BLAW Ch. 18, Business Law Chapter 16, 17, and 18 Studyguide

EX: (Party Injured by Breach)

- Benedict agrees to sell land to Beatrice for $60,000 - Beatrice makes a partial payment of $15,000 - Benedict wrongfully refuses to transfer title - Beatrice may recover the $15,000 in restitution

EX: (Party in Default)

- Nathan agrees to sell Land to Lilly for $160,000 and Lilly makes a partial payment of $15,000 - Lily then repudiates the contract - Nathan sells the land to Murray in good faith for $155,000 - Lilly may recover from Nathan in restitution the part payment of the $15,000 less the $5,000 damages Nathan sustained because of Lilly's breach, which equals to $10,000

EX: (Affirmance)

- Pam was induced to purchase a ring from Sally through Sally's fraudulent misrepresentation - If, after learning the truth, Pam undertakes tl sell the ring to Janet - she may no longer rescind the transaction with Sally

Fraud

A party induced by fraud to enter into a contract may recover general damages in tort action "Out-of-pocket" rule - General damages equal to the difference between the value of what she has received and the value of what she has given for it (difference between what it was purchased as minus what it was represented as) "Benefit-of-the-bargain" rule - Permits the intentionally defrauded party to recover general damages that are equal to the difference between the value of what she has received and the value of the fraudulent party's performance as represented (difference between original price and what it was represented as)

Party Injured by Breach

A party is entitled to restitution if the other party totally breaches the contract by nonperformance or repudiation

Statute of Frauds

A party to a contract that is unenforceable because of the statute of frauds may have acted in reliance upon the contract In this case, that party may recover in restitution the benefits she conferred upon the other in relying upon the enforceable contract

Voidable Contracts

A party who has rescinded or avoided a contract for lack of capacity, duress, undue influence, fraud in the inducement, nonfraudulent misrepresentation, or mistake is entitled to restitution for any benefit he has conferred upon the other party

Affirmance

A party who has the power to avoid a contract for lack of capacity, duress, undue influence, fraud, misrepresentation, or mistake may lose that power if Occurs when the party, with full knowledge of the facts, either declares his intention to proceed with the contract or takes some action from which such intention may reasonably be inferred Is effective only after the circumstances that made the contract voidable cease to exist

Loss of Power of Avoidance

A party with a power of avoidance for lack of capacity, duress, undue influence, fraud, misrepresentation, or mistake may lose that power if... 1. She affirms the contract 2. She delays unreasonably in exercising the power of disaffirmance 3. The rights of third parties intervene

Reformation

A process whereby the court "rewrites" or "corrects" a written contract to make it conform to the true agreement of the parties Purpose: Express adequately the contract they made for themselves Remedy is granted when the parties agree on a contract but write it in a way that inaccurately reflects their actual agreement

Reliance Interest

His interest in being reimbursed for loss caused by reliance on the contract by being put in a position as good as the one he would have been in had the contract not been made What the injured party LOST as a result of the agreement/promise without the other party fulfilling their end

Restitution Interest

His interest in having restored to him any benefit that he has conferred on the other party Result of partial performance of reliance The sum that restores the benefit conferred to the non-breaching party to prevent unjust enrichment

Expectation Interest

His interest in having the benefit of his bargain by being put in a position as good as the one he would have occupied had the contract been performed The sum restores the injured party to the economic position they expected from performance of the promise

Election of Remedies

If a party injured by a breach of contract has more than one remedy available to him, his manifesting a choice of one them, such as bringing suit, does not prevent him from seeking another remedy unless the remedies are inconsistent and the other party materially changes his position in reliance on the manifestation

Certainty of Damages

Damages are not recoverable for loss beyond an amount that the injured party can establish with reasonable certainty If the injured party cannot prove a particular element of her loss with reasonable certainty, she will be entitled to recover the portion of her loss that she can prove with reasonable certainty Certainty requirement creates the greatest challenge for plaintiffs seeking to recover consequential damages for lost profits

Incidental Damages

Damages that arise directly out of the breach, such as costs incurred to acquire the nondelivered performance from some other source Direct result of one party breaching the contract

Liquidated Damages

The parties agree in advance to the damages to be paid in event of a breach Be enforced if it amounts to a reasonable forecast of the loss that may or does result from the breach If the sum agreed upon bears no reasonable relationship to the amount of probable loss that may or does result from breach, it is unenforceable as a penalty

A liquidated damage is a provision by which the parties agree in advance to the damages to be paid in the event of breach.

