Chapter 15 notes- Breach and Remedies Flashcards
(49 cards)
1
Q
Failure to perform a contract.
A
Breach
2
Q
The relief provided to an innocent party when the other party has breached the contract. The means employed to enforce a right or to redress an injury.
A
Remedy
3
Q
- Damages
- Recission and restitution
- Specific performance
- Reformation
A
Most Common Remedies Available Under Contract Law
4
Q
- Remedies at Law
- Remedies in Equity
A
Remedies Distinguished
5
Q
Normally monetary damages.
A
Remedies at Law
6
Q
- Recission and restitution
- Specific performance
- Reformation
- Courts will normally not grant these unless teh remedies at law are inadequate
A
Remedies in Equity
7
Q
Designed to compensate a party for harm suffered as a result of another’s wrongful act (tort). For contracts, these are designed to compensate the nonbreaching party.
- Innocent parties are to be placed in the position they would have occupied had the contract been fully performed.
A
Damages
8
Q
- Compensatory
- Consequential
- Punitive
- Nominal
A
Types of Damages
9
Q
Damages that compensate the nonbreaching party for the loss of the bargain.
- Only for damages actually sustained and proved to have arisen directly from the loss of the bargain caused by breach of contract.
- Replace what was lost because of the wrong or damage- “make the person whole”
- Cover direct losses and cost
- Amount often varies by the type of contract
A
Compensatory Damages
10
Q
- Standard measure
- Sale of goods
- Sale of land
- Construction contracts
A
Measure of Compensatory Damages
11
Q
The difference between th value of the breaching party’s promised performance under the contract and the value of her or his actual performance.
- This amount is reduced by any loss that the injured party has avoided.
- Incidental damages
A
Standard Measure
12
Q
Damages that compensate for expenses directly incurred because of a breach of conract, such as those incurred to obtain performance from another source.
A
Incidental Damages
13
Q
For a contract of this type, the usual measure of compensatory damages is the difference between the contract price and the market price.
- Sometimes the contract is breached when the seller has not yet produced the goods. In this situation, compensatory damages normally equal the seller’s lost profits on the sale, not the difference between the contract price and the market price.
A
Sale of Goods
14
Q
A remedy for this is usually specific performance. The buyer is awarded the parcel of property for which he or she bargained (majority of states).
Minority of states (Unintentional breach):
- A prospective buyer is limited to a refund of any down payment made plus any expenses incurred.
- When the buyer is in breach- measure of damages is typically the different between the contract price and the market price of the land. This is also used when specific performance is not available.
A
Sale of Land
15
Q
Depends on which party breaches and when the breach occurs.
- Breach by owner
- Breach by contractor
- Breach by both owner and contractor
A
Construction Contracts
16
Q
May breach at three different stages:
- Before performance
- During performance
- After performance has been completed
A
Breach by Owner
17
Q
The contractor can recover only the profits that would have been made on the contract (total contract price less the cost of materials and labor).
A
Breach by Owner- Before Performance
18
Q
The contractor can recofer the profits plus the costs incurred in partially constructing the building.
A
Breach by Owner- During Performance
19
Q
The contractor can recover the entire contract price, plus interest.
A
Breach by Owner- After Construction has been Completed
20
Q
Can breach by either failing to begin construction or stopping work partway through the project. The measure of damages is the cost of completion.
- Includes reasonable compensation for any delay in performance.
- If the contractor finishes late- the measure of damages is the loss of use.
- If contractor breaches before the construction is completed- measure is all costs incurred by owner to complete.
A
Breach by Contractor
21
Q
The court attempts to strike a fair balance in awarding damages.
A
Breach by Both Owner and Contractor
22
Q
Foreseeable damages that result from a party’s breach of contract but are caused by special circumstances beyond the contract itself.
- Breaching party must know (or have reason to know) that special circumstances will cause the nonbreaching party to suffer an additional loss.
