Blaw Chapter 16

Tort of bad faith:

ex) insurance company not paying the maximum coverage and owner getting sued by the butt-load

Case 16.1 Burke v 401 N. Wabash Venture, LLC

401 N. Wabash Venture, LLC is the developer of the Trump Hotel & Tower in Chicago, Illinois, which would include condominium units. Michael Burke, a citizen of Ireland, signed a contract with the developer to buy a condominium unit and two parking spaces in Trump Tower when the building was completed for $2,282,130. Burke paid a deposit of $456,426—20 percent of the purchase price—as required by the purchase agreement. The purchase agreement contained a liquidated damage clause that permitted the developer to retain the deposit money if Burke did not complete the purchase of the unit. When it came time to close the purchase, Burke refused to pay the rest of the contract price and asked the developer to refund his deposit The U.S. district court held that the liquidated damage clause was enforceable and dismissed Burke's lawsuit. Burke appealed.

Penalty

A liquidated damages clause is considered a penalty if actual damages are clearly determinable in advance or if the liquidated damages are excessive or unconscionable. If a liquidated damages clause is found to be a penalty, it is unenforceable. The nonbreaching party may then recover actual damages.

Arbitration of contract disputes

Arbitration is a nonjudicial, private resolution of a contract dispute. An arbitrator, not a judge or jury, renders a decision in the case. Most arbitration agreements stipulate binding arbitration, that is, the arbitrator's decision cannot be appealed to the courts. Arbitration occurs if the parties have entered into an arbitration agreement, either as part of their contract or as a separate agreement. Many consumer and business contracts contain arbitration clauses.

complete performance / strict performance

Complete performance occurs when a party to a contract renders performance exactly as required by the contract. A fully performed contract is called an executed contract.

Consequential damages / special damages

Consequential damages are foreseeable damages that arise from circumstances outside a contract. To be liable for consequential damages, the breaching party must know or have reason to know that the breach will cause special damages to the other party. example) Therefore, X-Mart can recover the lost profits on each lost sale as consequential damages from Mattel—that is, the difference between the would-be sales price of the dolls ($50) and the purchase price of each doll ($20), or $30 lost profit per doll. In total, X-Mart can recover $30 million in consequential damages from Mattel ($50 − $20 = $30 × 1,000,000).

Disclaimer of consequential damages

Consequential damages are often disclaimed in a sales or license agreement. This means that the breaching party is not responsible to pay consequential damages (computer software example)

Mitigation of damages

If a contract has been breached, the law places a duty on the innocent nonbreaching party to make reasonable efforts to mitigate (i.e., avoid or reduce) the resulting damages.

Case 16.2 Alba v. Kaufmann

Jean-Claude Kaufmann owned approximately 37 acres of real property located in the town of Stephentown, Rensselaer County, New York. Richard Alba and his spouse (Albas) looked at the property and offered Kaufmann the asking price. The parties executed a contract for sale, and the Albas paid a deposit, obtained a mortgage commitment, and procured a satisfactory home inspection and title insurance. A date for closing the transaction was set. Prior to closing, Cacace sent the Albas an email, indicating that she and Kaufmann had "a change of heart" and no longer wished to go forward with the sale. Albas sent a reply email, stating their intent to go forward with the scheduled closing. When Kaufmann refused to close, the Albas sued, seeking specific performance, and moved for summary judgment.

Case 16.3 Mance v. Mercedes-Benz USA

Make him arbitrate

tender of performance

Tender is an unconditional and absolute offer by a contracting party to perform its obligations under the contract.

Torts associated with contracts

The recovery for breach of contract is usually limited to contract damages. A party who can prove a contract-related tort, however, may also recover tort damages. Tort damages include compensation for personal injury, pain and suffering, emotional distress, and possibly punitive damages. Two major ones: intentional interference with contractual relations breach of the implied covenant of good faith and fair dealing.

