BLAW 234 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. Liquidated damages provisions are usually enforceable. In contrast, 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.
Sale of Land
A court may grant specific performance to a buyer in an action for a breach of contract involving the sale of land. The legal remedy of monetary damages may not compensate the buyer adequately since every parcel of land is unique. Only when specific performance is unavailable will monetary damages be awarded instead. A seller of land can also seek specific performance of the contract.
Reformation
An equitable remedy used when the parties have imperfectly expressed their agreement in writing. Reformation allows a court to rewrite the contract to reflect the parties' true intentions.
Restitution Is Not Limited to Rescission Cases
Because an award of restitution basically returns something to its rightful owner, a party can seek restitution in actions for breach of contract, tort actions, and other types of actions. Restitution can be obtained when funds or property have been transferred by mistake or because of fraud or incapacity, or when there has been misconduct by a party in a confidential or other special relationship.
Reasons for Waiving a Breach
Businesspersons often waive breaches of contract to obtain whatever benefit is still possible out of the contract.
Incidental Damages
Expenses that are caused directly by a breach of contract—such as those incurred to obtain performance from another source.
Employment Contracts
In the majority of states, a person whose employment 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.
Sale of Land
Ordinarily, because each parcel of 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 for which she or he bargained). The majority of states follow this rule. 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. The same measure is used when specific performance is not available.
Rental Agreements
Some states require a landlord to 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.
The UCC Allows Sales Contracts to Limit Remedies
The Uniform Commercial Code (UCC) provides that remedies can be limited in a contract for the sale of goods.
Construction Contracts
The measure of damages in a building or construction contract varies depending on which party breaches and when the breach occurs: (1)Breach by owner (2)Breach by contractor (3)Breach by both owner and contracto
Breach by owner
The owner may breach before, during, or after performance. If the owner breaches before performance has begun, the contractor can recover only the profits that would have been made on the contract. (Profits equal the total contract price less the cost of materials and labor.) If the owner breaches during performance, the contractor can recover the profits plus the costs incurred in partially constructing the building. If the owner breaches after the construction has been completed, the contractor can recover the entire contract price, plus interest.
Effect on the Contract
The party who has rendered defective or less-than-full performance remains liable for the damages caused by the breach of contract. In effect, the waiver operates to keep the contract going. The waiver prevents the nonbreaching party from declaring the contract at an end or rescinding the contract. The contract continues, but the nonbreaching party can recover damages caused by the defective or less-than-full performance.
Types of Damages
There are four broad categories of damages; (1)Compensatory (to cover direct losses and costs).(most light) (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).
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.
Breach by both owner and contractor
When the performance of both parties—the construction contractor and the owner—falls short of what their contract required, the courts attempt to strike a fair balance in awarding damages.
Damages
A breach of contract entitles the nonbreaching 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.
Written Contract Incorrectly States the Parties' Oral Agreement
A court will also reform a contract when two parties enter into a binding oral contract but later make an error when they attempt to put the terms into writing.
Pattern-of-Conduct Exception
A waiver can extend to subsequent defective performance if a reasonable person would conclude that similar defective performance in the future will be acceptable. A pattern of conduct that waives a number of successive breaches will operate as a continued waiver. To change this result, the nonbreaching party should give notice to the breaching party that full performance will be required in the future.
Specific Performance
An equitable remedy that calls for the performance of the act promised in the contract. This remedy is attractive to a nonbreaching party because it provides the exact bargain promised in the contract. Specific performance avoids some of the problems inherent in a suit for damages such as collecting a judgment. (In some situations, the actual performance may be more valuable than the monetary damages.) Normally, specific performance will not be granted unless the party's legal remedy (monetary damages) is inadequate.
Covenants Not to Compete
Courts also may reform contracts that contain a written covenant not to compete. The agreements restrict the area and time in which one party can directly compete with the other party. A covenant not to compete may be for a valid and legitimate purpose, but may impose unreasonable area or time restraints. Some courts will reform the restraints by making them reasonable and then enforce the entire contract as reformed. Other courts will throw out the entire restrictive covenant as illegal.