A
Consequential Damages (Special Damages)
23
Q
Generally are not awarded in an action for breach of contract. These are penalties (in a sense).
- Breach of contract is not unlawful in a criminal sense
- May be available if the person’s actions cause botha breach of contract and a tort
A
Punitive Damages (Exemplary Damages)
24
Q
A small monetary award (often one dollar) granted to a plaintiff when no actual damage was suffered.
- Establish that the defendant acted wrongfully
- Brought as a matter of principle under the theory that a breach has occurred and some damages must be imposed regardless of the actual loss.
A
Nominal Damages
25
The requirement that a plaintiff do whatever is reasonable to minimize the damages caused by the defendant's breach of contract.
* Required action depends on the nature of the situation.
Mitigation of Damages
26
Majority of States- A person whose employment has been wrongfully terminated has a duty to mitigate damages incurred because of the employer's breach of the employment contract (duty to take a similar job if one is available).
* If employee fails to do so- damages received will be equivalent to the person's former salary less the income he or she would have received in a similar job obtained by reasonable means.
* Employer has burden to prove such a job existed and that the employee could have been hired.
* A terminated employee is not under duty to take a job that is not of the same type and rank.
Mitigation of Damages- Employment Contracts
27
Some states require a landlord use reasonable means to find a new tenant if a tenant abandons the premises and fails to pay rent.
* Former tenent is still liable for the difference between the amount of the rent under the original lease and the rent received from the new tenant.
* If landlord fails to do so- court will likely reduce any award by the amount of rent and the landlord could have received had he or she done so.
Mitigation of Damages- Rental Agreements
28
An amount, stipulated in a contract, that the parties to the contract believe to be a resonable estimation of the damages that will occur in the event of a breach.
* Paid in event of future default or breach
* Liquidated = determined, settled, fixed
* Normally are enforceable
Liquidated Damages
29
A contract clause that specifies a certain amount to be paid in the event of a default or breach of contract but is unenforceable because it is designed to punish the breaching party rather than to provide a reasonable estimate of damages.
* Punishes the breaching party, does not make nonbreaching party whole
* Agreement as to amount will not be enforced, recovery will be limited to actual damages.
Penalty
30
1. AT the time the contract was formed, was it apparent that damages would be difficult to estimate in the event of a breach?
2. WAs the amount set as damages a reasonable estimate and not excessive?
* If yes to both, normally will be enforced
* If either is no, usually will not be enforced
Enforceability- Liquidated Damages or Penalty?
31
Frequently used in construction contracts and in contracts for the sale of goods and contracts with entertainers and professional athletes
Common Uses of Liquidated Damages Provisions
32
An action to undo, or cancel, a contract- to return nonbreaching parties the positions that they occupied prior to the transaction. The failure of one party to perform under a contract entitles the other party to do this.
* Fraud, mistake, duress, undue influence, lack of capacity, or failure of consideration
* Also available by statute
Rescission
33
An equitable remedy under which a person is restored to his or her original position prior to the loss or injury, or placed in the position he or she would have been in had the breach not occurred.
* Generally made by returning goods, property, or funds previous conveyed.
* If the property or goods have been consumed, must be made in an equivalent dollar amount.
* Involves the recapture of a benefit conferred on the defendant that has unjustly enriched him or her.
Restitution
34
Becuase an award of restitution basically returns something it its rightful owner, a party can seek restitution in actions for breach of contract, tort actions, and other types of actions.
* Funds or property transferred by mistake or because of fraud or incapacity.
* Might be available when there has been misconduct by a party with a special relationship with the other party
* Criminal cases- funds or property obtained through embezzlement, conversion, theft, or copyright infringement.
Restitution is not Limited to Recission Cases
35
An equitable remedy in which a court orders the parties to perform as promised in the contract. This remedy normally is granted only when the legal remedy (monetary damages) in inadequate.
* May be more valuable (to the promisee) than monetary damages
* Normally not granted unless the party's legal remedy (monetary damages) is inadequate.
