Chapter 16: Breach of Contract and Remedies

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

anticipatory breach (anticipatory repudiation)

A breach that occurs when one contracting party informs the other that he or she will not perform his or her contractual duties when due; also known as anticipatory repudiation.

equitable remedies

A remedy that is available if there has been a breach of contract that cannot be adequately compensated through a legal remedy or to prevent unjust enrichment.

specific performance

A remedy that orders the breaching party to perform the acts promised in the contract. Specific performance is usually awarded in cases in which the subject matter is unique, such as in contracts involving land, heirlooms, and paintings.

Popop got this after going on strike for the school board.

An injunction.

tender or tender of performance

An unconditional and absolute offer by a contracting party to perform his or her obligations under a contract.

Ashley, who owns a women's retail store, contracts to purchase a lot of high-fashion blue jeans from a manufacturer for $75,000. When does Ashely tender?

At the time of performance, Ashley tenders the $75,000. Ashley has performed her obligation under the contract once she tenders the $75,000 to the manufacturer.

nominal damages

Damages awarded when the nonbreaching party sues the breaching party even though no financial loss has resulted from the breach. Nominal damages are usually $1 or some other small amount.

How can an anticipatory breach be stated?

Expressly stated or implied

True or False: Monetary damages are only available when the breach of contract was material.

False, they're available whether the breach was minor or material.

Mance v. Mercedes-Benz USA

Mance signed contract w/Mercedes that included arbitration clause. Mance still filed a lawsuit claiming the arbitration clause was unreasonable. The court ruled in Mercede's favor.

restitution

The return of goods or property received from the other party to rescind a contract. If the actual goods or property are not available, a cash equivalent must be made.

What is the award of compensatory damages for a construction contract?

Then award changes depending on the stage of completion of the project.

True or False: If the builder breaches a construction contract either before or during construction, the owner can recover the increased cost above the contract price that he or she has to pay to have the work completed by another contractor.

True

True or False: Substantial performance constitutes a minor breach of the contract

True

True or False: Where there is an anticipatory repudiation, the nonbreaching party's obligations under the contract are discharged immediately.

True. 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.

Is specific performance available to enforce land contracts?

Yes because each piece of land is seen as unique

What does an inferior performance of a contract constitute?

a material breach that impairs or destroys the essence of the contract

Which two conditions allow for a contractual duty to not have to be performed?

discharged (terminated) or excused (relived of legal liability)

The major torts associated with contracts are

intentional interference with contractual relations and breach of the implied covenant of good faith and fair dealing.

​Generally, _____ damages are not recoverable for breach of contract.

punitive

The most common equitable remedies are

specific performance, reformation, and injunction

This covenant of good faith and fair dealing is usually implied in contracts

where the parties have a special relationship that involves a fiduciary duty.

True or False: I sign a contract that has a nonrefundable downpayment amount of $100k and $1,000,000 on complete performance. If there is a material breach in the contract from the other party, how much can I recover?

1,100,000

liquidated damages clause

A clause in a contract that provides that agreed-upon liquidated damages will be paid upon the breach of the contract.

breach of contract

A contracting party's failure to perform an absolute duty owed under a contract.

injuction

A court order directing someone to do something or to refrain from doing something

penalty

A fine that is imposed if liquidated damages are excessive or unconscionable or if actual damages are clearly determinable in advance and makes the liquidated damage clause unenforceable.

mitigation of damages

A nonbreaching party's legal duty to avoid or reduce damages caused by a breach of contract.

complete performance

A situation in which a party to a contract renders performance exactly as required by the contract. Complete performance discharges that party's obligations under the contract; also known as strict performance.

intentional interference with contractual relations

A tort that arises when a third party induces a contracting party to breach the contract with another party.

which elements must be shown for intentional interference with contractual relations

A valid, enforceable contract between the contracting parties Third-party knowledge of this contract Third-party inducement to breach the contract

rescission

An action to rescind (undo) a contract. Rescission is available if there has been a material breach of contract, fraud, duress, undue influence, or mistake.

how does mitigation of damages apply to an employee?

An employee owes a duty to mitigate damages by trying to find a new job in the same field with comparable pay to their previous employment.

