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69 Cards in this Set
- Front
- Back
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Breach of a contract
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Occurs when one party fails to perform a duty without a valid excuse.
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Remedy
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The method a court uses to compensate an injured party.
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Injunction
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An order forcing a party to do something or refraining from doing something.
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Expectation Damages
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The money required to put one party in the position she would have been in had the other side performed the contract.
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Specific Performance
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A contract remedy requiring the breaching party to perform the contract by conveying land or some unique asset, rather then by paying money damages.
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Liquidated damages Clause
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A provision in the contract that declares in advance what one party will receive if the other side breaches.
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Most remedies have one thing in common:
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the focus is on compensating the injured party, rather than punishing the party in breach.
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Interest
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A legal right in something, such as ownership, a mortgage or a tenancy.
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Four principal contract interests that a court may seek to protect:
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Expectation Interest
Reliance Interest Restitution Interest Equitable Interest |
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Expectation Interest
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A remedy in a contract case that puts the injured party in the position he would have had both sides fully preformed. This refers to what the injured party reasonably thought she would get from the contract. designed to put the injured party in the position she would have been in had both sides fully performed their obligations. A court tries to give the injured party the money she would have made from the contract. The injured should not end up better off then she would have been under the agreement, nor should she suffer serious loss.
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Reliance Interest
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A remedy in a contract case that puts the injured party in the position he would have been in had the parties never entered into a contract. The injured party may be unable to demonstrate expectation damages, perhaps because it is unclear he would have profited. But he may still prove that he expected money in reliance on the agreement and that in fairness he should receive compensation.
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Restitution Interest
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A remedy in contract cases that returns the injured party a benefit that he has conferred on the other party, which it would be unjust to leave with that person. The injured party may be unable to show an expectation interest or reliance. But perhaps she has conferred a benefit on the other party. Here, the objective is to restore the injured party the benefit she has provided.
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Equitable Interest
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A remedy in contract cases the returns the injured party something besides money damages. In the cases where money damages will not suffice, equitable interest will award the injured party something such as, an order to transfer property (specific performance) or an order forcing one party to stop doing something (an injunction).
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Expectation Damages are divided into three parts:
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1. Compensatory (or “direct”) damages, which represent harm that flowed directly from the contract’s breach.
2. Consequential (or “special”) damages, which represent harm caused by the injured party’s unique situation. 3. Incidental damages, which are minor costs such as storing or returning defective goods, and so forth. |
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Compensatory Damages
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Those that flow directly from the contract.
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Reasonable Certainty
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The injured party must prove the breach of contract caused damages that can be qualified with reasonable certainty.
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Consequential damages
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Those resulting from the unique circumstances of this injured party. The injured party may recover consequential damages only if the breaching party should have foreseen them when the two sides formed the contract.
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Incidental Damages
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The relatively minor costs, such a storage and advertising, that the injured party suffered when responding to a contract breach.
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Seller’s Remedy
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1. The seller may resale the goods elsewhere. The seller will be awarded the difference between the original contract price and the price she was able to obtain in the open market.
2. The seller may chose not to resale the goods and settle for the difference between the contract price and the market value of the goods. Most courts hold that the seller of goods in not entitled to consequential damages. |
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Buyer's Remedy
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1. The buyer can "cover" by purchasing substitute goods.
2. The buyer may chose not to cover, then she is entitled to the difference between the original contract price and the market value of the goods. The buyer is entitled to consequential damages provided that the seller could have reasonably foreseen them. |
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Cover
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The buyers right to obtain substitute goods when a seller has breached a contract. To cover means to make a good faith purchase of goods similar goods in the contract. The buyer may then obtain the difference between the original contract price and her cover price.
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Reliance Interest
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Designed to put the injured party in the position he would have been if the two parties never entered into a contract.
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Reliance Damages and Promissory Estoppel
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In promissory estoppel cases, the court will generally award only reliance damages.
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Legal Remedy
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Generally, money damages. It is distinguished from equitable remedy, which includes injunctions and other non-montary relief.
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Restitution Interest
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Designed to return to the injured party a benefit that he has conferred on the other party, which it would be unjust to leave with that person.
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Restitution is awarded in two types of cases
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1. The parties have reached a contract and one of them breaches. In such cases, a court may chose restitution because no other remedy is available or because no other remedy would be fair.
