Chapter 19 - Breach of Contract and Remedies

Contract provisions limiting remedies

a contract may include provisions stating that no damages can be recovered for certain types of breaches or that damages will be limited to a maximum amount. the contract may also provide that the only remedy for breach is replacement, repair, or refund of the purchase price.

Unjust Enrichment

If one party confers the benefit, the other party should pay a reasonable value

UCC Damages

P: Damages are cumulative Suing for goods and win and jury awards more than 100% you can clam more than 100%

Election of remedies

P: Nonbreaching party may have many remedies you can sue for all remedies (one satisfaction rule) but can only recover for full damages nothing more Most you can get it for 100% of your damages

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. All conditions for quasi-contractual recovery have to be fulfilled.

pattern of conduct exception

A waiver can extend to subsequent effective 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 not operate as a continued waiver. the non-breaching party should give notice to the breaching party the full performance will be required in the future. 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 non-breaching party from declaring the contract and and and or rescinding the contract. the contract continues, but the non-breaching party can recover damages caused by the defective or less than full performance. PN: if a reasonable person would conclude that similar defective performance in the future would be acceptable because of the non-breaching party's pattern of conduct, successive breaches will be excused. Unless, the non-breaching party gives the breaching party notice that full and proper performance will be demanded in the future. Ex: have a monthly contract, if one of the months is defective and you don't say anything you waived your complained for that month, then the next month, and the third month.... the person performing can assume that you will keep waiving. But, even if you waive 4 months in a row.... that 5th month you can request the breaching party give you proper/full performance.

Remedies available to nonbreaching party

Damages: compensatory, consequential, punitive (rare), nominal, liquidated. Options: rescission and restitution, specific performance, or reformation.

UCC allows contracts to limit remedies

UCC provides that in a contract for the sale of goods, remedies can be limited. PN: you can put whatever you want on a contract. You can sue for x but not y. When you put a contract together you can have a clause for recovering the damages for a particular part and not another; limited to a maximum amount; damages will be determined in a specific amount

waiver of breach and subsequent breaches (multiple obligations)

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. PN: Waiver in one obligation does not mean waiver for all obligations Ex: have monthly delivery's. Waiver for one month, does not waiver the next months. You waive one month, doesn't make okay for future events.

Equitable remedies

sometimes, damages are inadequate remedy for a contract breach. the non-breaching party may ask the court for an equitable remedy. equitable remedies include rescission and restitution, specific performance, and re-formation. PN: court making a party to do something or refrain from doing

Mitigation damages

when a breach of contract occurs, the innocent Injured party is 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. PN: the non-breaching party has a duty to take whatever action is reasonable to minimize damages. Ex: if you get fired from your job, you can't just sit on the beach and expect to be paid.

Reformation

Reformation is 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 party's true intentions. A party seeks reformation so that some other remedy may then be pursued. 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. Courts may also reform contracts when the parties had executed a written covenant not to compete. if the covenant is for a valid and legitimate purpose (such as the sale of the business) but the area or time restraints of the covenant are unreasonable, reformation may occur. PN: we rewrite the contract to reflect the parties true intent. Usually under these circumstances: fraud or mutual mistake clerical error Overbroad covenant not to compete.

Liquidated damages

a 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. PN: required to pay certain sum of money if they don't perform. Ex: if you break your cell contract you're committed to pay. the damages from the breach were difficult to estimate and the amount of the liquidated damages is a reasonable estimate of the value of the promise to perform.

Employment contracts

a person whose employment has been wrongfully terminated owes a duty to mitigate the damages suffered because of the employer's breach of the employment contract. the damages awarded 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.

