B law exam 3 - Chapter 14

Compensatory Damages cont. (sale of land)

*Sale of Land -Usual remedy is specific performance (t be discussed) -When specific performance is not possible (e.g., property has been sold), typical measure is contract price minus market price of the land

Consequential Damages example

-Alf who has a printing business, contracts with IBM to have a specific machine part shipped to him -He desperately needs this part to repair his printing press -Contract states that Alf must receive the party by Monday -If he dos not receive it by then, he will not he able to print signs and will lose $3,000 (and IBM knows about his business) -If the part does not arrive by Monday, Alf can recover $3,000 in consequential damages

4 broad categories of damages for breach of contract

-Compensatory (to cover direct losses and costs) -Consequential (to cover indirect and foreseeable losses) -Punitive (to punish and deter wrongdoing) -Nominal (to recognize wrongdoing when no monetary loss is shown) Remember, we're talking about damages in the context of breach of contract

Compensatory Damages example

-Miss Piggy contracts with a company called Pig Sty Cleaners to perform certain personal services exclusively for Pig Sty Cleaners for a payment of $4,000 in November -Pig Sty Cleaners cancels the contract and is in breach -Miss Piggy is able to find another job during November but can only earn $3,000 -Miss Piggy can sue for breach of contract and recover $1,000 for compensatory damages plus -Incidental damages: compensation for expenses directly incurred because of breach, such as those incurred to obtain performance from another source

Nominal Damages example

-Spuds McKenize contracts with Taco Bell Chihuahua to buy dog food at $1/pound -TB Chihuahua does not deliver the dog food (breaches) -Price of dog food falls to $.50/pound, so Spuds is better off -No monetary loss suffered by Spuds, so if he sues and wins, court will likely only award nominal damages Real life example: -NFL found guily of violating anti-trust laws -USFL awarded $1 in nominal damages x3

To recover on a quasi contract theory, the party seeking recovery must show all of the following:

1. It conferred a benefit on the other party 2. It conferred the benefit with reasonable expectation of being paid 3. It 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

Liquidate Damages - Two questions court asks when determining enforceability:

1. at the time the contract was formed, was it apparent that damages would be difficult to estimate i the vent of a breach? 2. Was the amount set as damages a reasonable estimate and not excessive --> if both yes --> enforceable liquidated damages provision ex: b-sharp musical productions, Inc v. Haber

Compensatory Damages cont. (construction of contracts)

Compensatory Damages -Measure of damages depends on which party breaches and when the breach occurs; for example: -Owner breaches before performance has begun contractor recovers only profits that would have been made on contract (total contract price minus cost of materials and labor) -Contractor breaches before or during performance; owner recovers the cost of completing the project

Equitable Remedies - Specific Performance (contracts for personal services)

Contracts for personal services: -Contracts requiring one party to work personally for another party -Courts normally refuse to grant specific performance for these: --> don't want to order party to perform services against its will --> ex: brain surgeon who refuses to perform surgery -If contract is not for personal services (ex: lawn mowing) monetary damages may be adequate because substantially identical service can be found

Recovery Based on Quasi Contract

Quasi Contract: a contract created by court (when no actual contract exists or when the contract is not enforceable) in order to prevent one party from being unjustly enriched at expense of other party -Often granted when one party has partially performed under a contract that is unenforceable -Provides an alternative to suing for damages and allows the party to recover reasonable value of the partial performance ex: -Terry Tycoon contracts to build two oil derricks for Ollie Oilman -The derricks are to be built over 3 years, but no written contract -Statute of Frauds will bar enforcement of contract (cannot be performed within one year from formation) -After Terry completes one derrick, Ollie says he will not pay for it -Terry will sue Ollie under the theory of quasi contract

Consequential Damages rule

Rule: for non-breaching party to recover consequantial damages, the breaching party must know (or have reason to know) that an additional loss could occur -In other words, if the alleged injury/damages is outside the usual and foreseeable course of events, the plaintiff must show specifically that the defendant had reason to know the facts and foresee the injury

Equitable Remedies

Sometimes damages are in inadequate remedy for breach of contract --> innocent party might ask for equitable remedies Various equitable remedies: -Rescission and restitution -Specific performance -Reformation

Damages

We have already talked about damages within the context of torts --> designed to compensate a party for harm suffered as a result of another's wrongful act Here, we are talking about damages within the context of a breach of contract -->designed to compensate the non-breaching party for the loss of bargain --> Attempts to place innocent party into the position it would have occupied had the contract been fully performed

Equitable Remedies - Rescission

an action to undo or cancel a contract and return non-breaching parties to the positions they occupied prior to the transaction -Available when fraud, mistake, duress, undue influence, lack of capacity, or failure of consideration is present -May also be available by statute -Failure of one party to perform under a contract entitles other party to rescind the contract -To rescind a contract both parties must *make restitution to each other

Liquidate Damages

an amount of stipulated in a contract that the parties to the contract agree to be a reasonable estimation of the damages that will occur in the event of a breach of that contract -"liquidated" in this context means determined, settled, or fixed -Are enforceable because the parties negotiated them and they reflect a reasonable estimate of damages -Differs from penalty: contract clause that specifies a certain amount to be paid in the event of default or breach of contract --> Penalty provisions are not enforced by courts --> Recovery will be limited to actual damages

