Business Law Chapter 19

Contracts for the Sale of Goods that Limit Remedies

Allowed by the UCC (Uniform Commercial Code)

Liquidated Damages

Usually enforceable

Compensatory Damages

- These damages compensate the injured party only damages actually sustained and proved to have arisen directly from the loss of the bargain caused by the breach of contract

Types of Damages

-Compensatory -Consequential -Punitive -Nominal

Contracts that Commonly Include Liquidated Damages Provisions

-Construction Contracts -Contracts for the sale of goods -Contracts for entertainers and professional athletes

Compensatory Damages

-Damages that compensate the non-breaching party for the loss of the bargain

When a Party can Seek Restitution

-Rescission -Breach of Contract -Tort actions -"Other types of actions" ????? -When funds or property have been transferred by mistake or because of fraud or incapacity -When there is misconduct by a party in a confidential or other special relationship -Criminal Cases such as embezzlement, conversion, theft, or copyright infrigment

Types of Equitable Remedies

-Rescission -Restitution -Specific Performance -Reformation

Most Common Remedies Available to a Non-breaching Party

-Rescission -Restitution -Specific performance -Reformation

When Limitation-of-Liability Clauses Will NOT be Enforced

-The clause excludes liability for fraudulent or intentional injury -The clause excludes liability for illegal acts, acts that are contrary to public policy, or violations of law

Consequences of a Waiver of Breach

-The party waiving the breach cannot take any later action on it -The waiver erases the past breach, and the contract continues as if the breach had never occurred -The contract continues, but the non breaching party can recover damages cause by the defective or less-than-full performance

When Quasi Contract is Used

-When there is not actual contract or agreement between the parties -When parties enter into a contract that is unenforceable for some reason and one party has partially performed

Requirement to Recover Under Quasi Contract Theory

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

Contract

A civil relationship between parties

How to Determine between Liquidated Damages and Penalties

A court must answer two questions -When the contract was entered, was apparent that damages would be difficult to estimate in the even of a breach? -Was the amount set as damages a reasonable estimated and not excessive? If both "yes": The provision is for liquidate damages and will be enforced If either "no": The provision is a penalty and usually will not be enforced

Mitigation of Damages in Rental Agreements

A landlord must use reasonable means to find a new tenant if a tenant abandons the premises or fails to pay rent

Quasi Contract

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 made an implied promise to pay for them.

Mitigation of Damages in Employment Contracts

A person whose employment has been wrongfully terminated owes a duty to take a similar job if one is available. If the employee fails to do this, the damages 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 border of proving that such a job existed and the employee could have been hired

Liquidated Damages

A provision in a contract that specifies a certain dollar amount is to be paid in the even of a future default or breach of contract

Patter-Of- Conduct Exception

A waiver by a contracting party will not operate to waive subsequent, additional, or future breaches of contract. However, a waiver can extend to a subsequent defective performance if a reasonable person would conclude that similar defective performance in the future will be acceptable. To change this result, the non breaching party should give notice to the breaching party that full performance will be required in the future

Reformation

Allows a court to rewrite the contract to reflect the parties's true intentions

Rescission

An action to undo, or terminate, a contract-- to return the contracting parties to the positions that occupied prior to the transaction

Measure of Compensatory Damages in a Sale of Goods Contract

An amount equal to the difference between the contact price and the market price. However, When the buyer breaches and the seller has not yet produced the goods, compensatory damages normally equal lost profits on the sale

Reformation

An equitable remedy used when the parties have imperfectly expressed their agreement in writing

Compensatory Damages

Simply "make the person whole"

Remedy in a Sale of Land Contract in the Case of a Seller Breach

Because each parcel of land is unique, ordinarily, specific performance in which the buyer is awarded the parcel of property for which she or he bargained. When specific performance is not an option, the buyer is awarded the difference between the contract price and the market price of the land.