2. Cases of quasi-contract. In quasi-contract cases, the parties never made a contract, but one side did benefit the other. |
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Restitution in cases of a valid contract
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Restitution is a common remedy in contracts involving fraud, misrepresentation, mistake and duress.
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Restitution in cases of a quasi-contract
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A court may award restitution, even in the absence of a contract, where one party has conferred a benefit on another and it would be unjust for the other party to retain the benefit.
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In addition to restitution, the three equitable powers that concern us are
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1. Specific Performance
2. Injunction 3. Reformation |
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Specific Performance
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An order for the parties to perform the contract, only in cases involving the sale of land or some other asset that is unique.
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Injunction
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A court order that requires someone to do something or refrain from doing something.
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Preliminary Injunction
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An order issued early in a lawsuit prohibiting a party from doing something during the course of the lawsuit.
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Permanent Injunction
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An order to make the preliminary injunction permanent if, after the trail, it appears that the plaintiff has been injured and is entitled the an injunction.
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Reformation
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The process by which a court rewrites a contract to ensure its accuracy or viability.
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Mitigation of Damages
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A party injured by a breach of contract may not recover for damages that he could have avoided with reasonable effort. When one party perceives that the other has breached or will breach the contract, the injured party much try to prevent unnecessary loss.
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Mitigation
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One party acts to minimize its losses when the other party breaches a contract
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Nominal Damages
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A token sum, such a one dollar, given to an injured plaintiff who cannot prove damages.
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Liquidated Damages
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A contract clause specification how much a party must pay upon breach.
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A court will generally enforce a liquidation clause for two reasons:
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1. At the time of creating the contract it was very difficult to estimate actual damages.
2. The liquidated amount is reasonable. |
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Punitive Damages
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Designed not to compensate the injured party but to punish the breaching party.
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A court must consider three "guideposts" when awarding punitive damages:
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1. The reprehensibility of the defendants conduct.
2. The ratio between the harm suffered and the award. 3. The difference between the punitive award and any civil penalties used in similar cases. |
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The additional guidance to the lower courts when it comes to the a ratio between compensatory and punitive damages:
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1. A trial court generally should not permit a punitive award greater that nine time higher than the compensatory damages.
2. The trail court may not use the defendants wealth as an excuse to award an unreasonably high reward. |
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Chapter Conclusion:
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The powers of the court are broad and flexible and may suffice to give an injured party what is deserves. But problems of proof and uncertainty of remedies demonstrate that the best solutions is a carefully drafted contract and socially responsible behavior.
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Chapter Review #1
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1.Someone breaches a contract when he fails to perform a duty, without a valid excuse.
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Chapter Review #2
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2. A remedy is the method a court uses to compensate an injured party.
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Chapter Review #3
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3. An interest is a legal right in something, such as a contract. The first step that a court takes in choosing a remedy is to decide what interest it is protecting.
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Chapter Review #4
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4. The expectation interest puts the injured party in the position she would have been in had both sides fully performed. It has three components:
a.Compensatory damages, which flow directly from the contract. b.Consequential damages, which result from the unique circumstances of the particular injured party. The injured party may recover consequential damages only if the breaching party should have foreseen them. c.Incidental damages, which are the minor costs an injured party incurs responding to a breach. |
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Chapter Review #5
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5.The reliance interest puts the injured party in the position he would have been in had the parties never entered into a contract. It focuses on the time and money that the injured party spent performing his part of the agreement. If there was no valid contract, a court might still award reliance damages under a theory of promissory estoppel.
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Chapter Review #6
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6.The restitution interest returns to the injured party a benefit that she has conferred on the other party, which it would be unjust to leave with that person. Restitution can be awarded in the case of a contract created, for example, by fraud, or in a case of quasi-contract, where the parties never created a binding agreement.
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Chapter Review #7
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7.Specific performance, ordered only in cases of land or a unique asset, requires both parties to perform the contract.
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Chapter Review #8
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8.An injunction is a court order that requires someone to do something or refrain from doing something.
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Chapter Review #9
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9.Reformation is the process by which a court will—occasionally—rewrite a contract to ensure that it accurately reflects the parties' agreement and/or to maintain the contract's viability.
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Chapter Review #10
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10.The duty to mitigate means that a party injured by a breach of contract may not recover for damages that he could have avoided with reasonable efforts.
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Chapter Review #11
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11. Nominal damages are a token sum, such as one dollar, given to an injured plaintiff who cannot prove damages.
