Breach of Contract and Remedies Lesson Learning Outcomes

Breach of Contract and Remedies

Lesson Learning Outcomes n At the conclusion of this lesson, the student should be able to: Determine a breach of contract n Explain the various remedies for breach of contract n Differentiate between the different remedies for breach of contract n

Overview n Contract n Agreement, Consideration, Capacity, Legality n Breach n Non-performance n Failure to perform an absolute duty required under the K n Remedy n Relief provided to the innocent party

Breach of Contract n What is it? n How does it occur? n be sure to be able to distinguish between a breach and situation where party says other is breaching when in actuality a defense has been raised to enforcement n e. g. , Statute of Frauds, Genuineness of Assent n Failure to perform agreement, or failure of consideration

Remedies. . . n At Law n classic compensation for injury limited to n land n items of value n money n In Equity n based on principles of justice and fairness n relief provided through n specific performance n injunctions n rescission and restitution

Remedies at Law n Damages. . . RM. RM n Compensation for loss of the Benefit of the Bargain n Most common remedy n “. . . innocent party to be placed in the position they would have occupied had the contract been fully performed. . . ”

Four Types of Damages n Compensatory n Consequential n Punitive n Nominal

Compensatory Damages n Compensation for the loss of the benefit of the bargain n Injuries must be actually sustained n Must arise directly from the loss of the bargain n Generalized examples § Sale of Goods contract § Land contract § Construction contract

Compensatory Damages Sale of Goods contract RM 100 Market Price n e. g. , Seller Breach n Benefit of Bargain? n Twenty RM RM 80 K Price

Compensatory Damages Sale of Land contract n Best remedy: Specific Performance. . why? n Because each parcel of land is unique. . . n But what if land has been sold after breach? n Will RM damages be enough if the new owner won’t sell?

Compensatory Damages Construction Contract n Breach by owner can occur at essentially three different times n n n Before (profits) During (profits and costs incurred) After (Contract price + interest) n Event of Contractor Breach? n all costs by owner to complete construction. . . w/o waste

Four Types of Damages n Compensatory n Consequential n Punitive n Nominal (Specials)

Consequential Damages n Key issue n FORESEEABILITY n n must know or have reason to know as by special relationship Defendant must be able to reasonably foresee injury as a probable result. . injury or damage?

Four Types of Damages n Compensatory n Consequential n Punitive n Nominal

Punitive Damages n Inconsistent with contract theory n contract as a civil relationship between two parties n business has its own way to punish. . . n. . . are awarded usually only in connection with torts

Four Types of Damages n Compensatory n Consequential n Punitive n Nominal

Nominal Damages n Technical injury only n No actual damages suffered n but has an injury been suffered? n Typically RM 1 n what about lawyers fees? n “A matter of principle”

Mitigation of Damages n “. . . cause to be less harsh. . . ” n injured party must use reasonable means to mitigate loss n some examples employment n rental apartments n n what are “reasonable means”. . . what is an “acceptable tenant”. . . etc.

Liquidated Damages n Sum certain. . . calculable. . . determined. . . specified amount n Cannot be punitive. . . as already noted penalties have no place in contract law n The Test: n n n When contract entered into, was it apparent that damages would be difficult to estimate in event of breach? Was amount set reasonable and not excessive? Estimation of damages? Reasonable?

Construction Contract example: n California earthquake n destruction of major public roads n Contract to rebuild n Per day costs of road closing n Contract awards extra RM for early completion n Contract payment decreases for late completion

Remedies. . . n At Law n classic compensation for injury limited to n land n items of value n money n In Equity n based on principles of justice and fairness. n relief provided through n specific performance n injunctions n rescission and restitution n reformation

Equitable Remedies Usually only awarded if legal remedies are inadequate n Specific Performance n Injunctions n Rescission & Restitution n Reformation

Specific Performance n Contracts don’t usually provide a good case for the granting of this remedy n major exception: Contract for the sale of land n because of uniqueness of parcel

Specific Performance n Appropriate where the legal remedy (RM damages) is inadequate n “. . . an order to perform what was promised. . . ” n Injured party gets what was agreed to under the contract n Why is SP not usually appropriate where the dispute centers around the sale of goods?

Injunctions n “. . . forbids defendant to do some act. . . which he is threatening or attempting to commit, or restraining him in the continuance thereof, such act being unjust and inequitable, injurious to the plaintiff, and not as such as can be adequately redressed by an action at law. . . ”

Injunctions n Not a typical remedy in contract disputes n Difference between positive and negative n Some use in a negative fashion in personal services contracts n e. g. , Contract dispute between a performing artist and promoter. . . prohibition on performing in same area for a different promoter

Requirements for an Injunction Remedies at law inadequate, thus causing irreparable harm. . . n Plaintiff must demonstrate at least a reasonable likelihood of success at trial n Threatened injury to the plaintiff outweighs the threatened harm the granting of the injunction may inflict on the defendant n Whether by granting the preliminary injunction the public interest would be disserved n

Rescission and Restitution n Purpose of rescission is restitutionary n a dissolution or “undoing” of the contract. . . n restoration of the parties to their positions before the contract was entered into n “status quo ante” n If not mutually decided upon, the rescission must be grounded in something that makes the contract voidable n Example: genuineness of assent problems

Remember Genuineness of assent…. . n Even if all the elements of a contract are present according to the objective theory of contracts, a contract may be unenforceable if there is not Genuine Assent by the Parties. If assent is not genuine, the contract can be avoided by the party whose assent was not genuine

Contracts That May Lack Genuineness of Assent n Contracts Entered Into on the Basis of n Mistakes n Misrepresentation n Undue Influence n Duress

Rescission and Restitution n Unilateral n rescission must be grounded in something that makes the contract voidable n What would these be? n Mutual n no need to have a GOA problem n is there a need for it to be completely executory? Restitution is payment ordered by a criminal court after the offender has been found guilty. Civil damages are ordered when someone has won a lawsuit in civil court.

Difference between Mutual & Unilateral Rescission n One discharges the contract n the other is available as a remedy for breach of contract

Reformation n Another Equitable Remedy. . . n Differs from R&R most significantly in that it does not try to undo the contract. . . n. . . but rather attempts to reform, correct or modify the contract so that it accurately reflects the agreement of the parties

Reformation n Plaintiff must show by “clear and convincing” evidence that the parties had reached agreement on a term and that because of a mutual mistake (or unilateral mistake + misconduct by the other) the term wasn’t included. n e. g. , “scrivener’s error”- A clerical error in a legal document