Bus Law Ch 17- Contracts: Breach and Remedies

reformation

equitable remedy used when parties have imperfectly express their agreement in writing. allows court to rewrite the contract to reflect the parties' true intentions

seller's lost profits on sale

measure of compensatory damages when buyer breaches and seller has not yet produced goods

1. at time contract was formed, was it apparent the 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

2 questions to ask to distinguish if clause of amount stipulated in contract qualifies as liquidated damages or penalties

remedies at law, remedies in equity (equitable remedies)

2 types of remedies courts need to distinguish between

compensatory, consequential, punitive, nominal

4 broad categories of monetary damages

fraud, mistake, duress, undue influence, lack of capacity, failure of consideration, by statute

7 cases where rescission is an available remedy

sales contract

UCC has mandated that remedies can be limited in this type of contract for goods

penalty

a contract clause that specifies a certain amount to be paid in the event of a default or breach of contract but is unenforceable b/c it is designed to punish rather than to provide a reasonable estimation of damages or make innocent party whole. unenforceable damages. if found that provision is this, the agreement as to the amount will not be enforced and recovery will be limited to actual damages

liquidated damages

an amount, stipulated in a contract, that the parties to the contract believe to be a reasonable estimation of the damages that will occur in the event of a breach. specifies that certain dollar amount is to be paid in event of a future default of breach of contract. normally enforceable if breach occurs

rescission

an cation to undo, or cancel, a contract to return the nonbreaching parties to the positions that they occupied prior to the transaction. allowed when one party fails to perform under a contract. the party that did not fail the contract must give prompt notice to breaching party that they are cancelling the contract

restitution

an equitable remedy under which a person is restored to his or her original position prior to loss or injury, or placed in the position he or she would have been in had the breach not occurred. must be made in order to rescind a contract. action made by returning goods, property, or funds previously conveyed by both parties. if property or goods not able to b returned, must be made in adequate dollar amount. involves recapture of benefit conferred on the defendant that has unjustly enriched her/him

specific performance

calls for the performance of the act promised in the contract. attractive to nonbreaching party b/c it provides the exact bargain promised in the contract. avoids some of the problems inherent in a suit for monetary damages (collecting judgment, arranging another contract) and actual performance may be more valuable to promisee than monetary damages. equitable remedy in which court orders parties to perform as promised in the contract. normally granted only when legal remedy (monetary damages) is inadequate

rescission cases

cases that restitution is not limited to. can be sought in actions for breach of contract, tort actions, and other types of actions. EX: funds/property transferred by mistake, fraud, incapacity, misconduct by a party with a special relationship with the other party. with funds or property obtained through embezzlement, conversion, theft, or copyright infringement

exculpatory clauses

clause within contract that states that no damages can be recovered for certain types of breaches

limitation-of-liability clauses

clauses/provisions within contract that affect the availability of certain remedies

entire contract price, plus interest

compensatory damages recovered by contractor if owner breaches after construction has been completed

profits that would have been made (total contract price less cost of materials and labor)

compensatory damages recovered by contractor if owner breaches contract before performance has begun

profits plus incurred costs in partially constructing

compensatory damages recovered by contractor if owner breaches contract during performance

refund on any down payment made and expenses incurred

compensatory damages to buyer of land when seller breaches on land-sale contract unintentionally. returns purchasers to positions they occupied prior to sale (minority rule)

personal services

contracts for this which require one party to work personally for another party are usually not granted specific performance is b/c ordering a party to perform in this way against his/her will resembles involuntary servitude. if performance is not qualified as this monetary damages may be adequate if a substantially identical service is available from other persons

sale of land

court may grant specific performance to buyer in contracts dealing with this. legal remedy of monetary damages may not compensated buyer adequate b/c every parcel is unique. only can be applied when subject matter has not already been resold to different buyer

error made in writing

court will enter into reformation of contract when binding oral contracts are mistaken due to this. court will allow into evidence the correct terms of oral contract, thereby reforming written contract

would have occuppied

courts say that innocent parties are to be placed in the position they ______ ________ ________ had the contract been fully performed

incidental damages

damages that compensate for expenses directly incurred because of a breach of contract, such as those incurred to obtain performance from another source. added on to compensatory damages

compensatory damages

damages that compensate the nonbreaching party for the loss of the bargain. compensate injured party only for damages actually sustained and proved to have arisen directly from loss of the bargain caused by breach. simply replace what was lost b/c of the wrong or damage. these damages "make person whole"

compensatory damages

damages to cover direct losses and costs

consequential damages

damages to cover indirect and foreseeable losses

punitive damages

damages to punish and deter wrongdoing

nominal damages

damages to recognize wrongdoing when no monetary loss is shown

take a similar job

duty that employees that are wrongfully terminated have under doctrine of mitigation of damages. if employee fails to do this, damages received will be equivalent to person's former salary less income he/she would have received in a similar job obtained by reasonable means. employer has burden or proving that such a job existed and that employee could have been hired.