Specific Performance

Calls for the performance of the act promised in the contract

Consequential Damages

Caused by special circumstances beyond the contract itself

Contracts for Personal Services

Courts generally refuse to grant specific performance for these contracts

Damages Under Quasi Contract Theory

Depending on the case, the amount of the recovery may be measured either by the benefit received or by the detriment suffered

Punitive Damages

Designed to punish the wrongdoer and set an example to deter similar conduct in the future

Incidental Damages

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

Consequential Damages (Special Damages)

Foreseeable damages that result from a party's breach of contract

Punitive Damages

Generally not awarded in lawsuits for breach of contract

Punitive Damages

Have no legitimate place in contract law

Construction Contracts and "Economic Waste"

If the contractor substantially performs, a court may use the cost-of-completing formula, but only if the requiring completion will not entail unreasonable economic waste

Remedy in Minority States when a Seller of Land Breaches Contract Unintentionally

Limits the buyer's damages to a refund of any down payments made plus any expenses incurred (such as fees for title searches, attorneys, and escrows)

Specific Performance

May be granted to a buyer for a breach of contract involving the sale of land

Specific Performance

Normally will not be granted unless the party's legal remedy (monetary damages) is inadequate

Economic Waste

Occurs when the cost of repairing or completing the performance as required by the contract greatly outweighs the benefit of the owner

Nominal Damages

Often small, such as one dollar, but establish that defendant acted wrongfully

Examples of Unique Goods that will Courts may require Specific Performance to Sell According to Contract

Paintings, sculptures, rare books or coins, real estate

Limitation-of-Liability Clauses

Provisions in a contract that affect the availability of certain remedies

Contracts for Personal Services

Require one party to work personally for another party.

Restitution

Returning goods, property, or funds previously conveyed. If the goods or property have been consumed, restitution must be made in an equivalent dollar amount

Penalty

Specifies a certain amount to be paid in the event of a default or breach of contract, it is designed to the penalize the breaching party, not to make the innocent party whole again.

Penalty

The amount will not be enforced, and recovery will be limited to actual damages

What Must Happen for the Non-breaching Party to Recover Consequential Damages

The breaching party must have known (or had reason to know) that special circumstances would cause the non-breaching party to suffer additional loss

Measure of Damages in Construction Contracts in a Breach by Owner before Performance has begun

The contractor can recover only profits that would have been made on the contract (that is, the total contract price less the cost of materials and labor)

Measure of Damages in Construction Contracts in a Breach by Owner After Performance is Completed

The contractor can recover the entire contract price, plus interest

Measure of Damages in Construction Contracts in a Breach by Owner During Performance

The contractor can recover the profits plus the cost incurred in partially constructing the building

Measure of Damages in Construction Contracts in a Breach by Contractor

The cost of completion including reasonable compensation for any delays in performance. If the contractor finishes late, the damages is the loss of use

Measure of Damages in Construction Contracts in a Breach by BOTH Owner and Contractor

The courts attempt to strike a fair balance in awarding damages

Measure of Damages in Rental Agreements in the case of a Tenant Breach

The difference between the amount of the rent under the original lease and the rent received from the new tenant

Standard Measure of Compensatory Damages

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.

Mitigation of Damages

The innocent injured party is held to a duty to reduce the damages that he or she suffers

Waiver

The knowing relinquishment of a legal right

Waiver of Breach

The knowing relinquishment of the right to require satisfactory and full performance under a contract

Remedy

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

Remedy in a Sale of Land Contract in the Case of a Buyer Breach

The seller is awarded the difference between the contract price and the market price of the land

When Punitive Damages May be Available

When a person's actions cause both a breach of contract and a tort (such as fraud)

When Equitable Remedies May be Requested

When damages are an inadequate remedy for a breach of contract

When Courts May Order Reformation

When fraud or mutual mistake is present, the written contract incorrectly state the parties' oral agreement, and covenants not to compete

When Unilateral Rescission is Available

When fraud, a mistake, duress, undue influence, misrepresentation, or lack of capacity to contract is present. The failure of one party to perform entitles the other party to rescind the contract. The rescinding party must give prompt notice to the breaching party.

Nominal Damages

When no actual damage of financial loss results from a breach of contract and only a technical injury is involved