Chp 15: Breachs And Remedies(Additional Concepts)

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Damages

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Breach of contract entitles the nonbreaching parties to sue for monetary damages.

In contract law, damages are designed to compensate the nonbreaching party for the loss of the bargain.

Parties placed in positions they would have occupied had the contract been performed.

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Types of Damages(Remedies at law)

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1. Compensatory(to cover direct losses and costs)

2. Consequential(to cover indirect and foreseeable losses)

3. Punitive( to punish and deter wrongdoing

4. Nominal(to recognize wrongdoing when no monetary loss in shown)

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Compensatory damages

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Compensates nonbreaching party for loss of bargain and for damages actually sustained and proved to have arisen directly from the loss of bargain caused by the breach of contract; simply replace what was lost

Standard measure is difference between value of the breaching party's promise and the value of his actual performance; amount is reduced by any loss that the injured party has avoided.

Measure varies by type of contract.

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Sale of Goods

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Measure of compensatory damages is difference between the contract price and the market price.

When buyer breaches and the seller has not yet produced the goods, compensatory damages equal the seller's lost profits on the sale.

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Sale of Land

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Remedy is typically specific performance.

When specific performance is unavailable, the measure of damages is the difference between the contract price and the market price of the land; majority of states follow this rule

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Construction Contracts

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Depends on which party breached and when the breach occurred.

Performance has begun(Owner): Profits(Contract price less costs)

During Performance(Owner): Profits plus costs incurred so far

After the construction has been completed: Entire contract price plus interest.

Before Construction has begun(Contractor): Cost in excess of contract price

Before construction is complete(Contractor): all costs incurred by owner to complete.

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Punitive Damages(exemplary damages)

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Generally not awarded in an action for breach of contract.

Have no place in contract law because they're penalties, which is used for crimes; breach of contracts are not unlawful in criminal sense

When there's a breach of contract and a tort, they may be available.

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Employment Contracts

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A person whose employment has been wrongfully terminated has a duty to mitigate the damages because of the employer's breach of contract by taking a similar job if available.

Damages received will be equivalent to the person's former salary less the income that would have been received in a similar job obtained by similar means.

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Rental Agreements

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Landlord needs to find new tenant to mitigate damages(reasonable means).

Old tenant is still liable for difference between the amount of rent under the original lease and the rent received from the new tenant.

Court will reduce award by amount of rent the landlord could have received had he found a new tenant.

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Determining enforceability(liquidated damages v. penalties)

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Two questions to determine whether a particular provision is for liquidated damages or penalties:

1. Was it apparent that damages would be difficult to estimate in the event of a breach(at the time of contracting).

2. Was the amount set as as damages a reasonable estimate and not excessive.

Enforced if answer to both is yes, not enforced if either answer is no.

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Equitable Remedies

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May be granted by courts when remedies at law(damages) are inadequate.

1. Rescission

2. Restitution

3. Specific performance

4. reformation

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Sale of Land

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Court may grant specific performance because legal remedy of monetary damages will not compensate buyer adequately, since every parcel of land is unique.

When land is sold, specific performance will become unavailable, and the nonbreaching party will be awarded damages instead.

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Contracts for personal services

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Require one party to work personally for another party.

Courts normally refuse to grant specific performance of these contracts because ordering a party to perform personal services against his will amounts to a type of involuntary servitude, which is contrary to the public policy expressed in the 13th amendment of the U.S. constitution.

Courts do not want to monitor contracts of personal services, which usually require the exercise of personal judgement or talent.

If contract is not deemed personal, monetary damages may be adequate if substantially identical services are available from other persons.

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Reformation

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When court rewrites imperfect contracts to reflect the true intentions of the parties.

Reforms when:

1. Fraud or Mutual Mistake

2. Written contract Incorrectly state the parties' oral agreement

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Fraud or Mutual Mistake

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Courts most often order reformation when fraud or mutual mistake is present

Courts could reform the contract so that the writing conforms the parties' original intention

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Written contract incorrectly states the parties' oral agreement

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Contract reformed when two parties enter into a binding oral contract but later make an error when they attempt to put the terms into writing.

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Quasi Contract is used when:

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Allows courts to act as if a contract exists when there is no actual contract; thus, it is not imposed if an actual contract exists

Can be used when a contract is enforceable for some reasons

Quasi-contractual recovery is granted when one party has partially performed under a contract that is unenforceable.

Provide alternative to suing for damages and allow the party to recover the reasonable amount of the partial performance.

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Requirements of Quasi Contractual recovery

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1. Party conferred a benefit on the other party with the reasonable expectation of being paid

2. Party did not act as a volunteer in conferring the benefit

3. The party receiving the benefit would be unjustly enriched if allowed to retain the benefit without paying for it.

Under quantum meruit, party should be able to recover the reasonable value of the item, which is normally equal to the fair market value.

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Contract provisions limiting remedies

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1. Sales contracts and limiting remedies;

Under UCC, remedies can be limited for contracts for the sale of goods.

2. enforceability of limitation-of-liability clauses

Misc:

1. Only remedy for breach is replacement, repair, or refund of the purchase price

2. injunctive relief

3. No damages can be recovered(exculpatory clauses)

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enforceability of limitation-of-liability clauses

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Enforceability depends on type of breach that is excused by the provision.

Provision excluding liability for fraudulent or intentional injury, and excluding liability for illegal acts will not be enforced.

Provisions excluding liability for negligence may be enforced in certain situations.

Exculpatory clause for negligence between two parties of equal bargaining position usually is enforced.