Contracts for Personal Services
Courts generally refuse to grant specific performance of personal-service contracts (those that require one party to work personally for another party) because ordering a party to perform personal services against his or her will amounts to a type of involuntary servitude. The courts also do not want to monitor contracts for personal services, which usually require the exercise of personal judgment or talent.
Fraud or Mutual Mistake Is Present
Courts order reformation most often when fraud or mutual mistake is present. Typically, a party seeks reformation so that some other remedy may then be pursued. Similarly, courts often refuse to order specific performance of construction contracts because courts are not set up to operate as construction supervisors or engineers.
Compensatory Damages
Damages that compensate the nonbreaching party for the loss of the bargain and simply replace what was lost because of the wrong or damage.(are what most people ask for)
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. For the nonbreaching party 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.
Restitution
Generally, to rescind a contract, both parties must make restitution to each other by returning goods, property, or funds previously conveyed. If the goods or property have been consumed, restitution must be made in an equivalent dollar amount.
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.
Liquidated Damages Common in Certain Contracts
Liquidated damages provisions are frequently used in construction contracts and contracts for the sale of goods as well as contracts with entertainers and professional athletes.
Enforceability of Limitation-of-Liability Clauses
Normally, a provision excluding liability for fraudulent or intentional injury, for illegal acts, acts that are contrary to public policy, or violations of law will not be enforced. A clause that excludes liability for negligence may be enforced in some situations when the parties have roughly equal bargaining positions.
Punitive Damages
Punitive damages are very seldom awarded in lawsuits 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. However, when a person's actions cause both a breach of contract and a tort, punitive damages may be available.
When Quasi Contract Is Used
Quasi contract allows a court to act as if a contract exists when there is no actual contract or agreement between the parties. A court can also use this theory when the parties entered into a contract, but it is unenforceable for some reason. Quasi-contractual recovery is often granted when one party has partially performed under a contract that is unenforceable. It also provides an alternative to suing for damages and allows the party to recover the reasonable value of the partial performance.
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.
The Requirements of Quasi Contract
To recover under the theory of quasi contract, the party seeking recovery must show the following; 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.
Waiver of Breach and Subsequent Breaches
Typically, a waiver by a contracting party will not operate to waive subsequent, additional, or future breaches of contract. This is always true when the subsequent breaches are unrelated to the first breach.
WAIVER OF BREACH
Under certain circumstances, a nonbreaching party may be willing to accept a defective performance of the contract. This knowing relinquishment of a legal right (the right to require satisfactory and full performance) is called a waiver.
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.
Consequences of a Waiver of Breach
When a waiver of a breach of contract occurs, the party waiving the breach cannot take any later action on it. The waiver of breach of contract extends only to the matter waived and not to the whole contract.
EQUITABLE REMEDIES
When damages are an inadequate remedy for a breach of contract, the nonbreaching party may ask the court for an equitable remedy. Equitable remedies include rescission and restitution, specific performance, and reformation.
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.
Breach by contractor
When the construction contractor breaches the contract, the measure of damages is the cost of completion. The cost of completion includes reasonable compensation for any delay in performance. If the contractor finishes late, the measure of damages is the loss of use.
Compensatory Damages 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.
Quasi contract
is 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. Generally, when one party has conferred a benefit on another party, justice requires that the party receiving the benefit pay the reasonable value for it. The party conferring the benefit can recover in quantum meruit ("as much as he or she deserves").
Rescission
is the cancellation of a contract in order to return the parties to their pre-contract position. When fraud, a mistake, duress, undue influence, misrepresentation, or lack of capacity to contract is present, unilateral rescission is available. Rescission may also be available by statute. 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
remedy
is the relief provided for an innocent party when the other party has breached the contract. The most common remedies available to a nonbreaching party include damages, rescission and restitution, specific performance, and reformation.
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.)
CONTRACT PROVISIONS LIMITING REMEDIES
provisions stating that no damages can be recovered are called exculpatory clauses. Provisions that affect the availability of certain remedies are called limitation-of-liability clauses. Examples of these include: Contract provisions stating that no damages can be recovered for certain types of breaches or that damages will be limited to a maximum amount. A contract provision that the only remedy for breach is replacement, repair, or refund of the purchase price. A contract provision that one party can seek injunctive relief if the other party breaches the contract.
