Contracts: Breach of Contract and Remedies

Introduction

Most Common Remedies:

§ Damages.

§ Rescission and Restitution.

§ Specific Performance.

§ Reformation.

§ Recovery Based on Quasi Contract.

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, because the injury party additional loss.

Case 17.1: Hadley v. Baxendale (1854).

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.

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).

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).

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.

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.

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.

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.

Election of Remedies

Doctrine created to prevent double recovery.

Non-breaching 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.

Waiver of Breach

A pattern of conduct that waives a number of successive breaches will operate as a continued waiver.

Non breaching party can still recover damages, but contract is not terminated.

Non-breaching party should give notice to the breaching party that full performance will be required in the future.

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.