* Sale of goods- normally not granted unless goods are unique (cannot get unique items in stores).
Specific Performance
36
A court may grant specific performance to a buyer in an action for a breach of contract involving this. The legal remedy of monetary damages may not compensate the buyer adequately because every parcel of land is unique. The same land in the same location cannot be obtained elsewhere.
* Only when specific performance is unavailable will monetary damages be awarded instead.
Specific Performance- Sale of Land
37
Require one party to work personally for another party. Courts normally refuse to grant specific performance for this kind of contract.
* Ordering a party to perform personal services against his or her will would amount to a type of involuntary servitude.
* Courts do not want to monitor these contracts, which usually require the exercise of personal judgement or talent.
* If a contract is not deemed personal, a remedy at law of monetary damages may be adequate if a substantially identical service is available from another person(s).
Specific Performance- Contracts for Personal Services
38
An equitable remedy used when the parties have imperfectly expressed their agreement in writing. Allows a court to rewrite the contract to reflect the parties' true intentions.
* Fraud or mutual mistake
* Written contract incorrectly states the parties' oral agreement
* Covenants not to compete
Reformation
39
Courts order reformation most often when these things are present.
Reformation- Fraud or Mutual Mistake
40
When two parties enter into a binding contract but later make an error when they attempt to put the terms in writing.
* Court will allow into evidence the correct terms of the oral contract, thereby reforming the written contract.
Reformation- Written Contract Incorrectly States the Parties' Oral Agreement
41
Often included in contracts for the sale of ongoing businesses and in employment contracts. Restrict the area and time in which one party can directly compete with the other party. Courts may reform these.
* For a valid and legitimate purpose, but the area or restrains are unreasonable- some courts will reform the restrains by making them reasonable and then will enforce the entire contract as reformed.
* Other courts will throw out the entire restritive covenant as illegal
Reformation- Covenants not to Compete (Restrictive Covenants).
42
A legal theory under which an obligation is imposed in the absence of an agreement. Not a true contract but a fictional contract that is imposed on the parties to prevent unjust enrichment.
Quasi Contract
43
* When there is no actual contract or agreement between the parties.
* Cannot be imposed if a contract exists
* Can be used when the parties entered into a contract, but it is unenforceable for some reason.
* Often granted when one party has partially performed under a contract that is unenforceable.
* Provide an alternative for suing for damages and allow the party to recover the reasonable value of the partial performance.
* Damages may be measured either by the benefit received or by the detriment suffered.
When Quasi Contract is Used
44
A party Seeking Recovery Must Show:
1. The party conferred a benefit on the other party
2. The party conferred the benefit with the reasonable expectation of being paid.
3. The party did not act as a volunteer in conferring the benefit.
4. The party receiving the benefit would be unjustly enriched if allowed to retain the benefit without paying for it.
The Requirement for Quasi-Contract
45
A contract may provide provisions stating that no damages can be recovered for certain types of breaches or that dames will be limited to a maximum amount.
* May also provide that the only remedy for breach is replacement, repair, or refund of the purchase price.
* May provide that one party can seek injunctive relief if the other party breaches the contract.
* Exculpatory caluses
* Limitation-of-liability clauses
Contract Provisions Limiting Remedies
46
Provisions stating that no damages can be recovered.
Exculpatory Clauses
47
Provisions that affect the availability of certain remedies.
Limitation of Liability Clauses
48
UCC provides that remedies can be limited in a contract for the sale of goods.
Sales Contracts- Limitation of Liability Clauses
49
Depends on the type of breach that is excused by the provision.
* Clauses that normally will not be enforced- provisions excluding liability for fraudulent or intentional injury or for illegal acts or other violations of law.
* Clauses excluding liability for negligence may be enforced in certain situations- when contained in a contract made between parties who have roughtly equal bargaining positions, the clause usually will be enforced.
Enforceability of Limitation of Liability Clauses