Compensatory damages

damages that compensate the nonbreaching party for the loss of the bargain are known as compensatory damages. to cover direct losses and costs. PN: aka expectation damages. 19.1 ex: damages that compensate the non-breaching party for losses/injury actually sustained. value of performance as promised - value of the performance actually rendered - value of any loss avoided (mitigated) + incidental damages = compensatory damage 10,000 - 0 - 5,000 somebody else does it + 500 (adveristing to have house painted) = 5500 I would owe Gersten. Market value damages: the contract price of the goods/land - the fair market price of land during delivery= market value damages

Incidental damages

expenses that are caused directly by a breach of contract-such as those incurred to obtain performance from another source. Ex: the cost of Randall having to find another job. PN: expenses or costs caused by the breach. Ex: rent an apartment and sign lease, but they don't show up. Then that is a breach. The costs associated with the breach. expenses.; costs incurred to find a new renter or advertising, incidental trying to fix the breach

Consequential damages (special damages)

foreseeable damages that result from a party's breach of contract are called consequential damages or special damages. they differ from compensatory damages in that they are caused by special circumstances beyond the contract itself. they flow from the consequences, or results, of a breach. when a seller fails to deliver goods, knowing that the buyer is planning to use or resell those goods immediately, a court may award consequential damages for the loss of profits from the planned resale. 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 an additional loss. damages resulting from a breach that were reasonably foreseeable. ex: hadly vs. baxendale. The mill should have let the courier know that the part was needed back urgently (special damage). The losses they incurred was not held liable to the courier. As a result of lost profit (the opportunity cost).

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. Ex: Medik laboratories contracts to buy 10 model UTS network servers from Cal industries for $4000 each. Cal industries, however, fails to deliver the 10 servers to Medik. the market price of the servers at the time Medik learns of the breach is $4500. therefore, Mediks measure of damages is $5000 (10 x $500)-plus any incidental damages (expenses) caused by the breach. When the buyer breaches and the seller has not yet produce the goods, compensatory damages normally equal lost profits on the sale, not the difference between the contract price and the market price.

Penalty

liquidated damages differ from penalties. a penalty specifies a certain amount to be paid in the event of a default or breach of contract, it is designed to penalize the breaching party, not to make the innocent party whole. liquidated damages provisions usually are enforceable. in contrast, if a court finds that a provision calls for a penalty, the agreement as to the amount will not be enforced, and recovery will be limited to actual damages. court will not enforce liquidated damages that bear no reasonable relationship to the value of the promised performance. Ex: you charge $1000 a day for something that isn't reasonable.

Exculpatory Clauses

provisions stating that no damages can be recovered are called exculpatory clauses. PN: provision that precludes damages for certain types of breaches. the liability has been limited to replacement, repair, or refund.

Limitation of liability clauses

provisions that affect the availability of certain remedies are called limitation of liability clauses. Whether a limitation of liability clause in a contract will be enforced depends on the type of breach that is excused by the provision. a provision excluding liability for fraudulent or intentional injury will not be enforced. PN: expressly limits damages recoverable for certain types of breaches to a certain amount. It's an upto and including clause. up to and including x amount of money. If the nonbreaching party's damages are less than the limit that's what they get if its more than the limit they only get the limit

Punitive damages

punitive damages generally are not awarded in lawsuits for breach of contract. punitive damages are almost never available in contract disputes. PN: punish the wrong doer. Generally, in a contract claim it's not held up; gives rise to a tort-possible but not really

rescission and restitution

rescission: is essentially an action to undo, or terminate, a contract-to return the contracting parties to the positions they occupied prior to the transaction. 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. Restitution: to rescind a contract, both parties must make restitution to each other by returning goods, property, or funds previously conveyed. if the property or goods can be returned, they must be. if the goods or property have been consumed, restitution must be made in an equivalent dollar amount. Restitution may be appropriate when a contract is rescinded, but the right to restitution is not limited to rescission cases. restitution can be obtained when funds or property have been transferred by mistake or because of fraud or incapacity. PN: restitution: returning money, goods, or property that was previously transferred to restore the nonbreaching party to their prior position

rental agreements

some states require the 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 former tenant is still liable for the difference between the amount of the rent under the original lease and the rent received from the new tenant. if the landlord has not taken reasonable steps to find a new tenant, a court will likely reduce any award made by the amount of rent the landlord could have received had he or she done so. PN: if you rent an apartment and you sign a 12 month lease. if you leave after 2 months, you owe 10 months. Now landlord has a duty to mitigate. the court will commit 2 months of rent (all accross the board rule)

