© 2007 West Legal Studies in Business, A Division of Thomson Learning Chapter 12 Contracts: Breach and Remedies

© 2007 West Legal Studies in Business, A Division of Thomson Learning 2 What is the difference between compensatory and consequential damages? What are nominal damages, and when do courts award nominal damages? What is the standard measure of compensatory damages when a contract is breached? How are damages computed differently in construction contracts? Under what circumstances is the remedy of rescission and restitution available? When do courts grant specific performance as a remedy? What is the rationale underlying the doctrine of election of remedies? Learning Objectives

© 2007 West Legal Studies in Business, A Division of Thomson Learning 3 Types of Damages Compensatory Damages: –Compensates injured party (Plaintiff). –Plaintiff must prove actual damages caused by breach. Amount: Generally: difference between Defendant’s promised performance and actual. Sale of Goods: difference between the contract price and market. Sale of Land/Construction Contracts.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 4 Types of Damages Consequential (Special) Damages –Foreseeable damages that result from breach of contract. –Caused by other than breach of contract. Punitive (Exemplary) Damages. –Deter wrongdoer; set example. Nominal Damages.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 5 Types of Damages Mitigation of Damages. –Injured party has a legal duty to mitigate damages. –CASE 12.1 Fujitsu, Ltd. v. Federal Express Corp. (2001).

© 2007 West Legal Studies in Business, A Division of Thomson Learning 6 Types of Damages Liquidated Damages vs. Penalties. –Liquidated: fixed, certain dollar amount agreed to by parties, paid in the event of breach. LD’s are enforceable. –Penalty: designed to penalize a party. Generally not enforceable. –CASE 12.2 Green Park Inn, Inc. v. Moore (2002).

© 2007 West Legal Studies in Business, A Division of Thomson Learning 7 Equitable Remedies Rescission: cancel or undo a contract. –Available for fraud, mistake, duress and failure of consideration. Restitution: recapture the benefit conferred on the defendant that has unjustly enriched her. –Parties must return goods, property or money.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 8 Equitable Remedies Specific Performance. Reformation: court re-writes the contract to reflect parties’ true intentions.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 9 Recovery Based on Quasi Contract Plaintiff must show: –Benefit was conferred on the other party. –Party conferring benefit expected to be paid. –Party seeking recovery did not volunteer. –Retaining benefit without payment would be unjust enrichment.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 10 Contract Provisions Limiting Remedies Exculpatory Clauses or Limitations of liability clauses. CASE 12.3 Lucier v. Williams (2004).

© 2007 West Legal Studies in Business, A Division of Thomson Learning 11 Election of Remedies Nonbreaching party usually has several remedies available. Purpose is to prevent double recovery.