© 2004 West Legal Studies in Business A Division of Thomson Learning 1 Chapter 17 Contracts: Breach of Contract and Remedies Chapter 17 Contracts: Breach of Contract and Remedies

© 2004 West Legal Studies in Business A Division of Thomson Learning 2 Introduction Most Common Remedies:  Damages.  Rescission and Restitution.  Specific Performance.  Reformation.  Recovery Based on Quasi Contract. Most Common Remedies:  Damages.  Rescission and Restitution.  Specific Performance.  Reformation.  Recovery Based on Quasi Contract.

© 2004 West Legal Studies in Business A Division of Thomson Learning 3 §1: Damages Compensatory Damages—direct losses.  Sale of Goods: difference between contract and market price.  Sale of Land: specific performance.  Construction Contracts: varies. Consequential (Special) Damages—foreseeable losses.  Breaching party is aware or should be aware, cause the injury party additional loss.  Case 17.1: Hadley v. Baxendale (1854). Compensatory Damages—direct losses.  Sale of Goods: difference between contract and market price.  Sale of Land: specific performance.  Construction Contracts: varies. Consequential (Special) Damages—foreseeable losses.  Breaching party is aware or should be aware, cause the injury party additional loss.  Case 17.1: Hadley v. Baxendale (1854).

© 2004 West Legal Studies in Business A Division of Thomson Learning 4 Damages Punitive Damages—punish or deter future conduct.  Generally not available for mere breach of contract.  Usually tort (e.g., fraud) is also involved. Nominal Damages—no financial loss.  Defendant is liable but only a technical injury. Punitive Damages—punish or deter future conduct.  Generally not available for mere breach of contract.  Usually tort (e.g., fraud) is also involved. Nominal Damages—no financial loss.  Defendant is liable but only a technical injury.

© 2004 West Legal Studies in Business A Division of Thomson Learning 5 Mitigation of Damages When breach of contract occurs, the innocent injured party is held to a duty to reduce the damages that he or she suffered. Duty owed depends on the nature of the contract. Case 17.2: Fujitsu Ltd. v. Federal Express Corp. (2001). When breach of contract occurs, the innocent injured party is held to a duty to reduce the damages that he or she suffered. Duty owed depends on the nature of the contract. Case 17.2: Fujitsu Ltd. v. Federal Express Corp. (2001).

© 2004 West Legal Studies in Business A Division of Thomson Learning 6 Liquidated Damages Liquidated Damages.  A contract provides a specific amount to be paid as damages in the event of future default or breach of contract. Penalties.  Specify a certain amount to be paid in the event of a default or breach of contract and are designed to penalize the breaching party. Case 17.3: Green Park Inn v. Moore (2002). Liquidated Damages.  A contract provides a specific amount to be paid as damages in the event of future default or breach of contract. Penalties.  Specify a certain amount to be paid in the event of a default or breach of contract and are designed to penalize the breaching party. Case 17.3: Green Park Inn v. Moore (2002).

© 2004 West Legal Studies in Business A Division of Thomson Learning 7 §2: Rescission and Restitution Rescission.  A remedy whereby a contract is canceled and the parties are restored to the original positions that they occupied prior to the transactions. Restitution.  Both parties must return goods, property, or money previously conveyed. Note: Rescission does not always call for restitution. Restitution is called for in some cases not involving rescission. Rescission.  A remedy whereby a contract is canceled and the parties are restored to the original positions that they occupied prior to the transactions. Restitution.  Both parties must return goods, property, or money previously conveyed. Note: Rescission does not always call for restitution. Restitution is called for in some cases not involving rescission.

© 2004 West Legal Studies in Business A Division of Thomson Learning 8 §3: Specific Performance Equitable remedy calling for the performance of the act promised in the contract. Remedy in cases where the consideration is:  Unique (land);  Scarce; or  Not available remedy in contracts for personal services. Equitable remedy calling for the performance of the act promised in the contract. Remedy in cases where the consideration is:  Unique (land);  Scarce; or  Not available remedy in contracts for personal services.

© 2004 West Legal Studies in Business A Division of Thomson Learning 9 §4: Reformation Equitable remedy allowing a contract to be reformed, or rewritten to reflect the parties true intentions. Available when an agreement is imperfectly expressed in writing. Equitable remedy allowing a contract to be reformed, or rewritten to reflect the parties true intentions. Available when an agreement is imperfectly expressed in writing.

© 2004 West Legal Studies in Business A Division of Thomson Learning 10 §5: Recovery Based on Quasi Contract Equitable theory imposed by courts to obtain justice and prevent unjust enrichment. Party seeking quantum meruit must show the following:  A benefit was conferred to the other party.  Party conferring did so with the reasonable expectation of being paid.  The benefit was not volunteered.  Retaining benefit without paying for it would result in unjust enrichment of the party receiving the benefit. Equitable theory imposed by courts to obtain justice and prevent unjust enrichment. Party seeking quantum meruit must show the following:  A benefit was conferred to the other party.  Party conferring did so with the reasonable expectation of being paid.  The benefit was not volunteered.  Retaining benefit without paying for it would result in unjust enrichment of the party receiving the benefit.

© 2004 West Legal Studies in Business A Division of Thomson Learning 11 §6: Election of Remedies Doctrine created to prevent double recovery. Nonbreaching party must choose which remedy to pursue. UCC rejects election of remedies.  Cumulative in nature and include all the available remedies for breach of contract. Doctrine created to prevent double recovery. Nonbreaching party must choose which remedy to pursue. UCC rejects election of remedies.  Cumulative in nature and include all the available remedies for breach of contract.

© 2004 West Legal Studies in Business A Division of Thomson Learning 12 §7: Waiver of Breach A pattern of conduct that waives a number of successive breaches will operate as a continued waiver. Nonbreaching party can still recover damages, but contract is not terminated. Nonbreaching party should give notice to the breaching party that full performance will be required in the future. A pattern of conduct that waives a number of successive breaches will operate as a continued waiver. Nonbreaching party can still recover damages, but contract is not terminated. Nonbreaching party should give notice to the breaching party that full performance will be required in the future.

© 2004 West Legal Studies in Business A Division of Thomson Learning 13 §8: Contract Provisions Limiting Remedies Exculpatory clauses.  Provisions stating that no damages can be recovered. Limitation of liability clauses.  Provisions that affect the availability of certain remedies. Exculpatory clauses.  Provisions stating that no damages can be recovered. Limitation of liability clauses.  Provisions that affect the availability of certain remedies.

© 2004 West Legal Studies in Business A Division of Thomson Learning 14 Law on the Web Lawyers.com website describing how contracts can be breached. Lawyers.com website describing how contracts can be breached. Cornell U on contracts. Cornell U Nolo.com on Contracts. Nolo.com Legal Research Exercises on the Web. Lawyers.com website describing how contracts can be breached. Lawyers.com website describing how contracts can be breached. Cornell U on contracts. Cornell U Nolo.com on Contracts. Nolo.com Legal Research Exercises on the Web.