BLW 302 Chapter 19: Breach of Contract and Remedies

Requirements of Quasi Contract:

- Benefit was conferred to the other party. - Party conferring benefit reasonably expected to be paid. - The benefit was not volunteered. - Receiving benefit without paying for it would result in unjust enrichment. Landscaper at wrong address Contract partially performed, but violates Statute of Fraud

Most Common Remedies:

- Damages - Rescission and restitution - Specific performance - Reformation

Reformation - Written Contract Incorrectly States the Parties' Oral Agreement:

A court will reform a contract when two parties enter into a binding oral contract but make an error when attempting to put the terms into writing.

Quasi Contract:

A legal theory under which an obligation is imposed in the absence of an agreement. - It is a remedy created by courts to obtain justice and prevent unjust enrichment. - Party conferring benefit can recover in quantum meruit ("as much as she deserves").

Compensatory Actual Damages:

A monetary amount intended to compensate injured parties for actual losses or damages they have incurred. Covers direct losses and costs.

Mitigation of Damages - Employment Contracts:

A person who was wrongfully terminated owes a duty to take a similar job if one is available.

Rescission:

A remedy whereby a contract is canceled and the parties are returned to the positions they occupied before the contract was made. The cancellation of a contract in order to return the parties to their pre-contract position. The failure of one party to perform entitles the other party to rescind the contract.

Damages:

A sum of money paid in compensation for loss or injury in a civil case

Nominal Damages:

A token award to symbolize vindication of the wrong done to the plaintiff, generally the award is $1.00. Recognizes wrongdoing when no monetary loss is shown. No financial loss. The award is given in a minimal amount. Defamation Cases sometimes

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). Equitable remedy that calls for the performance of the act promised in the contract. - Specific performance avoids some of the problems inherent in a suit for damages. - Provides remedy in cases involving: - Sale of land - where seller refuses to transfer title. - Contracts for personal services - not used generally - Involuntary servitude - Would require supervising work by the court.

Compensatory Damages - Sale of Land:

Breach by Buyer difference between contract price and ultimate sale achieved - recovery if amount is less.

Reasons for Waiving a Breach:

Breaches of contract are often waived to obtain whatever benefit is still possible out of the contract.

Compensatory Damages:

Compensate the nonbreaching party for the loss of the bargain and replace what was lost because of the wrong or damage. "Make the Person Whole" Case Point 19.1 Hallmark Cards, Inc. v. Murley (2013) Covenant not to compete. Severance pay $735,000 Breached was paid by new employer $135,000 Jury awarded $870,000 ($735K + $135K) Reversed - Compensatory was the severance pay Standard measure.

Reformation - Fraud or Mutual Mistake is Present:

Courts order reformation most often when fraud or mutual mistake is present.

Compensatory Damages - Construction Contracts - Breach by Owner:

Damages depend on whether breach was before, during, or after construction was completed. - Before - Profit - During - Profit plus cost incurred to that point. - After - Full contract Price (which would include profit and costs anticipated by the builder)

Penalties:

Designed to penalize, generally unenforceable.

Compensatory Damages - Sale of Goods:

Difference between contract and market price. Contract price $100 - fail to deliver. Costs of replacement product $110 Damages $10 If reselling the lost profit. Wholesale $50 - Retail $75 - Damages of $25

Standard Measure:

Difference between value of promised performance and value of actual performance.

Mitigation of Damages:

Duty of innocent injured party to reduce the damages that he or she suffered. Duty owed depends on the nature of the contract.

Reformation:

Equitable remedy allowing a contract to be reformed (or rewritten) to reflect the parties' true intentions. Fraud or mutual mistake is present.

Enforceability of Limitation-of-Liability Clauses:

Exclusion of liability for fraudulent or intentional injury, illegal acts, acts that are contrary to public policy, or violations of law will not usually be enforced. Exclusion of liability for negligence may be enforced when the parties have roughly equal bargaining positions.

Incidental Damages:

Expenses caused directly by breach of contract. Example - Advertising expenses to find new tenant.

