's obligations under the contract are discharged immediately. The nonbreaching party also has the right to sue the repudiating party when the anticipatory breach occurs; there is no need to wait until performance is due.
construction contract
A construction contract arises when the owner of real property contracts to have a contractor build a structure or do other construction work. The compensatory damages recoverable for a breach of a construction contract vary with the stage of completion of the project when the breach occurs. A contractor may recover the profits he or she would have made on the contract if the owner breaches the construction contract before construction begins. If the builder breaches a construction contract either before or during construction, the owner can recover the increased cost above the contract price that he or she has to pay to have the work completed by another contractor. e.g. Ethenol Corporation contracts to have the Sherry Construction Company build a factory building for Ethenol for $1,200,000. Just before Sherry Construction Company is to begin work, it breaches the contract by withdrawing from the project. Ethenol seeks new bids, and the lowest bid to construct the building is $1,700,000. Here, Ethenol can recover $500,000 in compensatory damages from Sherry Construction Company.
injunction 禁令
A court order that prohibits a person from doing a certain act. To obtain an injunction, the requesting party must show that he or she will suffer irreparable injury if the injunction is not issued. e.g. A professional basketball team enters into a five-year employment contract with a basketball player. The basketball player breaches the contract and enters into a contract to play for a competing professional basketball team. Here, the first team can obtain an injunction to prevent the basketball player from playing for the other team during the remaining term of the original contract.
executed contract
A fully performed contract is called an executed contract.
penalty
A liquidated damages clause is considered a penalty if actual damages are clearly determinable in advance or if the liquidated damages are excessive or unconscionable. If a liquidated damages clause is found to be a penalty, it is unenforceable. The nonbreaching party may then recover actual damages. e.g. Rent-to-Own Store is a store that rents furniture to individuals who are usually poorer, and these individuals take title to the furniture after having paid the cost of the furniture (which is often overpriced with high interest rates). Mable, an elderly person who is poor, has rented and purchased a living room set, a dining room set, and a bedroom set from Rent-to-Own Store. Mable rents a big-screen HD television from Rent-to-Own Store and signs a contract that states that if Mable falls more than three months behind in her television payments, Rent-to-Own Store can recover all of the furniture she had previously purchased from the store as liquidated damages. This is an example of a liquidated damages clause that is a penalty and that would not be enforced.
mitigation of damages 减轻损失
A nonbreaching party's legal duty to avoid or reduce damages caused by a breach of contract. If employer breaches an employment contract, the employee owns a duty to mitigate damages by trying to find substitute employment. The employee is only required to accept comparable employment. The courts consider factors such as compensation, rank, status, job description, and geographical location in determining the comparability of jobs.
arbitration
A nonjudicial, private resolution of a contract dispute. An arbitrator, not a judge or jury, renders提出 a decision in the case. Arbitration occurs if the parties have entered into an arbitration agreement, either as part of their contract or as a separate agreement. Many consumer and business contracts contain arbitration clauses. e.g. Credit-card agreements, mortgages, sales contracts, automobile leases, employment contracts, electronics contracts, and software licenses (e.g., Face- book, Microsoft).
equitable remedy 平衡救济
A remedy that is available 1) if there has been a breach of contract that cannot be adequately compensated through a legal remedy or 2) to prevent unjust enrichment. The most common equitable remedies are specific performance, reformation改善, and injunction救济.
specific performance
A remedy that orders the breaching party to perform the acts promised in the contract. Specific performance is usually awarded in cases in which the subject matter is unique, such as in contracts involving land, heirlooms祖传遗物, and paintings. Specific performance is available to enforce LAND contracts because every piece of real property is considered to be unique. Works of art, antiques, items of sentimental value, rare coins, stamps, heirlooms, and the like, also fit the requirement for uniqueness. Most other personal property does not.
inferior performance
A situation in which a party fails to perform express or implied contractual obligations and impairs or destroys the essence of a contract. Where there has been a material breach of contract, the nonbreaching party may rescind the contract and seek restitution of any compensation paid under the contract to the breaching party. The nonbreaching party is discharged from any further performance under the contract. Alternatively, the nonbreaching party may treat the contract as being in effect and sue the breaching party to recover damages (see Exhibit 16.2). e.g. A university contracts with a general contractor to build a new three- story classroom building with classroom space for 1,000 students. The contract price is $100 million. However, the completed building cannot support more than 500 students because the contractor used inferior materials. The defect cannot be repaired without rebuilding the entire structure. Because this is a material breach, the university may rescind the contract, recover any money that it has paid to the contractor, and require the contractor to remove the building. The university is discharged of any obligations under the contract and is free to employ another contractor to rebuild the building. However, the building does meet building codes so that it can be used as an administration building of the university. Thus, as an alternative remedy, the university could accept the building as an administration building, which has a value of $20 million. The university would owe this amount—$20 million—to the contractor.
complete performance/strict performance
A situation in which a party to a contract renders performance exactly as required by the contract. Complete performance discharges that party's obligations under the contract.
breach of contract
A situation that occurs if one or both of the parties do not perform their duties as specified in the contract.
intentional interference with contractual relations
A tort that arises when a third party induces a contracting party to breach the contract with another party. The third party does not have to have acted with malice or bad faith. The following elements must be shown: 1. A valid, enforceable contract between the contracting parties 2. Third-party knowledge of this contract 3. Third-party inducement to breach the contract A third party can contract with the breaching party without becoming liable for this tort if a contracting party has already breached the contract, and thus the third party cannot be held to have induced a breach of the other parties' contract. e.g. A professional football player signs a five-year contract to play football for a certain professional football team. Two years into the contract, another professional football team, with full knowledge of the player's contract with the other team, offers the player twice the amount of money that he is currently making to breach his contract and sign and play with the second football team. The player breaches his contract and signs to play for the second team. Here, the second team intentionally interfered with the player's contract with the first team. The first team can recover tort damages—including punitive damages—from the second team for the tort of intentional interference with a contract.