Liquidated damages

Under certain circumstances, the parties to a contract may agree in advance to the amount of damages payable on a breach of contract. To be lawful, the actual damages must be difficult or impracticable to determine, and the liquidated amount must be reasonable in the circumstances An enforceable liquidated damages clause is an exclusive remedy even if actual damages are later determined to be different from the liquidated damages.

covenant of good faith and fair dealing

Under this implied covenant the parties to a contract are not only held to the express terms of the contract but are also required to act in good faith and deal fairly in all respects in obtaining the objective of the contract.

Material breach and inferior performance

a situation in which a party fails to perform express or implied contractual obligations and impairs or destroys the essence of a contract; there is a material breach Where there has been a material breach of contract, the nonbreaching party may rescind the contract and seek restitution of any compensation paid under the contract to the breaching party. Alternatively, the nonbreaching party may treat the contract as being in effect and sue the breaching party to recover damages

reformation

an equitable doctrine that permits the court to rewrite a contract to express the parties' true intentions. Reformation is usually available to correct clerical errors in contracts.

Compensatory damages

are intended to compensate a nonbreaching party for the loss of the bargain. In other words, they place the nonbreaching party in the same position as if the contract had been fully performed by restoring the "benefit of the bargain."

Intentional Interference with Contractual Relations

arises when a third party induces a contracting party to breach a contract with another party components: A valid, enforceable contract between the contracting parties Third-party knowledge of this contract Third-party inducement to breach the contract ex) The first team can recover tort damages—including punitive damages—from the second team for the tort of intentional interference with a contract.

Types of performance

complete, substantial, inferior

Sale of Good breach

governed by the UCC The usual measure of damages for a breach of a sales contract is the difference between the contract price and the market price of the goods at the time and place the goods were to be delivered Revlon, Inc. contracts to buy a piece of equipment from Greenway Supply Co. for $80,000. Greenway does not deliver the equipment to Revlon when it is required to do so. Revlon purchases the equipment from another vendor but has to pay $100,000 because the current market price for the equipment has risen. Revlon can recover $20,000 from Greenway—the difference between the market price paid ($100,000) and the contract price ($80,000)—in compensatory damages.

Breach of Contract

if a contracting party fails to perform an absolute duty owed under a contract

Equitable remedies

if there has been a breach of contract that cannot be adequately compensated through a legal remedy. specific performance reformation injunction

Injunction

is a court order that prohibits a person from doing a certain act. To obtain an injunction, the requesting party must show that he or she will suffer irreparable injury if the injunction is not issued.

Rescission and Restitution

is an action to undo a contract. It is available where there has been a material breach of contract, fraud, duress, undue influence, or mistake. Generally, to rescind a contract, the parties must make restitution of the consideration they received under the contract.6 Restitution consists of returning the goods, property, money, or other consideration received from the other party

Anticipatory breach

occurs when a contracting party informs the other party in advance that it will not perform the contractual duties when due. This type of material breach can be expressly stated or implied from the conduct of the repudiator. Where there is an anticipatory repudiation, the nonbreaching party's obligations under the contract are discharged immediately. The nonbreaching party also has the right to sue the repudiating party when the anticipatory breach occurs; there is no need to wait until performance is due

Substantial performance

occurs when there has been a minor breach of contract If the breaching party does not correct the breach, the nonbreaching party can sue to recover damages by (1) deducting the cost to repair the defect from the contract price and remitting the balance to the breaching party or (2) suing the breaching party to recover the cost to repair the defect if the breaching party has already been paid

Specific performance

orders the breaching party to perform the acts promised in a contract. The courts have the discretion to award this remedy if the subject matter of the contract is unique. (note - all land is unique)

Nominal Damges

usually $1, Cases involving nominal damages are usually brought on principle. Most courts disfavor nominal damages lawsuits because they use valuable court time and resources.

Federal Arbitration act

which promotes the arbitration of contract disputes whether the dispute involves federal or state law