Chapter 18 Contracts—Breach and Remedies Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. Jentz Miller Cross BUSINESS LAW Alternate Edition 11 th Ed.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 2Introduction  Most Common Remedies: –Damages. –Rescission and Restitution. –Specific Performance. –Reformation. –Recovery Based on Quasi Contract.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 3 §1: Damages §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 18.1 Hadley v. Baxendale (1854).

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 4Damages  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.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage 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 18.2 Hanson v. Boeder (2007).

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 6 Liquidated Damages Provisions  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.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 7  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. §2: Rescission and Restitution

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 8 §3: Specific Performance  Equitable remedy calling for the performance of the act promised in the contract.  Provides remedy in cases involving: –Unique (sale of land) CASE 18.3 Stainbrook v. Low (2006). –Not available remedy in contracts for personal services.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 9 §4: Reformation §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.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 10 §5: Recovery Based on Quasi Contract §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.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage 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.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 12 §7: Waiver of Breach §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.

Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 13 §8: Contract Provisions Limiting Remedies §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.