CHAPTER 19- BREACH OF CONTRACT AND REMEDIES

Recission and restitution

-(blank) is essentially inaction to unforeseen, to terminate, a contract--to return the contracting parties to the positions they occupied prior to the transaction -when fraud, a mistake, duress, undue influence, misrepresentation, or lack of capacity to contract is present, unilateral (blank) is available -(Blank) may also be available by statute -the failure of one party to perform entitles the other party to (blank) the contract -the (blanking) party must give prompt notice to the breaching party

Sale of land (specific performance)

-*a court may grant specific performance to a buyer in an action for a breach of contract involving the sale of land * -in this situation, the legal remedy of monetary damages may not compensate the buyer adequately -after all, every parcel of land is unique: the same land in the same location obviously cannot be obtained elsewhere -only when the specific performance is unavailable (such as when the seller has sold the property to someone else) will monetary damages be awarded instead

Damages

-a breach of contract entitles the non-breaching party to sue for monetary damages -in contract law, damages compensate the non-breaching party for the loss of the bargain (whereas tort law damages compensate for harm suffered as a result of another's wrongful act) -often, courts say that innocent parties are to be placed in the position they would have occupied had the contract been fully performed -collecting damages requires litigation, which can be expensive and time consuming, so most parties settle their lawsuits for damages (or other remedies) prior to trial

Contract provisions limiting remedies

-a contract may include provisions stating that no damages can be recovered for certainties of breaches or that damages will be limited to a maximum amount -a contract may also provide that the only remedy for breach is replacement, repair, or refund of the purchase price -finally, a contract may provide that one party can seek injunctive relief if the other party breaches the contract -provisions stating that no damages can be recovered are called *exculpatory clauses* -provisions that affect the availability of certain remedies are called *limitations-of-liability clauses*

Pattern-of-conduct exception

-a waiver can extend to subsequent defective performance if a reasonable person would conclude that similar defective performance in the future will be acceptable -therefore, a (blank) that waives a number of successive breaches will operated as a continued waiver -to change this result, the non breaching party should give notice to the breaching party that full performance will be required in the future

Specific performance

-an equitable remedy requiring the breaching party to perform as promised under the contract; usually granted only when money damages would be an inadequate remedy and the subject matter of the contract is unique (for example, real property) -calls for the performance of the act promised in the contract -this remedy is attractive to a non-breaching party because it provides the exact bargain promised in the contract -it also avoids some of the problem inherent in a suit for damages, such as collecting a judgment and arranging another contract -in addition, the actual performance may be more valuable than the monetary damages -normally, however, (blank) will not be granted unless the party's legal remedy (monetary damages) is inadequate -for this reason, contracts for the sale of goods rarely quality for (blank) -the legal remedy--monetary damages--is ordinarily adequate in such situations because substantially identical goods can bought or sold in the market -only if the goods are unique will a court grant (blank) -for instance, paintings, sculptures, or rare books or coins are so unique that monetary damages will not enable a buyer to obtain substantial identical substitutes in the market

Reformation

-an equitable remedy used when the parties have *imperfectly* expressed their agreement in writing -(blank) allows a court to rewrite the contract to reflect the parties' true intentions Fraud or mutual mistake is present: -courts order (blank) most often when fraud or mutual mistake (for example, a clerical error) is present -typically, a party seeks (blank) so that some other remedy may then be pursued Written contracts incorrectly states the parties' oral agreement: -a court will also (blank) a contract when two parties enter into binding oral contract but later make an error when they attempt to put the terms into writing -normally, a court will allow into evidence the correct terms of the oral contract, thereby (blanking) the written contract Covenants not to compete: -courts also may (blank) contracts that contain a written covenant not to compete

Waiver of breach (waiver)

-an intentional, knowing relinquishment (abandonment) of a legal right -under certain circumstances, a non breaching party may be willing to accept a defective performance of the contract -this knowing relinquishment of a legal right (that is, the right to require satisfactory and full performance) is called a (blank)

Contracts for personal services

-contracts for personal services require one party to work personally for another party -courts generally refuse to grant specific performance of personal-service contracts * -one reason is that to order a party to perform personal services against his or her will amount to a type of involuntary servitude -moreover, the courts do not want to monitor contracts for personal services, which usually require the exercise of personal judgment or talent

Compensatory damages

-damages that compensate the non-breaching party for the *loss of the bargain* -these damages compensate the injured party only for damages actually sustained and proved to have arisen directly from the loss of the bargain caused by the breach of contract -they simply replace what was lost because of the wrong or damage and, for this reason, are often said to "make the person whole"

Incidental damages

-expenses that are caused directly by a breach of contract--such as those incurred to obtain performance from another source

Consequential damages (or special damages)

-foreseeable damages that result from a party's breach of contract -they differ from compensatory damages in that they are caused by special circumstances beyond the contract itself -they flow from the consequences, or results, of a breach -when a seller fails to deliver goods, knowing that the buyer is planning to use or resell those goods immediately, a court may award (blank) damages for the loss of profits from the planned resale -for the non-breaching party to recover (blank) damages, the breaching party must have known (or had reason to know) that special circumstances would cause the non-breaching party to suffer an additional loss

