Contract Defenses, Discharge, and Remedies

1. Contract Defenses, Discharge, and Remedies

2. Group Debate Ken v. Sweet

3. Ethics: You see a desk for sale at a garage sale for $10 that you know is worth $15,000. Can you legally buy it for $10? Should you? One of the ships “Peerless” Raffles v. Wichelhaus Two Ships Peerless. Wichelhaus purchased a shipment of cotton from Raffles to arrive on a ship called the Peerless from Bombay, India. Wichelhaus meant a ship called Peerless sailing from Bombay in October; Raffles meant another ship called the Peerless sailing from Bombay in December. When the goods were finally delivered in December, Wichelhaus refused them. Should Wichelhaus be forced to accept the goods? Wichelhaus thought cotton would arrive in Oct Raffles thought cotton would arrive in Dec Start here tues did ethics

4. Examples of each

5. Parties may agree to dischargetheir contractual obligations inseveral ways: By Rescission And Restitution By Accord and By Novation Satisfaction The parties The parties A new party is mutually agree agree to render substituted for to rescind performance one of the (cancel) the different from primary parties contract. that originally to a contract. agreed on. Discharge by Agreement

6. Damages • Compensate for loss of the bargain • By awarding money damages, the court tries to place the parties in the positions that they would have occupied had the contract been fully performed. End-of-Chapter Q: 10-1, p. 239 – Substantial Performance. Contractor installs Kohler brand fixtures because the Crane brand specified in the contract was unavailable. The homeowners were also unavailable to discuss because they were on vacation.

7. Impossibility of Performance • End-of-Chapter Q: 10-2, p. 239 – Impossibility. • Jimenez, a famous singer, dies before he can perform pursuant to a contract. • Raglione contracts to sell land and dies just before she transfers the land. • Oppenheim contracts to sell you 1,000 bushels of apples but because of frost is unable to do so. • Maxwell contracts to lease a service station for ten years, but a federal low embargo’s foreign oil and Maxwell is forced to ration sales hurting his profits. He is not paying the lease.

8. Types of Damages There are five broad categories of damages: Compensatory Damages Consequential Damages Punitive Damages Nominal Damages Liquidated Damages

9. Hadley v. Baxendale (1854) • The question before the court was whether Hadley (the mill owner) could recover for consequential damages—the lost profits—caused by Baxendale’s delay in delivering a broken crankshaft. • The court held that the Hadleys could recover only if Baxendale knew or should have known that the mill would have to be shut down while the crankshaft was being repaired. Was Baxendale aware of this? • If it had not been the custom in the mid-1800s for mills to have extra crankshafts on hand, how would this circumstance have affected the court’s ruling?

10. 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.

11. Punitive Damages • Punitive damages are awarded to punish the breaching party and deter similar conduct in the future. • These are usually notawarded in an action for breach of contract unless a tort is involved.

12. Nominal Damages • Nominal damages are those small in amount (such as one dollar) that are awarded when a breach had occurred but no actual damages have been suffered. • They are often awarded only to establish that the defendant acted wrongfully.

13. Case re: termination of catering job 5 days before picnic • $7,000 contract for catering • Cancelled 5 days before • Contract required full payment if cancelled • Plaintiff asserts it's an unlawful penalty clause Liquidated Damages • Damages Stated in Contract. Damages that may be specified in a contract as the amount to be paid to the nonbreaching party in the event the contract is later breached. • Damages Difficult to Estimate and Reasonable Amount. Clauses providing for liquidated damages are enforced if the damages were difficult to estimate at the time the contract was formed and if the amount stipulated is reasonable. • If Penalty – Not Enforced.

14. Specific Performance • Performance Not Damages. An equitable remedy calling for the performance of the act promised in the contract. • Limited Application. Specific performance is only available in special situations, such as • those involving contracts for the sale of unique goods or land, or • when monetary damages would be an inadequate remedy. • Not for Personal Services. 1 2 3 4

15. job for “remainder of his life” • New company offered 8% commission • Current company said it would offer 10% commission to get employee to stay – plus employment for life (except disability or dishonesty) • Relationship soured and employee fired. • Sued for permanent – job • Was there consideration? • Does Statute of Frauds apply?

16. Parol Evidence Rule • Court Rule: Prohibits introduction of communications that contradict the written agreement. • Exceptions to the rule: • Contracts subsequently modified. • Voidable or Void contracts. • Contracts containing ambiguous terms. • Prior dealing, course of performance, or usage of trade. • Contracts subject to orally agreed-on conditions. • Contracts with an obvious or gross clerical error that clearly would not represent the agreement of the parties.

17. Should Social Promises be Enforced under the Doctrine of Promissory Estoppel? • Recently, a college freshmen whose boyfriend broke their prom date sued the boyfriend for the cost of her unused prom dress. A Minnesota state court dismissed the case, suggesting that “[w]hether the defendant has a social or moral duty to help the plaintiff with her prom costs is a question for the likes of Emily Post or Miss Manners, not for courts of this state.” • Contract law reflects society’s decisions on what promises will be enforced and what promises will not. • Injustice: a promise that has been reasonably relied on will give rise to relief only if the failure to do so would cause injustice.

18. Houseboat example Provisions Limiting Remedies • Exculpatory Clause. A contract may provide that no damages (or only a limited amount of damages) can be recovered in the event the contract is breached. • Enforceability of Clauses. Whether such provisions are enforced depends on the type of breach that is excused by the provision. For example: • Fraud. Clauses excluding liability for fraudulent or intentional injury or for illegal acts cannot be enforced. • Negligence. Clauses excluding liability for negligence may be enforced if both parties hold roughly equal bargaining power.