True.

A penalty is a contractual provision designed to deter a party from breaching a contract and to punish the party for doing so.

True.

At its discretion, a court may grant the equitable remedy of injunction against breach of a contractual duty where damages would be inadequate.

True.

Compensatory damages are intended to protect the injured party's expectation interest.

True.

Consequential damages include lost profits and injury to person or property resulting from defective performance.

True.

Courts will usually uphold a liquidated damage clause that represents a reasonable approximation of the damages where the actual amount would be very difficult to determine.

True.

Even if a party has the power to avoid a contract for lack of capacity, duress, or undue influence, the party will lose that power by affirming the contract.

True.

If Kenneth signs an employment contract for one year but is fired without cause after two months and spends $500 in reasonable fees trying to find a comparable job, he may recover $500 in incidental damages.

True.

Monetary damages are the most frequently granted remedy for breach of contract.

True.

Restitution can be obtained where a voidable contract is avoided.

True.

Restitution involves a return of consideration or its value to the aggrieved party.

True.

Restitution is available as an alternative remedy for a party's repudiation of the contract.

True.

The purpose of reliance damages is to place the injured party in a position as good as he would have held had there been no contract.

True.

Under the rule in Hadley v. Baxendale, only foreseeable damages can be recovered.

True.

When a breach of contract occurs, the nonbreaching party is required to take reasonable steps to lessen or mitigate the damages that he may sustain.

True.

Where a contract is unenforceable because of the statute of frauds, a party may recover the benefits conferred on the other party in reliance on the contract.

True.

Injunctions

Used as a contract remedy, is a formal court order commanding a person to refrain from doing a specific act or to cease engaging in a specified conduct An employee's promise to personal services may be enforced as long as the probable result will not be to deprive the employee of other reasonable means of making a living

Remedies in Equity

When damages based on the expectation, reliance, or restitution interest do not compensate an injured party, equitable relief comes in play May be available to protect the injured party's interest int he form of specific performance or an injunction (authoritative warning/order)

Party in Default

Where a party, after having partly performed, commits a breach by nonperformance or reputation that discharges the other party's duty to perform the party in default is entitled to restitution for any benefit she has conferred in excess of the loss she has caused by her breach

Nonfraudulent Misrepresentation

Where the misrepresentation is negligent - deceived party may recover general damages under the out-of-pocket measure and consequential damages Where the misrepresentation is neither fraudulent nor negligent - limits damages to the out-of-pocket measure

EX: (Election of Remedies)

- A party who seeks specific performance, an injunction, or restitution may be entitled to incidental damages for delay in performance - Damages for total breach - inconsistent with the remedies for specific performance or an injunction is inconsistent with that of restitution

EX: (Condition)

- A promise to pay $8,000 provided that such sum is realized from the sale of an automobile, provided the automobile is sold within 60 days, and provided that the automobile, which has been stolen, can be found, is clearly different from, and worth considerably less than, an unconditional promise by the same promisor to pay $8,000

EX: (Reformation)

- Acme Insurance Company and Bell agree that for good consideration Acme will issue an annuity paying $500 per month - Through a clerical error, the annuity policy is issued for $50 a month - A court of equity, upon satisfactory proof of the mistake, will reform the policy to provide for the correct amount ($500 a month)

EX: (Incidental Damages)

- Anges employs Benton for 9 months for $40,000 to supervise construction of a factory but fires him without case after 3 weeks - Benton, who spends $850 in reasonable fees attempting to find comparable employment, may recover $850 in incidental damages in addition to any other actual loss he may suffer

EX: (Satisfaction of a Third Party)

- Building contracts commonly provide that before the owner is required to pay, the builder shall furnish a certificate of the architect stating that the building has been constructed according to the plans - Although the owner is paying for the building, not for the certificate, he must have both the building and certificate before he is obligated to pay - Duty of payment was made expressly conditional upon the presentation of the certificate - Third party: Architect

EX: (Injunctions)

- Clint enters into a written contract to give Janice the right of first refusal on a tract of land he owns - Clint, however, subsequently offers the land to Blake without first offering it to Janice - A court of equity may properly command Clint from selling the land to Blake

EX: (Costs Avoided)

- Clinton agrees to build a hotel for Debra for $11,250,000 by September 1 - Clinton breaches by not completing construction until October 1 - Debra loses revenues for 1 month in the amount of $400,000 but saves operating expenses of $60,000 - Recovers damages for $340,000

