Law Breech and Remedies
a sale
"the passing of title from the seller to the buyer for a price" (1) "The passing of title [evidence of ownership rights] (2) From the seller to the buyer (3) For a price" [payable in cash, goods, or services]
Randall contracts to perform certain services exclusively for Hernandez during the month of March for $4,000. Hernandez cancels the contract and is in breach. Randall pays an online hiring service $70, which finds him another job during March that will pay him $3,000.
$1070
1. At the time the contract was formed, 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.
Employment Contracts
- In the majority of states, a wrongfully terminated employee has a duty to take a similar job if one is available. If the employee fails to do this, the damages received will be equivalent to the former salary less the would-be income from a similar job. - The employer has the burden of proving that such a job existed and that the employee could have been hired.
Hallmark Cards, Inc. v. Murley - Murley and Hallmark entered into a separation agreement whereby Murley agreed not to (i) work in the greeting card or gift industry for a period of eighteen months; (ii) solicit Hallmark employees; (iii) disclose or use any proprietary or confidential information; or (iv) retain any business records or documents relating to Hallmark. - Hallmark offered Murley a $735,000 severance payment, Murley accepted a consulting assignment with Recycled Paper Greetings (RPG) for $125,000. Murley admitted that in the course of that assignment, she disclosed to RPG confidential Hallmark information
- Issue: Can Hallmark obtain compensatory damages in an amount that is more than what it lost as a result of the breach?- Rule: A plaintiff may recover the benefit of his or her bargain as well as damages naturally and proximately caused by the breach and damages that could have been reasonably contemplated by the defendant at the time of the agreement. - Application: By awarding Hallmark more than its $735,000 severance payment, the jury award placed Hallmark in a better position than it would find itself had Murley not breached the agreement. - Conclusion: Hallmark cannot obtain more than its loss and the jury's award was, therefore, improper.
Schonfeld v. Hilliard
- Issue: Is Schonfeld entitled to consequential damages for lost profits? - Rule: A plaintiff is entitled to recover lost profits only if he can establish both the existence and amount of such damages with reasonable certainty. Plaintiff must also prove that lost profit damages were within the contemplation of the parties when the contract was made. - Application: The operating entity's profits were purely hypothetical, stemming from the sale of untested programming to a hypothetical subscriber base, sold to advertisers at a hypothetical price and supported by hypothetical investors and carriers.By orally promising to provide up to $20 million to fund the Interim Agreement, the Hilliards cannot be supposed to have assumed liability for approximately $269 million in lost profits that might have been garnered in the future by a non-existent operating entity. - Conclusion: Schonfeld is not entitled to consequential damages for lost profits
Punitive Damages
- Punitive, or exemplary, damages, generally are not awarded in breach of contract cases. Such damages are, in essence, penalties, and a breach of contract is not unlawful in a criminal sense. - In a few situations, when a person's actions cause both a breach of contract and a tort, punitive damages may be available. For example - in cases of fraudulent misrepresentation.
Merchant's Firm Offer
- Rule: an offer can be revoked at any time before acceptance. - Exceptions: [option contract, promissory estoppel, NY law and -] When a merchant-offeror gives assurances in a signed writing that the offer will remain open - the offer is irrevocable for the stated period or, if no definite period is stated, a reasonable period (neither period to exceed three months)
Rental Agreements
- Some states require a 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 becomes available, the landlord is required to lease the premises to this tenant. The former tenant is still liable for the difference between the amount under the original lease and the rent received from the new tenant.
A Penalty Clause
- Specifies a certain amount to be paid in the event of a default or breach of contract. - Unenforceable - designed to punish rather than to provide a reasonable estimate of damages.
Nominal Damages
- When no actual damage 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. - Nominal damages awards are often small, such as one dollar, but they do establish that the defendant acted wrongfully. Most lawsuits for nominal damages are brought as a matter of principle under the theory that a breach has occurred and some damages must be imposed regardless of actual loss.
