How Courts Enforce Contracts Remedies for Breach of Contract Denial of Remedies for Breach of Contract
Breach of contract • Failing to perform any term of a contract, written or oral, without a legitimate legal excuse • Examples: • not completing a job • not paying in full or on time • failure to deliver all the goods • substituting inferior or significantly different goods • One of the most common causes of law suits for damages
Celebrity breaches • Taylor Swift • In 2007, Ex manager, Dan Dymtrowsued claiming he's owed money for having signed her as a 14-year-old and helping to build her career • The Hollywood Reporter states that the former manager says he deserves at least five to 10 percent commission from Swift's sales, but her family conspired to fire him before he could collect. • Swift's lawyer counters that the claim is "ludicrous" because the manager never followed through on the mandatory paperwork to assure himself of such royalties • In 2010, NY Judge dismissed suit
Minor breach • A partial or immaterial violation of a contract • An insignificant breach in relation to the entire contract • Example: • A homeowner hires a plumber to replace pipes that will ultimately be hidden by a wall. Homeowner requires pipes be red, plumber uses blue pipes that work just as well
Minor breach • Cannot sue for specific performance • Required to perform what was promised in the contract • Can only sue for actual damages • Plumbing Example • No actual damages; no grounds for lawsuit
Minor breach • Examples: • House Painting • You pay someone to paint your entire house • Upon completion, you discover they forgot to paint the upstairs powder room • Can you sue? • Ty’s Car • Julia buys a car from Ty expecting it to have no mechanical issues • Immediately after purchase, Julia discovers AC broken • Can she sue?
Major breach • A material breach • Substantial failure in the performance of a contract
Legal Relief • Remedy – the action or procedure followed to enforce a right or to get damages for an injury to a right • Recession – canceling the contract and retuning whatever has been received under it • Restitution – permits the injured party to recover money or property given to the defaulting party • Injunction - a court order that requires a party to do or refrain from doing specific acts
TYPES OF MONEY DAMAGES • Compensatory • Consequential • Liquidated • Punitive • Nominal
Compensatory Damages • Actual damages • Replace what was lost and nothing more • Seeks to place injured parties in the same financial position they would have been in if there had been no breach
Consequential DAMAGES • Grants money for the foreseeable injuries caused by the breach • Places injured party in the same financial position they would have been in if the contract had been performed • Examples: • Your new lease on an apartment starts May 1st, due to a flood in the building, you can’t move in until May 15th and have to stay at a hotel for those 2 weeks • Your business contracts with AT&T to provide telephone service; because of an outage, your call center cannot answer the phones for 2 hours
Liquidated DAMAGES • Pre-agreed upon terms/clauses written into a contract • Must be specified in advance • Example: Written into contract that if your delivery truck is a day late, it owes $500; 2 days late, $1000, etc.
Punitive DAMAGES • Awarded for certain circumstances, such as fraud or an intentional tort • Added to other money damages • Used to punish and to make an example of the defendant • Example: selling a piece of jewelry claiming it’s 18- carat gold when it’s just polished brass
Nominal DAMAGES • Cases where there is no injury or financial loss • A small fee to acknowledge a wrong • Usually less than $2
SPECIFIC PERFORMANCE • When monetary damages are not enough, court may order the defendant to perform specific acts to compensate the plaintiff • Usually that specific act is to complete exactly what was promised in the contract in the first place • Cannot award both Specific Performance AND Monetary Damages • Examples: • Unique Contract – you agree to buy a 1932 Rolls Royce; if the seller reneges, you will have a difficult time finding one elsewhere
What’s your verdict? • Grant Akroyd, an unknown baseball pitcher, signed a 5-year contract to play for a major league team in Denver for $120,000 a year. After 2 months, Akroyd had won 3 and lost 1 in four starts, and had 37 strike-outs and an ERA of 1.75. He then contracted with a competing team in Seattle for $12 million a year, thereby breaching his contract with Denver. • What remedies are available to the Denver team?
What’s your verdict? • The Denver team could recover the two months’ wages ($20,000) as restitution. • If the team elects this remedy, they would lose the ability to sue for damages and the ability to obtain an injunction prohibiting Akroyd from playing for Seattle. • Restitution and Specific Performance are opposites so you cannot combine the two
Ways around contract breaches • Failure to mitigate damages • Waivers • Statute of limitations • Bankruptcy
FAILURE TO MITIGATE DAMAGES • The injured party must usually take reasonable steps to mitigate damages • In the example of an AT&T network outage causing a call center to not be able to answer calls for 2 hours, a judge would not award damages for lost revenue because the client did not provide their own contingency plans
WAIVERs • When a party intentionally and explicitly gives up a contractual right • Also arise by implication from conduct • Example: if you consistently make late payments and do not get billed a late fee, then the creditor’s right to collect future late fees may be waived
Statute of limitations • Varies per state • Denies remedy if suit is not commenced within a certain time after a legal claim arises • Four years is a common time for the statute of limitations for contracts • Three years is a common time for the statute of limitations for torts
bankruptcy • Legal proceeding where a debtor’s assets are distributed among his or her creditors to discharge the debts • If approved, could mitigate any contract breaches and their related remedies • Exceptions: • Willful or malicious acts • Acts caused by intoxication
Rescission and Restitution Damages Specific Performance Injunction Waiver Compensatory Consequential Liquidated Punitive Nominal REMEDIES FOR BREACH OF CONTRACT Breach of Contract
When seeking a remedy for breach of contract • Negotiate, mediate, or arbitrate before you litigate • Lawsuits are costly and time consuming • Try to get at least a partial payment • Extends the time for filing and avoids Statutes of Limitations • Do not delay too long – SUE • If you want to cancel your obligations, you must show other party breached the agreement in some material way • Always keep accurate records • Show you suffered a monetary loss • Show you attempted to resolve issue • If you seek specific performance, you must show that money damages will not be enough to compensate you for your loss • You must also show that you are ready, willing, and able to fulfill your obligation