Reformation

An equitable doctrine that permits the court to rewrite a contract to express the parties' true intentions.

covenant of good faith and fair dealing

An implied covenant under which the parties to a contract not only are 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.

What are compensatory damages intended to do?

Compensate a non-breaching party for the loss of a 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."

Liquidated Damages

Damages that parties to a contract agree in advance should be paid if the contract is breached.

consequential damages

Foreseeable damages that arise from circumstances outside a contract. To be liable for these damages, the breaching party must know or have reason to know that the breach will cause special damages to the other party; also known as special damages.

Burke v. 401 N. Wabash Venture, LLC

Michael Burke, a citizen of Ireland, signed a contract with the developer of Trump tower 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. Court ruled in trump tower's favor because this was a relevant liquidation clause.

A concert hall contracts with a famous rap artist to hold a series of concerts. Later, the rap artist refuses to perform. Can the concert hall force the rapper to perform?

No, because it is a personal service contract. The concert hall could, however, sue to recover any payments it has made to the rap artist and recover any damages that it may have suffered because of the breach.

If Nina is fired from a 200k sales job and is offered a 200k software job after she's fired, does she have to take it out of duty to mitigate damages?

No, she does not.

Is the breaching party responsible for paying damages in a sales or license agreement case?

No, they aren't.

Do courts favor nominal damages?

No, they see it as a waste of court resources.

Donald contracts with Big Apple Construction Co. to have Big Apple construct an office building for $100 million. The architectural plans call for installation of 3-ply windows in the building. Big Apple constructs the building exactly to plan except that it installs 2-ply windows. There has been substantial performance. It would cost $5 million to install the correct windows. What does Donald have to pay?

The amount he has to pay changes depending on the circumstances. If Apple agrees to replace the windows, Donald has to pay the full amount plus the 5 mil. If he pays someone else to replace the windows he only has to pay apple 95 mil. If Apple refuses Donald can sue them for 5 mil.

What is the award of compensatory damages for sale of goods?

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.

Which liquidated damages are lawful?

To be lawful, the actual damages must be difficult or impracticable to determine, and the liquidated amount must be reasonable in the circumstances.

In restitution, the goods or property have been consumed or are otherwise unavailable, restitution must be made by a cash equivalent.

True

True or False: An employee whose employer breaches an employment contract can recover lost wages or salary as compensatory damages. If the employee breaches the contract, the employer can recover the costs to hire a new employee plus any increase in salary paid to the replacement.

True

True or False: An enforceable liquidated damages clause is an exclusive remedy even if actual damages are later determined to be different from the liquidated damages.

True

True or False: If a monetary award does not provide adequate relief, however, the court may order any one of several equitable remedies, including specific performance, reformation, and injunction.

True

True or False: If an employee who has been dismissed improperly accepts a job that is not comparable, the employee can sue the prior employer for damages.

True

True or False: There is no clear line between a minor breach and a material breach. A determination is made on a case-by-case basis.

True

True or False: A breach of the implied covenant of good faith and fair dealing is a tort for which tort damages are recoverable.

True, this is generally called a tort of bad faith

X-Mart, a major retailer, contracts with Mattel, a major manufacturer of toys, to purchase one million of the new "G.I. Barbie Dolls" produced by Mattel at $20 per doll. X-Mart plans to sell these dolls in its stores nationwide at $50 per doll, and Mattel is aware that X-Mart intends to resell the dolls. The popularity of Barbie Dolls guarantees that all the dolls purchased by X-Mart will be sold. If Mattel breaches this contract and fails to deliver the dolls to X-Mart, X-Mart cannot purchase the dolls elsewhere because Mattel holds the copyright and trademark on the doll. Which damages can X-Mart recover?

X-Mart can recover lost profits from each doll, that is $50 - $20.

The most common remedy for a breach of contract is

an award of monetary damages, often called the "law remedy"

Monetary damages include

compensatory, consequential, liquidated, and nominal damages.

3 levels of performance of a contract

complete, substantial, and inferior

The recovery for breach of contract is usually limited to

contract damages. However, if tort damages are proven, the plaintiff can also recover for them.

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.

If a student purchases software for​ $50 and the license agreement indicates that the software company is not liable for consequential​ damages, how much can the student recover if the software is defective and results in the loss of the​ $1,000 computer?

​$50, because the loss of the computer is a consequential damage