Who is a Merchant?
- a person who deals in goods of the kind involved in the sales contract. - a person who, by occupation, holds himself out as having special knowledge and skill [related to the practices or goods involved in the transaction.] - A person who employs a merchant as a broker, agent, or other intermediary has the status of merchant in that transaction [for example: an art collector who hires a broker to sell works]
Under the UCC a sales or lease contract will not fail for indefiniteness as long as both of the following are true:
- the parties intended to make a contract. - There is a reasonably certain basis for the court to grant an appropriate remedy - The UCC provides numerous open-term provisions that can be used to fill the gaps in a contract.
To determine whether a particular provision is for liquidated damages or a penalty, the court must answer two questions:
1. At the time the contract was formed, 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?
Under General Contract Law:
1. Non-Sales/ Lease Contracts (for example, a service contract) 2. Contracts for the sale or lease of anything that is NOT tangible/movable
Tina bought a brand new Porsche for $300K. Tina knew that summer sometimes brings severe storms that may damage her new car. She offered Jennifer a $1000 in return for an open-sided shelter, which Jennifer promised to install on May 20th, right before the weather becomes stormy. - Jennifer couldn't make it on May 20th and notified Tina that she'll do it on May 31st. On May 23rd a hail storm terribly damaged Tina's new car and it would now cost $50k to repair it. Tina sues Jennifer for breach. What damages is she likely to get?
51k
If the additional or different terms are explicitly conditioned on the offeror's assent
= No Acceptance
Sale of Land
Because every parcel of land is unique the legal remedy of monetary damages may not compensate the buyer adequately and a court may grant specific performance to a buyer.
Vokes v. Arthur Murray
Brief Fact Summary. Plaintiff entered into Defendant's school of dancing, in pursuit of her dream of becoming an "accomplished dancer." While Plaintiff's dancing abilities did not increase, her expenses in pursuit of the dream did, when Defendant encouraged her to enter into several different contracts, and pay out cash in excess of $30,000 for lessons and dance-related trips. When Plaintiff realized she had no dancing ability, she sought rescission of the contracts and return of her money, based on fraud. Issue: whether trade puffing can be considered a misrepresentation of a material fact, which could be actionable in fraud. Discussion. Generally, when a tradesman engages in puffing to promote its services, it is not considered actionable as fraud. In this case, however, it was apparent to Defendant that the expenses Plaintiff was undergoing were not justified by her abilities, and his puffing became fraudulent when he caused her to make expenditures in reliance of non-existent abilities.
Under the UCC:
Contracts for the sale or lease of tangible movable goods
Contracts for Personal Services
Courts normally refuse to grant specific performance of personal-service contracts. One reason is that ordering a party to perform personal services against his or her will would amount to a type of involuntary servitude.
Duration of an Ongoing Contract
Either party can terminate. Good faith and sound commercial practices are key.
Non Merchants (one party or both)
If one (or both) of the parties is a nonmerchant, the contract is formed according to the terms of the original offer submitted by the original offeror and not according to the additional terms of the acceptance
Open Price Term
If the parties have not agreed on a price, the court will determine a "reasonable price at the time for delivery"
Mitigation of Damages
In most situations, when a breach of contract occurs, the injured party is held to a duty to mitigate, or reduce, the damages that he or she suffers.
Under the common law:
Mirror Image Rule
Open Quantity Terms
No quantity - No contract. - Exceptions: Requirements Contracts, Output Contracts, good faith limitation
Nonmerchants: Buyer ordered $2000 worth of office supplies online. The invoices accompanying the goods contained a clause that required all disputes to be resolved in California.
Nonmerchants: The clause is not part of the contract unless the buyer expressly agreed.
A Liquidated Damages Provision:
Specifies that a certain dollar amount is to be paid in the event of a future default or breach of contract. Normally enforceable.
Both Parties are Merchants
The additional terms automatically become part of the contract unless: -The original offer expressly limited acceptance to its terms. (states no additional terms) -The new terms materially alter the contract. -The offeror objects to the new or changed terms within reasonable time
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.