Punitive Damages

are not generally awarded in an action for breach of contract -Breach of contract is not unlawful in a criminal sense, which is what punitive damages seek to address -Contact is simply a civil relationship between the parties -In rare circumstances punitive damages could be awarded in connection with a breach of contract only if the breaching party also committed a tort

Compensatory Damages

damages that compensate non-breaching party for loss of bargain -Compensate non-breaching party only for damages actually sustained and proved to have arisen directly from the loss of the bargain caused by the breach of contract -Replace what was lost because of the wrong or damage -Usually equals -->Value of the breaching party' promised performance under the contract minus --> Value of its actual performance

Compensatory Damages cont. (sale of goods)

damages that compensate non-breaching party for loss of the bargain -Measurement of compensatory damages varies by typeof contract *Sale of Goods: usual measure is contract price minus market price Ex: -Egghead Electronics contracts with Nerd Networks to buy 10 network servers for $4,000 each = $40,000 -Nerd Networks fails to deliver the servers -Market price of servers at time of breach is $4,500 = $45,000 -What are the compensatory damages? --> $5,000 plus any incidental damages

Equitable Remedies - Specific Performance (sale of land)

equitable remedy in which a court orders the parties to perform what they promised in contract Sale of land: every parcel of land is unique --> Monetary damages cannot be adequate because same land in same location obviously cannot be obtained elsewhere --> Only when specific performance is unavailable (ex: seller sold the property to someone else) will monetary damages be granted

Equitable Remedies - Specific Performance

equitable remedy in which court orders parties to perform the promises they made in the contract -Non-breaching party likes this remedy because it provides the exact bargain promised in the contract and does not involve challenges associated with trying to collect on damages -Can only be granted if legal remedy (monetary damages) is inadequate --> Specific performance i not typically granted when contract involves sale of goods because comparable goods exist -However, specific performance is granted if: *Goods are unique (ex: paintings, sculptures, rare books, and coins)

Equitable Remedies - Restitution

equitable remedy under which a party is retuned to its original position -Parties must return goods, property, or funds previously conveyed -If goods, property, or funds have been consumed and cannot be returned, equivalent dollar amount must be paid -In essence, restitution involves recapture of a benefit conferred so as not to result in unjust enrichment -Restitution is not limited to breach of contract - can also occur as a result of fraud or incapacity

Equitable Remedies - Reformation

equitable remedy used when parties have imperfectly expressed their agreement in writing -Allows court to rewrite the contract to reflect the parties' true intention -Ordered by court when: -Fraud -Mutual mistake -Written contract incorrectly states parties' oral agreement -Covenants not to compete --> if it is for a valid purpose, some courts will reform the area or time restraints id they are unreasonable

Breach

failure or refusal to perform contractual obligations -What does that mean for the non-breaching party? Remedy: relief provided to an innocent party hen the other party has breached the contract

Damages - Consequential Damages

foreseeable damages that result from a party's breach of contract -Caused by special circumstances beyond the contract itself and flow from the consequences, or results, of a breach -When a seller fails to deliver foods, knowing that the buyer is planning to use or resell those goods immediately, a court may ward consequential damages (in addition to compensatory damages) for the loss of profits from the planned use or resale

Contract Provisions Limiting Remedies - Limitation of liability clauses

provisions that affects the availability of certain remedies -->Provisions stating that: -No damages can be recovered for certain types of breaches -Damages will be limited to max. amount -One party can seek injunctive release if the other party breaches UCC: remedies can be limited in a contract for sale of goods How does a court determine whether one can be enforced? --> Depends on the type of breach that is excused by the provision: -Courts will not enforce provisions excluding liability for fraud, intentional injury, illegal acts, or violations of law -Courts may enforce provisions excluding liability for negligence ex: engineering and developer

Remedy

relief provided to an innocent party when the other party has breached the contract -Remedies at law: normally monetary damages -Equitable remedies: founded on notions of justice and fair dealing -->rescission and restitution -->specific performance --> reformation General rule: courts will not award an equitable remedy unless the remedy at law is inadequate

Mitigation of Damages (employment contracts)

requirement that a plaintiff do whatever is reasonable to minimize damages caused by the defendant -In most situations, when a breach of contract occurs, injured party is held to a duty to reduce the damages it suffers --> Employment Contracts: -Employees who are wrongfully terminated typically have a duty to take a similar job if one is available -If person fails or refuses to do so, his or her damages will likely to be qual to former salary less income that would have been received in a similar job obtained by reasonable means -Similar job must be of the same type and rank

Mitigation of Damages (rental agreement)

requirement that a plaintiff do whatever is reasonable to minimize damages caused by the defendant -In most situations, when a breach of contract occurs, injured party is held to a duty to reduce the damages it suffers Rental Agreements: -Some states require landlord to use reasonable means to find a new tenant if tenant abandons premises and fails to pay rent -Landlord is required to lease premises to acceptable tenant who comes along in order to mitigate damages for former tenant

Nominal Damages

small monetary ward granted to the plaintiff (i.e., non-breaching party) when no actual damage was suffered by non-breaching party -Often very small amount such as $1 -Establish that the defendant (i.e., breaching party) acted wrongfully -Matter of principle more than anything else