Restitution

-generally, to rescind a contract, both parties must make (blank) to each other by returning goods, property, or funds previously conveyed -if the property of goods can be returned, they must be -if the goods or property have been consumed, (blank) must be made in an equivalent dollar amount -essentially, (blank) involves the plaintiff's recapture of a benefit conferred on the defendant that has unjustly enriched her or him -an equitable remedy under which a person is restored to his or her original position prior to loss or injury, or placed in the position he or she wold have been in had the breach not occurred

Sale of goods

-in a contract for the sale of goods, the usual measure of compensatory damages is an amount equal to the difference between the contract price and the market price -sometimes, the buyer breaches when the seller has not yet produced the goods -in that situation, compensatory damages normally equal lost profits on the sale, not the difference between the contract price and the market price

Mitigation damages

-in most situations, when a breach of contract occurs, the innocent injured party is held to a duty to (blank), or reduce, the damages that he or she suffers -under this doctrine of (blank), the duty owed depends on the nature of the contracts -rental agreements -employment contracts

Recovery based on quasi contract

-in some situations, when no actual contract exists, a court may step in to prevent one party from being unjustly enriched at the expense of another party -a legal theory under which an obligation is imposed in the absence of an agreement -the legal obligation arises because the law considers that the party accepting the benefits has been made an implied promise to pay for them -generally, when one party has conferred a benefit on another party, justice requires that the party receiving the benefit pay the reasonable value for it -the party conferring the benefit can recover in *quantum meruit,* which means "as much as he or she deserves

Employment contracts

-in the majority of states, a person whose employment has been wrongfully terminated owed a duty to mitigate the damages that he or she suffered -in other words, a wrongfully terminated employee has a duty to take a similar job if one is available -if the employee fails to mitigate, the damages awarded will be equivalent to the person's former salary less the income he or she would have received in a similar job obtained by reasonable means -the employer has the burden of proving that such a job existed and that the employee could have been hired -normally, the employee is under no duty to take a job of a different type and rank

Penalty

-like liquidated damages, a (blank) specifies a certain amount to be paid in the event of a default or breach of contract -unlike liquidated damages, it is designed to penalize the breaching party, not to make the innocent party whole -if a court finds that a provision calls for a (blank), the agreement as to the amount will not be enforced -recovery will be limited to actual damages

Sale of land

-ordinarily, because each parcel of land is unique, the remedy for a seller's breach of a contract for a sale of real estate is specific performance -that is, the buyer is awarded the parcel of property for which she or he bargained -the majority of states follow this rule -when the *buyer* is the party in breach, the measure of damages is typically the difference between the contract price and the market price of the land -the same measure is used when specific performance is not available (because the seller has sold the property to someone else, for example) -a minority of states apply a different rule when the seller breaches the contract and the breach is not deliberate -these states limit the prospective buyer's damages to a refund of any down payment made plus any expenses incurred (such as fees for title searches, attorneys, and escrows) -thus, the minority rule effectively returns purchasers to the positions they occupied prior to the sale, rather than giving them the benefit of the bargain

Waiver of breach and subsequent breaches

-ordinarily, waiver by a contracting party will not operate to waive subsequent, additional, or future breaches of a contract -this is always true when the subsequent breaches are unrelated to the first breach

When quasi contract is used

-quasi contract allows a court to act as if a contract exists when there is no actual contract or agreement between the parties -therefore, if the parties have entered into a contract concerning the matter in controversy, a court normally will not impose a quasi contract -a court can also use this theory when the parties entered into contract, but it is unenforceable for some reason -quasi-contractural recover is often granted when one party has partially performed under a contract that is unenforceable -it provides an alternative to suing for damages and allows the party to recover the reasonable value of the partial performance -depending on the case the amount of recovery may be measured either by the benefit received or by the detriment suffered

Restitution is not limited to recession cases

-restitution may be appropriate when a contract is rescinded, but the right to restitution is not limited to recission cases -because an award of restitution basically returns something to its rightful owner, a party can seek restitution in action for breach of contract, tort actions, and other types of actions -restitution can be obtained, for instance, when funds or property have been transferred by mistake or because of fraud or incapacity -similarly, restitution may be available when there has been misconduct by a party in a confidential or other special relationship -even in criminal cases, a court can order recitation of funds or property obtained through embezzlement, conversion, theft, or copyright infringement

Rental agreements

-some states require a landlord to use reasonable means to find a new tenant if a tenant abandons the premises and fails to pay rent -if an acceptable tenant is found, the landlord is required to lease the premises to this tenant to mitigate the damages recoverable from the former tenant -the former tenant is still liable for the difference between the amount of the rent under the original lease and the rent received from the new tenant -if the landlord has not taken reasonable steps to find a new tenant, a court will likely reduce any award made by the amount of rent the landlord could have received had he or she done so