The breaching party must know (or have reason to know) that special circumstances will cause the nonbreaching party to suffer an additional loss.
Both Parties are Merchants: Buyer ordered $2000 worth of office supplies online. The invoices accompanying the goods contained a clause that required all disputes to be resolved in California.
The clause becomes part of the contract unless: -The new terms materially alter the contract.
Standard Measure
The difference between the value of the breaching party's promised performance under the contract and the value of her or his actual performance + Incidental Damages
Specific Performance
The performance of the act promised in the contract. This remedy is attractive to a nonbreaching party: 1. It provides the exact contracted-for bargain. 2. It avoids problems like collecting a judgment and arranging another contract. 3. Actual performance may be more valuable to the promisee than the monetary damages. - Normally, however, specific performance will not be granted unless the party's legal remedy (monetary damages) is inadequate.
Open Payment Term
When parties do not specify payment terms, payment is due at the time and place at which the buyer is to receive the goods
Under the UCC
a contract is formed if the offeree's response indicates a definite acceptance of the offer, even if the acceptance includes terms additional to or different from those contained in the offer. Whether the additional terms become part of the contract depends, in part, on whether the parties are nonmerchants or merchants.
A good
a tangible (has physical existence) and moveable (can be carried from place to place) item. - When contracts involve a combination of goods and services, courts generally use the predominant-factor test. If the contract is primarily a goods contract, any dispute, including those concerning the services portion of the contract, will be decided under the UCC.
Medik Laboratories contracts to buy ten model UTS 400 network servers from Cal Industries for $4,000 each, but Cal Industries fails to deliver the servers. a. The market price of the servers at the time Medik learns of the breach is $4,500. b. The market price of the servers at the time Medik learns of the breach is $3,900.
a. 500 b. no damages bc its cheaper
Reformation
allows a court to rewrite the contract to reflect the parties' true intentions. ● Fraud or Mutual Mistake ● Written Contract Incorrectly States an Oral Agreement ● Covenants Not to Compete - If legitimate, but provide unreasonable area or time restraints
Rescission and Restitution
an action to undo, or cancel, a contract—to return nonbreaching parties to the positions that they occupied prior to the transaction. - The failure of one party to perform under a contract entitles the other party to rescind the contract. The rescinding party must give prompt notice to the breaching party. - To rescind a contract, both parties generally must make restitution to each other by returning goods, property, or funds previously conveyed.
Hernandez contracts to buy potatoes from Stanley at 50 cents a pound. Stanley does not deliver the potatoes. Meanwhile, the price of potatoes falls. Hernandez is able to buy them in the open market at half the price he agreed to pay Stanley.
nominal damages
The UCC imposes a good faith limitation
on requirements and output contracts.
Requirements Contracts
the buyer agrees to purchase and the seller agrees to sell all or up to a stated amount of what the buyer needs or requires
In a contract for the sale of goods, the usual measure of compensatory damages is
the difference between the contract price and the market price at the time and place at which the goods were to be delivered or tendered.
Output Contracts
the seller agrees to sell and the buyer agrees to buy all or up to a stated amount of what the seller produces.
Compensatory damages
to cover direct losses and costs - Damages that compensate the nonbreaching party for the loss of the bargain. They compensate for expenses directly incurred because of a breach of contract, such as those incurred to obtain performance from another source. Compensate only for: -Damages actually sustained -Proved to have arisen directly from the loss of the bargain caused by the breach of contract
Consequential Damages
to cover indirect and foreseeable losses - Foreseeable damages that result from a party's breach of contract. 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.
Punitive damages
to punish and deter wrongdoing
Nominal damages
to recognize wrongdoing when no monetary loss is shown
Open Delivery Term
● When no delivery terms are specified, the buyer takes delivery at the seller's place of business ● If the time for delivery is not clearly specified, the court will infer a "reasonable" time for performance