EX: (Reliance Damages)

- Donald agrees to sell his retail store to Gary, who spends $750,000 acquiring inventory and fixtures - Donald then repudiates the contract - Gary sells the inventory and fixtures for $735,000 - Neither party can establish with reasonable certainty what profit Gary would have made - Gary, therefore, may recover from Donald as damages the loss of $15,000 he sustained on the sale of the inventory and fixtures plus any other costs he incurred in entering into the contract

EX: (Nominal Damages)

- Edward contracts to sell and deliver goods to Florence for $1,000 - Edward refuses to deliver the goods as agreed and so breaks the contract - Florence is able to purchase goods of the same kind and quality elsewhere for $1,000 without incurring any incidental damages - Edward has violated Florence's right under the contract even if Florence suffered no actual loss - If Florence should sue Edward for breach of contract, she would only recover a judgement for nominal damages only

EX: (Fraud)

- Emily intentionally misrepresents the capabilities of a printing press and thereby induces Melissa to purchase the machine for $20,000 - The value of the press as delivered is $14,000, but if the machine had performed as presented, it would be worth $24,000 - Out-of-pocket rule Melissa would recover $6,000 (Purchase - Represented; $20,000 - $14,000) - Benefit-of-the-bargain rule she would recover $10,000 (Original - Represented; $24,000 - $14,000)

EX: (Implied-in-fact Conditions)

- If Fernando, for $1700, contracts to paint Peggy's house any color Peggy desires, it is necessarily implied in fact that Peggy will inform Fernando of the desired color before he begins to paint - Notification of choice of color is an implied-in-fact condition, an operative event that must occur before Fernando is subject to the duty of painting the house

EX: (Mitigation of Damages)

- If James is under a contract to manufacture goods for Kathy, and Kathy repudiates the contract after James has commenced performance - James will not be allowed to recover for losses he sustains by continuing to manufacture the goods if to do so would increase the amount of damages - The amount of loss that James reasonably could have avoided is deducted from the amount that otherwise would be recoverable as damages

EX:(Consequential Damages)

- If Tracy leases to Sean a defective machine that causes him $40,000 in property damage and $120,000 in personal injuries - Sean may recover, in addition to damages for loss of value and incidental damages, but $160,000 as consequential damages

EX: (Statute of Frauds)

- If Wilton makes an oral contract to furnish services to Rochelle that are not to be performed within a year - Rochelle discharges charges Wilton after three months - Wilton may recover as restitution the value of the services he rendered during three months

EX: (Foreseeability of Damages)

- Plaintiffs operated a flourmill at Gloucester - Their mill was compelled to cease operating because of a broken crankshaft attached to the steam engine that furnished power to the mill - It was necessary to send the broken shaft to be fixed so a new shaft would be built - Plaintiffs delivered the broken shaft to the defendants for immediate transportation but did NOT inform them that operation of the mill had ceased because of the nonfunctioning crankshaft - The defendants received the shaft, collected the freight charges in advance, and promised to deliver the shaft for repairs the following day - However, they did NOT make delivery as promised - mill did not resume operation for several days, causing the plaintiffs to lose profitable sales - Defendants contended that the loss of profits was too remote and therefore unforseeable, to be recoverable - Plaintiffs had never communicated to the defendants the special circumstances that caused the loss of profits, the continued stoppage of the mill - The court reasoned that would not reasonably have foreseen that the plaintiff's mill would be shut down as a result of delay in transporting the broken crankshaft

EX: (Liquidated Damages)

- Reliable Construction Company (RCC) contracts with Equerry to build a grandstand at Equerry's racecourse at a cost of $1,330,000 to have it completed by a certain date AND to pay Equerry, as liquidated damages, $5,000 per day for every day's delay beyond that date in completing the grandstand - Stipulated sum for delay is liquidated damages and NOT a penalty because the amount is reasonable - If the sum had been $40,000 per day - unreasonable and therefore penalty

EX: (Voidable Contracts)

- Samuel fraudulently induces Edith to sell land for $160,000 - Samuel pays the purchase price - Edith conveys the land - Discovering the fraud, Edith may disaffirm the contract and recover the land as restitution

EX: (Satisfaction of a Contracting Party)