rescission 撤销
An action to rescind (undo) a contract. Rescission is available if there has been a material breach of contract, fraud, duress, undue influence, or mistake.
compensatory damages 补偿性赔偿
An award of money intended to compensate a nonbreaching party for the loss of the bargain. Compensatory damages place the nonbreaching party in the same position as if the contract had been fully performed by restoring the "benefit of the bargain."
monetary damages／dollar damage 金钱损失
An award of money. Monetary damages are available whether the breach was minor or material. Include compensatory, consequential, liquidated, and nominal damages.
employment contract
An employee whose employer breaches an employment contract can recover lost wages or salary as compensatory damages. If the employee breaches the contract, the employer can recover the costs to hire a new employee plus any increase in salary paid to the replacement.
reformation 改善
An equitable doctrine that permits the court to rewrite a contract to express the parties' true intentions. Reformation is usually available to correct clerical errors in contracts. e.g. A clerical error is made during the typing of a contract, and both parties sign the contract without discovering the error. If a dispute later arises, the court can reform the contract to correct the clerical error to read as the parties originally intended.
covenant of good faith and fair dealing
An implied covenant under which the parties to a contract not only are held to the express terms of the contract but also required to act in "good faith" and deal fairly in all respects in obtaining the objective of the contract.
writ of attachment 扣押令
An order of the court that enables a government officer to seize property of the breaching party and sell it at auction to satisfy a judgment.
writ of garnishment 扣押债券通知
An order of the court that orders that wages, bank accounts, or other property of the breaching party held by third persons be paid to the nonbreaching party to satisfy a judgment.
tender of performance
An unconditional and absolute offer by a contracting party to perform his or her obligations under a contract.
sale of a good
Compensatory damages for a breach of a sales contract involving goods are governed by the Uniform Commercial Code (UCC). The usual measure of damages for a breach of a sales contract is the difference between the contract price and the market price of the goods at the time and place the goods were to be delivered.
disclaimer 免责申明of consequential damages
Consequential damages are often disclaimed in a sales or license agreement. This means that the breaching party is not responsible to pay consequential damages. Disclaimer of consequential damages is lawful in most instances. e.g.A student installs a new software program on his computer that is li- censed from a software company. The license price was $100. The software was installed, but it was defective. The software causes files in the computer, including the student's class notes, PhD dissertation, and other valuable information, to be deleted. These were the only copies of the files. The student suffers a loss by having his only copies of these important materials to be deleted because of the newly installed software. These losses are consequential damages. However, the software license contains a disclaimer stating that the licensor is not liable for consequential damages. Therefore, the student cannot recover monetary damages for his consequential damages. The student can recover $100 in compensatory damages, however, for the license price he paid for the defective software.
nominal damages 象征性的损害赔偿
Damages awarded when the nonbreaching party sues the breaching party even though no financial loss has resulted from the breach. Nominal damages are usually $1 or some other small amount. Cases involving nominal damages are usually brought on principle. Most courts disfavor nominal damages lawsuits because they use valuable court time and resources.
liquidated damages
Damages that parties to a contract agree in advance should be paid if the contract is breached. To be lawful, the actual damages must be difficult or impracticable to determine, and the liquidated amount must be reasonable in the circumstances. An enforceable liquidated damages clause is an exclusive remedy even if actual damages are later determined to be different. e.g. Alaska Oil Company discovers a new rich oil field in the northern-most part of Alaska. Alaska Oil contracts to purchase special oil-drilling equipment that is necessary to drill holes in the hard ground in the Alaska tundra from Tundra Equipment Corporation. The contract states that the equipment is to be delivered by July 1, 2018. The parties know that Alaska Oil cannot start digging the oil holes until it receives this equipment. It is uncertain how great the oil flow will be from the drilled oil holes. The parties place a liquidated damage clause in their contract that states that Tundra Equipment will pay $20,000 per day in liquidated damages for each day after July 1, 2018, that the equipment is not delivered. This is an enforceable liquidated damages clause because actual damages are difficult to determine and the liquidated amount is reasonable in the circumstances. Thus, if Tundra Equipment does not deliver the equipment until July 1, 2019, it owes Alaska Oil $7,300,000 (365 days × $20,000 per day).
consequential damages 相应的损害赔偿金
Foreseeable damages that arise from circumstances outside a contract. To be liable for these damages, the breaching party must know or have reason to know that the breach will cause special damages to the other party.
substantial performance
Performance by a contracting party that deviates only slightly from complete performance.
specific performance of personal service contracts
Specific performance of personal service contracts is not granted because the courts would find it difficult or impracticable to supervise or monitor performance of such a contract.
Federal Arbitration Act
The U.S. Congress has enacted the Federal Arbitration Act, which promotes the arbitration of contract disputes, whether the dispute involves federal or state law. The U.S. Supreme Court has upheld the act's national policy favoring arbitration and the enforcement of arbitration agreements.
binding arbitration 约束仲裁
The arbitrator's decision cannot be appealed to the courts.
restitution 赔偿
The return of goods or property received from the other party to rescind a contract. If the actual goods or property are not available, a cash equivalent must be made. The rescinding party must give adequate notice of the rescission to the breaching party. Rescission and restitution restore the parties to the positions they occupied prior to the contract.
torts associate with contracts
Tort damages include compensation for personal injury, pain and suffering, emotional distress, and possibly punitive damages. Generally, punitive damages are not recoverable for breach of contract. They are recoverable, however, for certain tortious conduct that may be associated with the nonperformance of a contract.