Chapter 16

Monetary Damages (Dollar Damages)

An award of money. Are available whether the breach was minor or material. Include compensatory, consequential, liquidated, and nominal damages.

Material Breach

A breech that occurs when a party renders inferior performance of his or her contractual duties.

Breach of Construction Contract

A contruction contract arises when the owner of real property contracts to have a contractor build build a structure or do other construction work. The compensatory damages recoverable vary with the stage of completion of the project whne the breach occurs. A contractor may recover the profits that he or she would have made if the owner breaches the construction contract before construction begins. If the builder breaches the 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.

Injuction

A court order that prohibits a person from doing a certain act. The requesting party must show that he or she will suffer irreparable injury if the injunction is not issued.

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 liquid damages clause is found to be a penalty, it is unenforceable. The nonbreaching party then may recover actual damages.

Anticipatory Breach (Anticipatory Repudiation)

A material breach. 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. Can be expressly stated or implied from the conduct of the repudiator. The nonbreaching party's obligations under the contract are discharged immediately. The nonbreaching party has the right to sue the repudiating party when the anticipatory breach occurs.

Mitigation of Damages

A nonbreaching party's legal duty to avoid or reduce damages caused by a breach of contract. The extent of mitigation of damages depends on the type of contract involved. If an employer breaches an employment contract, the employee owes a duty to mitigate damages by trying to find a comparable substitute employment. The court considers factors such as compensation, rank, status, job description, and geographical location in determining the comparability of jobs. If an employee who has been dismissed improperly accepts a job that is not comparable, the employee can sue the prior employer for damages.

Equitable Remedies

A remedy that is available if there has been a breach of contract that cannot be adequately compensated through a legal remedy or to prevent unjust enrichment. If a monetary award does not provide adequate relief, these remedies may be ordered. Based on the concept of fairness. Ex: Specific performance, reformation, and injunction.

Specific Performance

A remedy that orders the breaching party to perform the acts promised in the contract. Specific performance is usually rewarded in cases in which the subject matter is unique. Available to support land contracts because every piece of real property is considered to be unique. Ex: works of art, antiques, items of sentimental value, rare coins, stamps, heirlooms. Specific performance of personal service contracts is not granted because the court would find it difficult or impractical to supervise or monitor performance of such a contract.

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. Constitutes a material breech. No clear line between minor breach and material breach. 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 of 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.

Complete Performance (Strict Performance)

A situation in which a party to a contract renders performance exactly as required by the contract. Complete or strict performance by a party discharges that party's duties under the contract.

Breech of Contract

A situation that occurs if one or both of the parties do not perform their duties as specified in the contract.

Rescission

An action to rescind (undo) a contract. Available if there has been material breach of contract, fraud, duress, undue influence, or mistake. Parties must make restitution of consideration they received under the contract. The rescinding party must give adequate notice of the rescission to the breaching party. Restores the parties to positions they occupied prior to the contract.

Compensatory Damages

An award of money intended to compensate a nonbreaching party for the loss of the bargain. Place the nonbreaching party in the same position as if the contract had been fully performed by restoring "the benefit of the bargain." Amount of damages depends on type of contract and which party breached the contract.

Breach of Employment Contract

An employee whose employer breaches an employment contract can recover lost wages or salery 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

An equitable doctrine that permits the court to rewrite a contract to express the parties' true intensions. Usually available to correct clerical errors in contracts.

Writ of Attachment

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 judgement.

Writ of Garnishment

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 judgement. Federal and state laws limit the amount of the breaching party's wages or salary that can be garnished.

Tender of Performance (Tender)

An unconditional and absolute offer by a contracting party to perform his or her obligation under a contract.

Breach of Sales Contract

Compensatory damages for contracts involving goods are governed by the UCC. The measure of damages 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.

Three Levels of Performance of a Contract

Complete, substantial, and inferior

Nominal Damages

Damages awarded when the nonbreaching party sues the breaching party even though no financial loss has resulted from the breach. Usually $1 or some other small amount.

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 impractical 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.

Consequential Damages (Special Damages)

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 (Minor Breech)

Substantial performance constitutes a minor breech of the contract. In other words, it cocurs when a party to a contract renders performance that deviates slightly from complete performance. The nonbreaching party may try to convince the breaching party to elevate his or her performance to complete performance. If breech is not corrected, 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 breeching party to recover the cost to repair the defect if the breeching party has already been paid.

Monetary Damages

The most common remedy for a breech of contract. Often called "law remedy." Include compensatory, consequential, liquidated, and nominal damages.

Restitution

The return of goods or property received from the other party to rescind a contract. If the actual goods or property are unavailable, a cash equivalent must be made. Restores the parties to positions they occupied prior to the contract.

Disclaimer of Consequential Damages

When consequential damages are disclaimed in a sales or license agreement. Thus, the breaching party is not responsible to pay consequential damages. Lawful in most instances