Business Law Chapter 19 - Breach of Contract and Remedies

(Ch 19) Types of Damages (four categories)

(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).

(Ch 19) A two-step process determines whether a breach of contract has resulted in compensable damages:

(1) It must be established that there was a contract between the parties and a breach of that contract. (2) It must be proved that the breach caused damages.

(Ch 19) Penalty:

-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. -if a court finds that a provision calls for a penalty, the recovery will be limited to actual damages, regardless of the amount in the agreement

(Ch 19) liquidated damages

-A liquidated damages provision in a contract specifies that a certain dollar amount is to be paid in the event of a future default or breach of contract. (Liquidated means determined, settled, or fixed.) -Liquidated damages provisions are usually enforceable -Liquidated damages provisions are frequently used in contracts with entertainers and professional athletes

(Ch 19) Consequential (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 and flow from the consequences (or results) of a breach. --To recover consequential damages, *the breaching party must have known (or had reason to know)* that special circumstances would cause the nonbreaching party to suffer an additional loss.

(Ch 19) Punitive Damages:

-are rarely awarded for breach of contract. -A contract is a civil relationship between the parties and 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, punitive damages may be available.

(Ch 19) Damages:

A breach of contract entitles the non-breaching party to sue for monetary damages to compensate that party for the loss of the bargain -Collecting damages through a court judgment requires litigation, which can be expensive and time consuming, and court judgments are also often difficult to enforce. For these reasons, most parties settle their lawsuits for damages (or other remedies) prior to trial. -Complex cases are sometime bifurcated, with two separate trials - one on liability and one of damages.

(Ch 19) Compensatory Damages:

Damages that compensate the non-breaching party for the loss of the bargain and simply replace what was lost because of the wrong or damage.

(Ch 19) Employment Contracts:

Employee who has been wrongfully terminated owes a duty to mitigate the damages that he or she suffered by taking a similar job if one is available.

(Ch 19) Incidental Damages:

Expenses that are caused directly by a breach of contract—such as those incurred to obtain performance from another source.

(Ch 19) Case 19.1 - Compensatory Damages (Hallmark)

Hallmark employee was let go, but paid $735K for agreeing to not work in greeting card industry and to not disclose Hallmark's confidential information for 18 months. After the employee joined a competing greeting card company for $125K and after the employee shared Hallmark secrets with them, Hallmark sued. Hallmark was awarded $860K in compensatory damages = $735K for non-compete plus $125K in new salary.

(Ch 19) 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.

(Ch 19) Rental Agreements:

Landlord must 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.

(Ch 19) Case 19.5 -

Marty contracts with Gatorade to buy 100 bottles of a new Gatorade that will be sold for use at the Super Bowl. If Gatorade does not deliver on time, Gatorade may be liable for lost profits.

(Ch 19) Case 19.3 -

Medik contracts to buy 10 email servers from CalTech for $4,000 ($400 each). CalTech never delivers them, so Medik buys them on the market for $4,500.

(Ch 19) Case 19.2

Randall is hired by a Club Twilo as a DJ for $4000. The club cancels. Randall finds a new club, Output, but is only paid $3,000. Randall spent two weeks of his time to find the gig at Output.

(Ch 19) Standard Measure:

The difference between the value of the breaching party's promised performance under the contract and the value of her or his actual performance, minus any loss that the injured party has avoided.

(Ch 19) 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 are "yes," the provision will usually be enforced. If either answer is "no," the provision usually will not be enforced.

(Ch 19) Mitigation of Damages:

When a breach of contract occurs, the innocent injured party is usually held to a duty to mitigate (or reduce) the damages that he or she suffers. The duty owed depends on the nature of the contract. -Rental Agreements -Employment Contracts

(Ch 19) Equitable remedies

When damages are an inadequate remedy for a breach of contract, the non-breaching party may ask the court for an equitable remedy. Equitable remedies include rescission and restitution, specific performance, and reformation.

(Ch 19) 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 *nominal damages* to the innocent party. Awards of nominal damages are often small but they do establish that the defendant acted wrongfully.

(Ch 19) Sale of Land:

because land is unique, the remedy for a seller's breach of a contract for a sale of real estate is specific performance (the buyer is awarded the parcel of property). The majority of states follow this rule. • When the *seller* is in breach, specific performance • When *specific performance* is not available, the measure of damages is typically the difference between the contract price and the market price of the land. • 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.