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Chapter 12: Contracts— Breach and Remedies

Chapter 12: Contracts— Breach and Remedies. Learning Objectives. What is the difference between compensatory and consequential damages? What are nominal damages and when do courts award them?

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Chapter 12: Contracts— Breach and Remedies

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  1. Chapter 12: Contracts—Breach and Remedies

  2. Learning Objectives • What is the difference between compensatory and consequential damages? What are nominal damages and when do courts award them? • What is the standard measure of compensatory damages when a contract is breached? How are damages computed differently in construction contracts?

  3. Learning Objectives • Under what circumstances is the remedy of rescission and restitution available? • When do courts grant specific performance as a remedy? • What is a limitation-of-liability clause, and when will courts enforce it?

  4. Damages • Four broad categories of damages: • Compensatory.  • Consequential.  • Punitive.  • Nominal. 

  5. Damages • Compensatory Damages. • Compensates nonbreaching party for loss of the bargain. • Out-of-pocket costs directly arising from breach. • Standard Measure: difference between value of promised performance and value of actual performance. 

  6. Damages • Compensatory Damages. • Measurement of Damages: • Sale of Goods: difference between contract and market price. • Sale of Land: specific performance. • Construction Contracts. • CASE 12.1 Jamison Well Drilling, Inc. v. Pfeifer (2011). Why did Pfeifer have to pay for the storage container?

  7. Damages • Consequential Damages. • Consequential (Special) Damages—foreseeable losses. • Breaching party is aware or should be aware, cause the injury party additional loss. • CASE 12.2 Hadley v. Baxendale (1854). What was the principle behind this decision?

  8. Damages • Punitive (Exemplary) Damages. • Deter wrongdoer; set example. • Nominal Damages. • No actual damage occurs, usually $1, for a technical injury.

  9. Damages • 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.

  10. Damages • Liquidated Damages vs. Penalties. • Liquidated Damages: specific amount agreed to be paid as damages in the event of future breach. • Penalties: designed to penalize, generally unenforceable. • CASE 12.3 B-Sharp Musical Productions, Inc. v. Haber (2010). Why was the clause enforceable? 

  11. Damages • Liquidated Damages vs. Penalties. • Enforceability. Court asks two questions: • When contract was entered into, was it apparent damages would be difficult to estimate in the event of a breach? • Was the amount set as damages a reasonable estimate and not excessive?

  12. Ex. 12-1 Measurement of Damages

  13. Equitable Remedies • Sometimes damages are inadequate remedy. • Court can create equitable remedies: Rescission and Restitution

  14. Equitable Remedies • Rescission. • Remedy whereby a contract is canceled and the parties are restored to the original positions that they occupied prior to the transactions. 

  15. Equitable Remedies • 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.

  16. Equitable Remedies • Specific Performance. • Equitable remedy calling for the performance of the act promised in the contract. • Provides remedy in cases involving unique subject matter: • Sale of Land. • Contracts for Personal Services.

  17. Equitable Remedies • 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. • Used when fraud or mutual mistake occurs.

  18. Recovery Based on Quasi-Contract • When Quasi Contract is Used. • No actual contract exists, court will create one in the interests of fairness and justice. • Usually granted when one party has performed in good faith and the other has been unjustly enriched. 

  19. Recovery Based on Quasi-Contract • Recovery Based on Quasi-Contract. • To recover, party seeking recovery must show: • Party conferred benefit on other party. • Party conferred the benefit with reasonable expectation of payment. 

  20. Recovery Based on Quasi-Contract • Recovery Based on Quasi-Contract. • To recover, party seeking recovery must show: • Party did not volunteer in performing. • Party receiving benefit would be unjustly enriched by retaining benefit without payment.

  21. Contract Provisions Limiting Remedies • Exculpatory and Limitation of Liability clauses. • UCC Allows Sales Contracts to Limit Remedies. • Enforceability of Limitation-of-Liability Clauses: depends on type of breach excused by provision.

  22. Ex. 12-2 Remedies for Breach

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