- Tailor Melissa contracts to make a suit of clothes to Brent's satisfaction, and that Brent promises to pay Melissa $850 for the suit if he satisfied with it when completed - Melissa completes the suit using materials ordered by Brent - The suit fits Brent and he tells Melissa that he is not satisfied with it and refuses to accept or pay for it - If Brent's dissatisfaction is honest and in good faith, even if it is unreasonable, Melissa is not entitled to recover $850 or any amount from Brent by reason of the nonhappening of the express condition

EX: (Loss of Value)

- Victor sells a car to Joan and expressly warrants that it will get 45 mph - The car only gets 25mph - Car would have been worth $24,000 had it been as warranted - But, it was only worth $20,000 as delivered - Joan recovers $4,000 in damages for *loss of value*

Restitution is available during:

1. As an alternative remedy for a party injured by breach 2. For a party in default 3. For a party who may not enforce a contract because of the statute of frauds 4. For a party wishing to avoid a voidable contract

Four kinds of discharge

1. Performance by the parties 2. Material breach by one or both of the parties 3. Agreement of the parties 4. Operation of law

Satisfaction of a Third Party

A contract may condition the duty of one contracting party to accept and pay for the performance of the other contracting party upon the approval of a third party who is not a party in the contract

Restitution

Act of returning to the aggrieved party the consideration, or its value, which he gave to the other party Purpose: restore the injured party to the position he occupied before the contract was made Restitution must return what he has received from the other party

Nominal Damages

An action to recover damages for breach of contract may be maintained even though the plaintiff has not sustained or cannot prove any injury or loss resulting from the breach A small sum fixed without regard to the amount of loss Also awarded where loss is actually sustained but cannot be proved with reasonable certainty Damage award issued by a court when a legal wrong has occurred, but where there was no actual financial loss as a result of that legal wrong

Special Performance

An equitable remedy that compels the defaulting party to perform her contractual obligations Personal property that is considered rare (manuscript, famous painting/statute, heirloom, patent) In the case of rare items, buyer may use the equitable remedy of specific performance Always involving breach of contract for the sale of real property - every parcel of land is considered unique Not perform special performance for personal services

Condition

An event whose happening or nonhappening affects a duty of performance under a contract Some conditions must be satisfied before any duty to perform arises; others terminate the duty to perform; still others limit/modify the duty to perform Promisor inserts conditions into a contract for her protection and benefit

EX: (Objective Satisfaction)

Apply to the sale of a building or standard goods, such as steel, coal, or grain Question: Whether a reasonable person ought to be satisfied

Subjective Satisfaction Standard

Approval based upon a party's honestly held opinion If the promisor in good faith is dissatisfied, the condition has not occured

Objective Satisfaction

Approval based upon whether a reasonable person would be satisfied

Damages for Misrepresentation

Basic remedy for misrepresentation is rescission of the contract, though when appropriate, the courts also require restitution Injured party may both rescind the contract by restoring the other party to the status quo and recover damages or obtain any other remedy Depends on whether the misrepresentation was fraudulent or nonfraudulent

Breach/Nonperformance of a contractual promise V. Failure/nonhappening of a condition

Breach of contract: - Subjects the promisor to liability - May or may not excuse nonperformance by the nonbreaching party of his duty under the contract Happening/nonhappening of a condition: - Either prevents a party from acquiring a right to performance by the other party or deprives him of such a right, but subjects neither party to any liability

Express Condition

Explicitly set forth in language; no particular form of words is necessary Words like: "provided that," "on condition that," "if," "subject to," "while," "after," "upon," or "as soon as" Basic rule: must be fully and literally performed before the conditional duty to perform arises

An action to recover damages for breach of contract may be maintained only if the plaintiff has sustained or can prove an injury or loss resulting from the breach.

False.

An employee's promise of providing ordinary personal services may be enforced by an injunction against serving another employer.

False.

Costs incurred to acquire a nondelivered performance from some other source are consequential damages.

False.

Courts of equity will grant specific performance of contracts for personal service.

False.

Delay will have no effect on the power of avoidance.

False.

Equitable remedies are available any time the plaintiff chooses them over money damages.

False.

Equitable remedies result in money awards to the plaintiff.

False.

If the parties to a contract stipulate an amount that will be paid in the event of a breach (a liquidated damages clause), the courts will always enforce it.

False.

In relation to damages, the test of foreseeability is subjective.

False.

Liquidated damages are an equitable remedy

False.

Specific performance is the usual remedy for breach of contract.

False.

