1. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 1 Chapter 14: Breach and Remedies

2. 2 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives What is the difference between compensatory and consequential damages? What are nominal damages, and when do courts award them? 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 a limitation-of-liability clause, and when will courts enforce it?

3. 3 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Damages Compensatory Damages: –Compensates injured party (Plaintiff) who must prove actual damages caused by breach. Amount is calculated:  Generally: difference between Defendant’s promised performance and actual.  Sale of Goods: difference between the contract price and market.  Sale of Land: Usually specific performance (or difference between contract price and FMV of land.  Construction Contracts: Depends on the stage of construction.

4. 4 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 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. –Technical injury, no actual damages.

5. 5 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Damages Mitigation of Damages. –Injured party has a legal duty to mitigate damages. –Terminated employee has duty to take similar jobs if available. Case 14.1 Hanson v. Boeder. Hanson reasonably mitigated his damages by trying to find other farmland, which went to the amount of recovery – not his failure to mitigate.

6. 6 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Liquidated Damages vs. Penalties Liquidated: fixed, certain dollar amount agreed to by parties, paid in the event of breach. Clauses for liquidated damages are enforceable. Penalties: designed to penalize a party. Generally not enforceable.

7. 7 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Damages Summary

8. 8 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 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.

9. 9 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Equitable Remedies Specific Performance. –Non-monetary relief only granted in cases where the legal remedy is inadequate and the subject matter is unique (e.g., land, or original art). Contracts for Personal Services. –Courts generally refuse to grant specific performance due to notions of ‘involuntary servitude.’ Case 14.2 Stainbrook v. Low. Contract for sale of land was enforceable-even after owner died-because buyer substantially performed or was ready to perform.

10. 10 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Equitable Remedies Reformation. –Used when parties have imperfectly expressed their agreement in writing. –Court can rewrite the contract to reflect the parties’ true intentions. Case 14.3 Drake v. Hance. Legal document can be reformed based on parol evidence that shows a mutual mistake.

11. 11 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Equitable Remedies 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.

12. 12 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Contract Provisions Limiting Remedies UCC Allows Sales Contracts to Limit Remedies. Enforceability of Limitation-of-Liability Clauses. –Generally, clause limiting damages for intentional injury or fraud is NOT enforced. –Limiting liability for negligence MAY be enforced if parties have equal bargaining power.

13. 13 © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Summary of Remedies Available