quasi contract

fictional contract that is imposed on parties to prevent unjust enrichment. court may step in when no contract exists to prevent one party from being unjustly enriched at expense of the other. legal theory under which an obligation is imposed int eh absence of an agreement. allows court to act as if contract exists when there is no actual contract or agreement b/w parties. usually will not be imposed if parties have already entered into an agreement/contract concerning matter in controversy. can also be used when contract is entered into but unenforceable for some reason

consequential damages

foreseeable damages that result from a party's breach of contract but are caused by special circumstances beyond the contract itself. flow from consequences/results of a breach. EX: when seller fails to deliver goods, knowing buyer is planning to use or resell those goods immediately, court may award consequential damages for loss of profits from planned sale

punitive (exemplary) damages

generally not awarded in an action for breach of contract. no place in contract law b/c they are penalties and breach of contract is not unlawful in criminal sense. may be available in some cases when person's actions cause both a breach of contract and a tort

strike fair balance in awarding damages

how damages are awarded if there is a breach by both contractor and owner

equitable remedies

included rescission and restitution, specific performance, and reformation. usually not awarded by court unless remedy at law is inadequate

monetary damages

main type of remedy at law

value of breaching party's performed performance - value of breaching party's actual performance. reduced by any loss injured party has avoided

measure of compensatory damages

market price - contract price

measure of compensatory damages use in sale of land when buyer is party in breach or when specific performance is not available (land has already been sold)

cost of completion

measure of damages if contractor breaches contract either by failing to begin construction or by stopping work partway through project. includes reasonable compensation for any delay in performance.

loss of use

measure of damages if contractor finished project late

damages, rescission, restitution, specific performance, reformation

most common remedies available to nonbreaching party under contract law

remedy at law

normally monetary damages

remedy

one of several can be chosen by alternate party if one party involve breaches/fails to perform contract. relief provided to an innocent party when the other party has breached the contract. means employed to enforce a right or to redress an injury

breach

party may choose to do this when it is no longer advantageous for party to fulfill his/her contractual obligations. fails to perform the contract

1. party conferred benefit on the other party 2. party conferred the benefit with the reasonable expectation of being paid 3. party did not act as a volunteer in conferring the benefit 4. party receiving the benefit would be unjustly enriched if allows to retain the benefit without paying for it

party seeking recovery on a quasi contract theory must prove the following 4 to recover remedies

quasi-contracts

recovery in cases of these contracts is granted when one party has partially performed under a contract that is unenforceable. can provide an alternative to suing for damages and allow party to recover reasonable value of the partial performance. recovery can be measured by benefit received or by detriment suffered

specific performance

remedy for seller's breach of a contract for a sale of real estate so buyer is awarded parcel of property for which he/she bargained. (majority rule)

equitable remedies

remedy that is chosen when monetary damages are an inadequate remedy for a breach of contract. nonbreaching party must specify to court which remedy they are asking for

know or have reason to know that special circumstances will cause nonbreaching party to suffer additional loss

requirement of breaching party for nonbreaching party to recover consequential damages

nominal damages

small monetary award (often one dollar) granted to a plaintiff when no actual damage (financial loss) was suffered. results from breach of contract and only a technical injury is involved. establish that defendant acted wrongfully and are usually brought to court as matter of principle under theory that a breach has occurred and some damages must be imposed regardless of actual loss

find a new tenant

some states require a landlord to do this if it is able to be done through reasonable means when a tenant abandons the premises and fails to pay rent. if acceptable tenant becomes available, landlord required to lease premises to new tenant to mitigate damages recoverable form former tenant. former tenant still liable for difference b/w amount of rent under original lease and rent received from new tenant. if no reasonable steps taken by landlord, court will reduce any award by amount or rent landlord could have received if they had done proper actions

sale of goods

specific performance usually is not enacted with these types of contracts unless the goods are unique

mitigation of damages

the requirement that a plaintiff do whatever is reasonable to minimize the damage caused by the defendant's breach of contract. plaintiff must do all in their power to reduce damages suffered.

breach

type of this is used to determine whether limitation-of-liability clause can be enforced. clauses that will normally not be enforced include: provisions excluding liability for fraudulent or intentional injury or illegal acts or other violations of law. clauses may be enforced for excluding liability for negligence when parties have roughly equal bargaining positions

covenants not to compete/restrictive covenants

types of agreements that courts will apply reformation to. often included in sale of ongoing businesses and in employment contracts. agreements usually restrict area and time in which one party can directly compete with other party. also applied when agreement is unreasonable in area or time restraints and court will reform contract to make restraints reasonable while other courts will throw out contract as illegal

rescission, restitution, specific performance, reformatoin

types of equitable remedies

market price - contract price

usual measure of compensatory damages for sale of goods

fraud or mutual mistake

when these are present is the most often occurrence when courts order reformation