Business Law- Chapter 10

Contract Damages

1. Compensatory 2. Consequential ~Duty to mitigate 3. Nominal 4. Punitive 5. Liquidated

Equitable Remedies

1. Reformation 2. Rescission 3. Restitution 4. Injunction 5. Specific Enforcement

Attorneys' Fee

1. The "American Rule" provides that each party pay his or her own attorney's fee. 2. Parties in contract can agree that in disputes under the contract, the loser will pay the prevailing party fees.

To Be Valid, a Liquidated Damages Clause must satisfy two requirements

1. The situation must be one in which it is difficult or impossible to determine the actual damages and 2. the amount specified must not be excessive when compared with the probable damages that would be sustained

Reformation of Contract by a Court

A party seeking reformation of the contract must clearly prove both the grounds for reformation and what the agreement actually was.

Anticipatory Breach...

A party to a contract clearly repudiates his or her obligations under the contract. This is an anticipatory breach and a material breach. Repudiation is by A. Words B. Conduct

Specific Performance

Action brought to compel the adverse party to perform a contract on the theory that merely suing for damages for its breach will not be an adequate remedy.

Material (major) Break of Contract

Breaks the contract and gives rise to a claim for damages

Remedies in General and the Measure of Damages

Courts provide a quasi-contractual or restitution remedy in which a contract is unenforceable because it lacked definite and certain terms or was not in compliance with the statute of frauds, yet one of the parties performed services for the other.

Consequential Damages

Damages the buyer experiences as a result of the seller's breach with respect to a third party.

Punitive Damages

Damages, in excess of those required to compensate the plaintiff for the wrong done, that are imposed in order to punish the defendant because of the particularly wanton or willful character of wrongdoing; also called exemplary damages.

Non-material (minor) Breach

Does not break the contract, but does provide a basis for incidental damages and/or offsets.

Breach

Failure to act or perform in the manner called for by the contract.

Invalid Clause

If the liquidated damages clause calls for the payment of a sum that is clearly unreasonably large and unrelated to the possible actual damages that might be sustained, the clause will be held to be void as a penalty When a liquidated damages clause is held invalid, the effect is merely to erase the clause from the contract, and the injured party may proceed to recover damages for breach of contract.

Nominal Damages

Nominal sum awarded the plaintiff in order to establish that legal rights have been violated although the plaintiff in fact has not sustained any actual loss or damages.

Injunction

Order of a court equity to refrain from doing (negative injunction) or to do (affirmative or mandatory injunction) a specified act. Statute use in labor disputes has been greatly restricted.

Exculpatory clause

Provision in a contract stating that one of the parties shall not be liable for damages in case of breach; also called a limitation of liability clause

Liquidated Damages

Provision stipulating the amount of damages to be paid in the event of default or breach of contract.

Liquidated Damages Clause

Specification of exact compensation in case of a breach of contract.

Compensatory Damages

Sum of money that will compensate an injured plaintiff for actual loss.

Injunctive Relief

Temporary Restraining Order--> Preliminary Injunction-->Permanent Injunction

Anticipatory Repudiation by Conduct

The anticipatory repudiation may be expressed by conduct that makes it impossible for the repudiating party to perform subsequently.

Limitations of Remedies

The contract of the parties may limit the remedies of the aggrieved parties.

Effect of Failure to Mitigate Damages

The effect of the requirements of mitigating damages is to limit recovery by the non breaching party to the damages that would have been sustained had this party mitigated the damages where it was possible to do so.

Mitigation of Damages

The injured party is under the duty to mitigate damages if reasonable possible. In other words, damages must not be permitted to increase if an increase can be prevented by reasonable efforts. This means that the injured party must generally stop any performance under the contract to avoid running up a larger bill.

Purpose of Contract Damages

To place non-breaching party in the position they would have enjoyed had the contract been performed as per its terms.

Purpose of Equitable Remedies

To return the injured party to their original position before performance began ~Status quo ante

Mitigation of Damages...

To seek to lessen damages by obtaining substitute goods. Mitigation of damages is called 'cover' in the UCC

Action for Specific Performance

Under special circumstances, an injured party may obtain the equitable remedy of specific performance, which compels the other party to carry out the terms of a contract.

Waiver

Waiver is to give up or relinquish a right under a contract

Effect of Clause

When a liquidated damages clause is held valid, the injured party cannot collect more than the amount specified by the clause

Anticipatory Repudiation

When a party expressly declares that performance will not be made when required, this declaration is called an anticipatory repudiation. To constitute such repudiation, there must be a clear, absolute unequivocal refusal to perform the contract according to its terms.

Remedies Upon Anticipatory Repudiation

When an anticipatory repudiation of a contract occurs, the aggrieved person has several options. He may 1. do nothing beyond stating that performance at the proper time will be required, 2. regard the contract as having been definitely broken and bring a lawsuit against the repudiating party without waiting to see whether there will be proper performance when the performance date arrives, or 3. regard the repudiation as an offer to cancel the contract.

Anticipatory Breach

When the contract calls for performance, a party may make it clear before the time for performance arrives that the contract will not be performed.

Rescission

When the party commits a material breach of the contract, the other party may rescind the contract; if the party in default objects, the aggrieved party may bring an action for rescission. A breach is material when it is so substantial that it defeats the object of the parties in making the contract. The purpose of rescission is to restore the injured party to the position occupied before the contract was made.

Direct Damages

losses that are caused by a breach of contract