Specific performance

the equitable remedy of specific performance calls for the performance of the act promised in the contract. this remedy is attractive to a non-breaching party because it provides the exact bargain promised in the contract. specific performance will not be granted unless the parties legal remedy (monetary damages) is inadequate. contracts for the sale of goods rarely qualify for specific performance. Only if the goods are unique will a court grant specific performance. for instance, paintings, sculptures, or rare books or coins are so unique that monetary damages will not enable a buyer to obtain substantially identical substitutes in the market. PN: require breaching party to perform exactly as called for in the contract. Subject matter of the contract is unique, then you would have to give to buy a similar subject matter Land contracts are always unique and usually involve specific performance.

Remedy

the relief provided for an innocent party when the other party has breached the contract. when one party breaches a contract, the other party-the non-breaching party-can choose one or more of several remedies. the most common remedies available to a non-breaching party include damages, rescission and restitution, specific performance, and re-formation. PN: either damages (money) or equity.

standard measure

the standard measure of compensatory damages is the difference between the value of the breaching party's promised performance under the contract and the value of her or his actual performance. Ex: Randall contracts to perform certain services exclusively for Hernandez during the month of March for $4000. Hernandez cancel the contract and is in breach. Randall is able to find another job during March but can earn only $3000. he can sue Hernandez for breach and recover $1000 as compensatory damages. Randall can also recover from Hernandez the amount that he spent to find the other job.

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 questions are yes the provision normally will be enforced. If either answer is no, the provision usually will not be enforced.

waiver of breach

under certain circumstances, a nonbreaching partty may be willing to accept a defective performance of the contract. this knowing relinquishment of a legal right (that is, the right to require satisfactory and full performance) is called a waiver. When a waiver of breach of contract occurs, 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 waiver of breach of contract extends only to the matter waived and not to the whole contract. Business persons often waive breaches of contract to obtain whatever benefit is still possible out of the contract. PN: if the non breach party knowingly accept incomplete performance (defective), they have waived (given away)their right to complete and proper performance. You can't sue for damages. Accepted it with partial performance, then you gave away your right got that instance; particular in each instance

Recovery based on Quasi contract

when no actual contract exists, a court may step in to prevent one party from being unjustly enriched at the expense of another party. quasi-contract is a legal theory under which an obligation is imposed in the absence of an agreement. Quasi-contract allows a court to act as if a contract exists when there is no actual contract or agreement between the parties. Quasi-contractual recovery is often granted when one party has partially performed under a contract that is un-enforceable. PN: if one party confers something of value or a benefit, the other party should pay a reasonable value. unjust enrichment. Quasi contract is a legal fiction. ; useful when partial performance and suddenly becomes unenforceable; courts will say it's a contract and pay but are making it up as they go because of the illegal part of the original contract, will pretend because it is a contract election remedies- you can sue for all of them. one satisfaction rule- as a plaintiff you can only recover your full damages. You can't collect 200%, only 100% of your damages. UCC is cumulative, you can collect more.

Nominal damages

when no actual damages 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, such as one dollar, but they do establish that the defendant acted wrongfully. PN: awarded when there is a technical injury; dollar damages, nobody cares about those damages (insignificant). Ex: you order green caps, but they come in red. this is a breach of contract, so you get a $1.00.

Pleading in the alternative

you can sue for recession, and also for compensatory because it's mutually exclusive of each other. P: Plaintiff can sue under multiple theories and can be mutually exclusive