The basic remedy for misrepresentation is restitution.

False.

The majority of states allow the injured party who has been induced to enter into a contract by fraud to recover only "out-of-pocket" damages equal to the difference between the value of what she has received and the value of what she has given for it.

False.

There is no duty under the UCC to mitigate damages.

False.

To fully compensate plaintiffs in breach of contract cases, courts always award punitive damages commensurate with the losses the plaintiffs have suffered.

False.

UCC "Election of Remedies" rules would require the aggrieved party to choose one remedy he wants to pursue and forego the others.

False.

Consequential Damages

Lost profits and injury to person or property resulting from defective performance

Punitive Damages

Monetary damages in addition to compensatory damages awarded to a plaintiff in certain situations involving willful, wanton, or malicious conduct Purpose: Punish the defendant and discourage him and others from similar wrongful conduct Purpose of allowing contract damages: To compensate the plaintiff for the loss that he has sustained because of the defendant's breach of contract Punitive damages are not recoverable for a breach of contract UNLESS the conduct constituting the breach is also a tort for which the plaintiff may recover punitive damages

Monetary Damages

Most frequently granted judicial remedy for breach of contract Awarded only for losses that are forseeable, established with reasonably certainty, and unavoidable

Implied-in-fact Conditions (Constructive Condition)

Must fully and literally occur and in that the parties understand them to be part of the agreement Necessary in performance They are necessarily inferred from the terms of the contract, transaction, and conduct of parties * Contingency understood by the parties to be part of the agreement, though not expressed

Contract Remedies (Introduction)

Occurs when one party to a contract breaches the contract by failing to perform his contractual duties, the law provides a remedy for the injured party Impossible for remedy to equal promised performance

Loss of Value

The difference between the value of the promised performance of the breaching party and the value of the actual performance rendered by the breaching party Value of promised performance - value of actual performance = loss of value Injured party may also recover incidental and consequential damages

Mitigation of Damages

The injured party may not recover damages for loss that he could have avoided with reasonable effort and without undue risk, burden, or humiliation

Reliance Damages

The injured party may seek reimbursement for forseeable loss caused by his reliance upon the contract Purpose: To place the injured party in a position as good as the one he would have held, had the contract not been made Damages include: - Expenses incurred in preparing to perform - In actually performing - In forgoing opportunities to enter into other contracts An injured party may choose reliance damages instead of compensatory damages when the contract is itself unprofitable

Rights of Third Parties

The intervening rights of third parties further limit the power of avoidance and the accompanying right to restitution

Satisfaction of a Contracting Party

The parties to a contract may agree that performance by one of them will be to the satisfaction of the other, who will not be obligated to pay for such performance unless he is satisfied * Express condition making performance contingent upon one party's approval of the other's performance Where satisfaction relates to a matter of personal taste, opinion, or judgement, the law applies the *subjective satisfaction standard*: if the promisor in good faith is dissatisfied, the condition has not occurred

Delay

The power of avoidance may be lost if the party who has the power does not rescind within a reasonable time after the circumstances that made the contract voidable have ceased to exist EX: - A defrauded purchaser of stock cannot wait unduly to see whether the market price or value of the stock appreciates sufficiently to justify retaining the stock

Costs Avoided

The recovery by the injured party is reduced by any cost or loss she has avoided by not having to perform In a contract in which the injured party has not fully performed, the injured party's recovery is reduced by the value to him of the performance he promised but did not render

Limitations on Damages

To accomplish the basic purpose of contract remedies, the law imposes the limitations of foreseeability, certainty, and mitigation upon monetary damages Intended to ensure that damages can be taken into account at the time of contracting, that damages are compensatory and not speculating (high risk of loss) and that damages do not include loss that could have been avoided by reasonable efforts

Compensatory Damages

To place the injured party in a position as good as the one she would have occupied had the other party performed under the contract Compensating the injured party for the dollar value of the benefits should would have received Protect the injured party's expectation interest, or the value she expected to derive from the contract

Foreseeability of Damages

~ Contracting party is generally expected to consider foreseeable risks when entering into the contract ~ Compensatory or reliance damages are recoverable only for loss that the party in breach had reason to foresee as a probable result of such breach when the contract was made Breaching party is not liable for loss that was not foreseeable when the parties entered into the contract Loss may be deemed foreseeable as a result of a breach by following from the breach... - in the ordinary courts of events - as a result of special circumstances which the party in breach had reason to know