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

Chapter 17
Contracts: Breach of
Contract and Remedies
© 2004 West Legal Studies in Business
A Division of Thomson Learning
1
Introduction
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
2
§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).
© 2004 West Legal Studies in Business
A Division of Thomson Learning
3
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.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
4
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).
© 2004 West Legal Studies in Business
A Division of Thomson Learning
5
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).
© 2004 West Legal Studies in Business
A Division of Thomson Learning
6
§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.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
7
§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.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
8
§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.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
9
§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.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
10
§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.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
11
§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.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
12
§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.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
13
Law on the Web
Lawyers.com website describing how contracts
can be breached.
Cornell U on contracts.
Nolo.com on Contracts.
Legal Research Exercises on the Web.
© 2004 West Legal Studies in Business
A Division of Thomson Learning
14