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Chapter Review #12
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12.A liquidated damages clause will be enforced if and only if, at the time of creating the contract, it was very difficult to estimate actual damages and the liquidated amount is reasonable.
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Chapter Review #13
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13.Punitive damages are designed not to compensate the injured party but to punish the breaching party.
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1.Mr. and Ms. Beard contracted for S/E Joint Venture to build a house on property it owned, and then sell the completed house to the Beards for $785,000. S/E was late with construction and ultimately never finished the house or conveyed anything to the Beards, who sued. Evidence at trial demonstrated that S/E had clearly breached the contract and that the Beards had spent about $32,000 in rent because of the delay. There was testimony that the market value of the house as promised would have been about $100,000 more than the contract price, but this point was not clearly established because the trial judge considered it irrelevant. The judge awarded only the rental payments. Both sides appealed. Is the market value of the house, as it should have been built, relevant? How much money are the Beards entitled to?
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A: The market value of the house is relevant in this case. The Beards are entitled to their expectation interest. They will get compensatory damages, representing the difference between the contract price and the market value of the house as it should have been built. If they can prove the value was $100,000 higher than the contract price, they will get that sum. They are also entitled to rental costs, which were consequential damages. S/E could foresee that the Beards would have to rent while waiting for the new house. Just because the market went up does not give the defendant the option to breach the contract. If the market value had gone down on the property, would the Beards have been allowed to breach the contract?
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2.Lewis signed a contract for the rights to all timber located on Nine Mile Mine. He agreed to pay $70 per thousand board feet ($70/mbf). As he began work, Nine Mile became convinced that Lewis lacked sufficient equipment to do the job well and forbade him to enter the land. Lewis sued. Nine Mile moved for summary judgment. The mine offered proof that the market value of the timber was exactly $70/mbf, and Lewis had no evidence to contradict Nine Mile. The evidence about market value proved decisive. Why? Please rule on the summary judgment motion.
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A: Lewis, by not contradicting Nine Mile on the market value, could not prove that he had any
damages from the breach of contract. If he "covered" or not, he was not entitled to any loss of profit on the contract since he had agreed to pay on the market value. |
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3.Twin Creeks Entertainment signed a deal with U.S. JVC Corp. in which JVC would buy 60,000 feature film videocassettes from Twin Creeks over a three-year period. JVC intended to distribute the cassettes nationwide. Relying on its deal with JVC, Twin Creeks signed an agreement with Paramount Pictures, agreeing to purchase a minimum of $600,000 worth of Paramount cassettes over a two-year period. JVC breached its deal with Twin Creeks and refused to accept the cassettes it had agreed upon. Twin Creeks sued and claimed, among other damages, the money it owed to Paramount. JVC moved to dismiss the claim based on the Paramount contract, on the ground that Twin Creeks, the seller of goods, was not entitled to such damages. What kind of damages is Twin Creeks seeking? Please rule on the motion to dismiss.
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A: Twin Creek's claim is dismissed. The Paramount losses are consequential damages. Under UCC, a seller may not recover consequential damages for the sale of goods.
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4.Bingo is emerging as a rock star. His last five concerts have all sold out. Lucia signs a deal with Bingo to perform two concerts in one evening in Big City, for a fee of $50,000 for both shows. Lucia then rents the Auditorium for that evening, guaranteeing to pay $50,000. Bingo promptly breaks the deal before any tickets are sold. Lucia sues, pointing out that the Auditorium seats 3,000 and she anticipated selling all tickets for an average of $40 each, for a total gross of $120,000. How much will Lucia recover, if anything?
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A:
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5.Racicky was in the process of buying 320 acres of ranch land. While that sale was being negotiated, Racicky signed a contract to sell the land to Simon. Simon paid $144,000, the full price of the land. But Racicky then went bankrupt, before he could complete the purchase of the land, let alone its sale. Which of these remedies should Simon seek: expectation, restitution, specific performance, or reformation?
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A: He should seek restitution. Expectation damages will be unavailable since Racicky is bankrupt. Specific performance is impossible because Racicky does not own the land. Reformation is irrelevant. Simon gets restitution, since he has conferred a benefit on Ricicky and it would be unjust for the defendant to keep it.
