©2001 West Legal Studies in Business. All Rights Reserved.1

Chapter 18:Chapter 18:Contracts — Breach of Contracts — Breach of Contract and RemediesContract and Remedies

Chapter 18:Chapter 18:Contracts — Breach of Contracts — Breach of Contract and RemediesContract and Remedies

©2001 West Legal Studies in Business. All Rights Reserved.2

IntroductionIntroductionIntroductionIntroduction

• Damages.• Rescission and Restitution.• Specific Performance.• Reformation.• Recovery Based on Quasi Contract.

©2001 West Legal Studies in Business. All Rights Reserved.3

§1: §1: DamagesDamages §1: §1: DamagesDamages

Types of Damages:– Consequential Damages.

» Breaching party is aware or should be aware, cause the injury party additional loss.

» Case 18.1: Hadley v. Baxendale (1854).

– Punitive Damages.» Available when tort is also involved.

– Nominal Damages.» No financial loss.

©2001 West Legal Studies in Business. All Rights Reserved.4

§2: §2: Mitigation of DamagesMitigation of Damages§2: §2: Mitigation of DamagesMitigation 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 18.2: Parker v. Twentieth Century Fox Film Corp (1970).

©2001 West Legal Studies in Business. All Rights Reserved.5

Liquidated Damages Liquidated Damages Versus PenaltiesVersus Penalties

Liquidated Damages Liquidated Damages Versus PenaltiesVersus Penalties

• 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.

©2001 West Legal Studies in Business. All Rights Reserved.6

§2: §2: Rescission and RestitutionRescission and Restitution §2: §2: Rescission and RestitutionRescission 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 called for in some cases not involving rescission.

©2001 West Legal Studies in Business. All Rights Reserved.7

§3: §3: Specific PerformanceSpecific Performance§3: §3: Specific PerformanceSpecific Performance

• Equitable remedy calling for the performance of the act promised in the contract.

• Remedy in cases where the consideration is:– Unique;– Scarce; or– Not available remedy in contracts for personal

services.

©2001 West Legal Studies in Business. All Rights Reserved.8

§4: §4: ReformationReformation §4: §4: ReformationReformation

• 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.

©2001 West Legal Studies in Business. All Rights Reserved.9

§5: §5: Recovery Based on Recovery Based on QuasiQuasi Contract Contract

§5: §5: Recovery Based on Recovery Based on QuasiQuasi Contract Contract

• Equitable theory imposed by courts to obtain justice and prevent unjust enrichment.

• Quantum meruit. Case 18.3: Maglica v. Maglica (1998). Party seeking recovery 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.

©2001 West Legal Studies in Business. All Rights Reserved.10

§6: §6: Election of RemediesElection of Remedies§6: §6: Election of RemediesElection of Remedies

• Doctrine created to prevent double recovery.

• Nonbreaching 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.

©2001 West Legal Studies in Business. All Rights Reserved.11

§7: §7: Waiver of BreachWaiver of Breach §7: §7: Waiver of BreachWaiver of Breach

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

• Nonbreaching party can still recover damages, but contract is not terminated.

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

©2001 West Legal Studies in Business. All Rights Reserved.12

§8: §8: Contract Provisions Contract Provisions Limiting RemediesLimiting Remedies

§8: §8: Contract Provisions Contract Provisions Limiting RemediesLimiting Remedies

• Exculpatory clauses. – Provisions stating that no damages can be

recovered.

• Limitation of liability clauses.– Provisions that affect the availability of certain

remedies.

©2001 West Legal Studies in Business. All Rights Reserved.13

The Ethics of ContractsThe Ethics of ContractsThe Ethics of ContractsThe Ethics of Contracts

• Freedom of Contract and Freedom from Contract.– Impossibility of Performance.– Unconscionability.– Exculpatory Clauses.

• Problems with Oral Contracts.– Promissory Estoppel.– Statute of Frauds.

©2001 West Legal Studies in Business. All Rights Reserved.14

Law on the WebLaw on the WebLaw on the WebLaw on the Web

• Website describing how contracts can be breach.

• Nolo.com on contracts.• Cornell U on contracts.

Legal Research Exercises on the Web.