Types of Damages:

Four broad categories of damages: - Compensatory - Consequential - Punitive - Nominal

Waiver of Breach and Subsequent Breaches:

Generally, a single waiver will not waive subsequent, additional, or future breaches, especially if unrelated to initial breach.

Waiver of Breach:

Knowing relinquishment of a legal right to require satisfactory and full performance.

Mitigation of Damages - Rental Agreements:

Landlord must use reasonable means to find a new tenant if previous tenant defaults on rent and abandons the premises.

Liquidated Damages vs. Penalties:

Liquidated damages provisions usually are enforceable. Courts asks two questions: - When the contract was formed, was it apparent that damages would be difficult to estimate in the event of a breach? - Was the amount set as liquidated damages a reasonable estimate and not excessive? CASE 19.2 Kent State University v. Ford

Punitive Damages:

Monetary damages that may be awarded to a plaintiff to punish the defendant and deter similar conduct in the future. Punishes and deters wrongdoing. Punish or deter future conduct. Generally not available for mere breach of contract. Punitive damages may be available when an action causes both a breach of contract and a tort.

Waiver of Breach and Subsequent Breaches - Effect on the Contract:

Non-waiving party remains liable for damages, but contract continues.

Contract Provisions Limiting Remedies - Exculpatory Clauses:

Provisions stating that no damages can be recovered.

Contract Provisions Limiting Remedies - Limitation-of-Liability Clauses:

Provisions that affect the availability of certain remedies. The UCC provides that remedies can be limited in a contract for the sale of goods.

Waiver of Breach and Subsequent Breaches - Pattern-of-Conduct Exception:

Reasonable person standard. A pattern of conduct that waives successive breaches can operate as a continued waiver.

Reformation - Covenants not to Compete:

Some courts reform the terms by making them reasonable and then enforcing the entire contract as reformed. Other courts throw out the entire restrictive covenant as illegal.

Equitable Remedies:

Sometimes damages are an inadequate remedy and the nonbreaching party may ask for an equitable remedy. - Rescission - Restitution - Reformation. - Specific performance

Consequential (Special) Damages:

Special damages that compensate for a loss that is not direct or immediate (for example, lost profits). The special damages must have been reasonably foreseeable at the time the breach or injury occurred in order for the plaintiff to collect them. Covers indirect and foreseeable losses. Foreseeable damages that result from a party's breach of contract. Breaching party knew (or had reason to know) that special circumstances would cause the nonbreaching party to suffer additional loss. HADLEY V. BAXENDALE (1854). FOOTNOTE 6 PAGE 343 SHAFT TO A MILL NEEDED REPAIRS HADLEY TOLD BAXENDALE NEED REPAIRED IMMEDIATELY - SHUT DOWN TILL NEW SHAFT DELIVERED DELAYED BY BAXENDALE FOR SEVERAL DAYS IS BAXENDALE LIABLE FOR THE LOST PROFIT WHILE MILL SHUT DOWN?

Liquidated Damages:

Specific amount agreed to be paid as damages in the event of future breach.

Restitution:

The act of restoring someone or something to the rightful owner or to a former state or position; making good on a loss or damage Generally, to rescind a contract, both parties must make restitution to each other by returning goods, property, or funds previously conveyed. Restitution is also used in some cases not involving rescission. CASE 19.3 Clara Wonjung Lee, DDS v. Robles

Compensatory Damages - Construction Contracts - Breach by both Owner and Contractor:

The courts attempt to strike a fair balance in awarding damages.

Compensatory Damages - Construction Contracts - Breach by Contractor:

The measure of damages is the cost of completion.

Remedy:

The relief provided for an innocent party when the other party has breached the contract.

Consequences of a Waiver of Breach:

When a waiver occurs, the party waiving the breach cannot take any later action on it. The waiver extends only to the matter waived and not to the whole contract.

When Quasi Contract Is Used:

When one party has partially performed under a contract that is unenforceable. As an alternative to suing for damages and allows the party to recover the reasonable value of the partial performance.