Equitable remedies

-sometimes, damages are an inadequate remedy for a breach of contract -in these situations, the non-breaching party may ask the court for an (blank) -actions that the court prescribes which will serve to resolve the breach or dispute -typically granted when legal remedies or monetary compensation cannot adequately resolve the wrongdoing. -include recession and restitution, specific performance, and reformation

The UCC allows sales contracts to limit remedies

-the UCC provides that in a contract for the sale of goods, remedies can be limited

Construction contracts

-the measure of damages in a building or construction contract varies depending on which party breaches and when the breach occurs 1. breach by owner: -the owner may breach at three different states--before, during, or after performance -if the owner breaches *before performance has begun*, the contractor can recover only the profits that would have been made on the contract (profits equal the total contract price less the cost of materials and labor) -if the owner breaches *during performance,* the contractor can recover the profits plus the costs incurred in partially constructing the building -if the owner breaches *after the construction has been completed,* the contractor can recover the entire contract price, plus interest 2. breach by contractor: -when the construction contractor breaches the contract--either by failing to begin construction or by stopping work partway through the project--the measure of damages is the cost of completion -the cost of completion includes reasonable compensation for any delay in performance -if the contractor finishes late, the measure of damages is the loss of use 3. breach by both owner and contractor: -when the performance of both parties falls short of what their contract required, the courts attempt to strike a fair balance in awarding damages

Effect on the contract

-the party who has rendered defective or less-than-full performance remains liable for the damages caused by the breach of contract -in effect, the waiver operates to keep the contract going -the waiver presents the non breaching party from declaring the contract at the end or rescinding the contract -the contract continues, but the non-breaching party can recover damages caused by the defective or less-than-full performance

Remedy

-the relief provided for an innocent party when the other party has breached the contract -the means employed to enforce a right or to redress an injury -most common (blanks) available to a non breaching party include damages, rescission and restitution, specific performance, and reformation -courts distinguish between (blank) at law and (blank) in equity

Standard measure

-the standard measure of compensatory damages is the difference between the value of the breaching party's promised performance under the contract and the value of her or his actual performance -this amount is reduced by any loss that the injured party has avoided -the measure of compensatory damages often varies by type of contract

Liquidated damages versus penalties-- enforceability

-to determine if a particular provision is for liquidated damages or for a penalty, a court must answer two questions: 1. when the contract was entered into, was it apparent that damages would be difficult to estimate in the event of a breach? 2. was the amount set as damages a reasonable estimate and not excessive? -if the answers to both questions are yes, the provision normally will be enforced -if either answer is no, the provision usually will not be enforced

The requirements of quasi contract

-to recover under the theory of (blank), the party seeking recover must show the following: 1. the party has conferred a benefit on the other party 2. the party conferred the benefit with the reasonable expectation of being paid 3. the party did not act as a volunteer in conferring the benefit 4. the party receiving the benefit would be unjustly enriched if allowed to retain the benefit without paying for it

Punitive damages

-very seldom awarded in lawsuits for breach of contract -because (blank) damages are designed to punish a wrongdoer and set an example to deter similar conduct in the future, they have no legitimate place in contract law -a contract is simply a civil relationship between the parties -the law may compensate one party for the loss of the bargain--no more and no less -when a person's actions cause both a breach of contract and a tort (such as fraud), however, (blank) damages may be available

Consequences of a waiver of breach

-when a waiver of a breach of contract occurs, the party waiving the breach cannot take any later action on it in effect, the waiver erases the past breach, and the contract continues as if the breach has never occurred -of course, the waiver of breach of contract extends only to the matter waived and not to the whole contract reasons for waiving a breach: -businesspersons often waive breaches of contract to obtain whatever benefit is still possible out of the contract

Nominal damages

-when no actual damage or financial loss results from a breach of contract and only a technical injury is involved, the court may award (blank) damages to the innocent party -awards of (blank) damages are often small, such as one dollar, but they do establish that the defendant acted wrongfully -most lawsuits for (blank) damages are brought as a matter of principle under the theory that a breach has occurred and some damages must be imposed regardless of actual loss

Enforceability of limitation-of-liability clauses

-whether a limitation-of-liability clause in a contract will be enforced depends on the type of breach that is excused by the provision -normally, a provision excluding liability for fraudulent or intentional injury will not be enforced -likewise, a clause excluding liability for illegal acts, acts that are contrary to public policy, or violations of laws will not be enforced -a clause that excludes liability for negligence may be enforced in some situations when the parties have roughly equal bargaining positions

Types of damages

1. compensatory (to cover direct losses and costs) 2. consequential (to cover indirect and foreseeable losses) 3. punitive (to punish and deter wrongdoing) 4. nominal (to recognize wrongdoing when no monetary loss is shown)

Liquidated damages

-a provision in a contract that specifies that a certain dollar amount is to be paid in the event of a *future* default or breach of contract -(blank) means determined, settled, or fixed -frequently used in construction contracts -usually enforceable