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6.Ambrose hires Bierce for $25,000 to supervise the production of Ambrose's crop, but then breaks the contract by firing Bierce at the beginning of the season. A nearby grower offers Bierce $23,000 for the same growing season, but Bierce refuses to take such a pay cut. He stays home and sues Ambrose. How much money, if any, will Bierce recover from Ambrose, and why?
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A:
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7.Parkinson was injured in an auto accident by a driver who had no insurance. Parkinson filed a claim with her insurer, Liberty Mutual, for $2,000 under her “uninsured motorist” coverage. Liberty Mutual told her that if she sought that money, her premiums would go “sky high,” so Parkinson dropped the claim. Later, after she had spoken with an attorney, Parkinson sued. What additional claim was her attorney likely to make?
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A: A claim for punitive damages, based on Liberty Mutual's bad faith in discouraging Parkinson from filing a claim for money to which she was entitled. The court should award her $2,000 for uninsured motorist coverage and additional money for punitive damages. ($40,000)
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8.CPA QUESTION Master Mfg., Inc. contracted with Accur Computer Repair Corp. to maintain Master's computer system. Master's manufacturing process depends on its computer system operating properly at all times. A liquidated damages clause in the contract provided that Accur would pay $1,000 to Master for each day that Accur was late responding to a service request. On January 12, Accur was notified that Master's computer system had failed. Accur did not respond to Master's service request until January 15. If Master sues Accur under the liquidated damage provision of the contract, Master will:
a.Win, unless the liquidated damages provision is determined to be a penalty b.Win, because under all circumstances liquidated damage provisions are enforceable c.Lose, because Accur's breach was not material d.Lose, because liquidated damage provisions violate public policy |
A;
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9.CPA QUESTION Kaye contracted to sell Hodges a building for $310,000. The contract required Hodges to pay the entire amount at closing. Kaye refused to close the sale of the building. Hodges sued Kaye. To what relief is Hodges entitled?
a.Punitive damages and compensatory damages b.Specific performance and compensatory damages c.Consequential damages or punitive damages d.Compensatory damages or specific performance |
A: D: Compensatory damages or specific performance
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10.YOU BE THE JUDGE WRITING PROBLEM John and Susan Verba sold a Vermont lakeshore lot to Shane and Deborah Rancourt for $115,000. The Rancourts intended to build a house on the property, but after preparing the land for construction, they learned that a wetland protection law prevented building near the lake. They sued, seeking rescission of the contract. The trial court concluded that the parties had reached their agreement under a “mutual, but innocent, misunderstanding.” The trial judge gave the Verbas a choice: they could rescind the contract and refund the purchase price, or they could give the Rancourts $55,000, the difference between the sales price and the actual market value of the land. The Rancourts appealed. Were the Rancourts entitled to rescission of the contract?
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Continue on next card.
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Argument for the Rancourts: When the parties have made a mutual mistake about an important factual issue, either party is entitled to rescind the contract. The land is of no use to us and we want our money back. Argument for the Verbas: Both sides were acting in good faith and both sides made an honest mistake. We are willing to acknowledge that the land is worth somewhat less than we all thought, and we are willing to refund $55,000. The buyers shouldn't complain—they are getting the property at about half the original price, and the error was as much their fault as ours.
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A:
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11.ETHICS The National Football League owns the copyright to the broadcasts of its games. It licenses local television stations to telecast certain games and maintains a “blackout rule,” which prohibits stations from broadcasting home games that are not sold out 72 hours before the game starts. Certain home games of the Cleveland Browns team were not sold out, and the NFL blocked local broadcast. But several bars in the Cleveland area were able to pick up the game's signal by using special antennas. The NFL wanted the bars to stop showing the games. What did it do? Was it unethical of the bars to broadcast the games that they were able to pick up? Apart from the NFL's legal rights, do you think it had the moral right to stop the bars from broadcasting the games?
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A: The NFL would sue and obtain an injunction, based on a violation of the NFL's copyright of the broadcast. The permanent injunction would prohibit the bars from showing any blacked-out games without written permission. It was unethical for the bars to show the blacked-out games that were legally owned by the NFL. The NFL has the moral right to stop the bars from showing the games since they owned the copyrights.
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12.ROLE REVERSAL Write a multiple-choice question involving a contract for the sale of goods. The seller breaches and the buyer definitely has compensatory damages. The test-taker must decide whether there are also consequential damages, and the total amount of damages to which the buyer is entitled.
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A:
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