Chapter 19 Flashcards
Compensatory
To cover direct losses and costs
Consequential
To cover indirect and foreseeable losses
Punitive
To punish and deter wrongdoing
Nominal
To recognize wrongdoing when no monetary loss is shown
Loss of the bargain
Compensatory damages - direct damages including incidental damages
Determining whether a breach of contract has resulted in damages involves a 2-step process
- Establish that there is a contract that has been breached
- Did the breach cause the damages? If yes, then how do we measure the damages?
Standard Measure
The standard measure of compensatory damages is the difference between the value of the breaching party’s promised perfromance under the contract and the value of his/her actual performance
Sale of Goods
the usual measure of compensatory damages is an amount equal to the difference between the contract price and the market price
Sale of Land - Seller’s breach
The remedy for a seller’s breach of a contract for the sale of real estate is specific performance
Sale of Land - Buyer’s breach
The measure of damages is typically the difference between the contract price and the market price of the land (used when specific performance is not available)
A minority of states apply a different rule when the seller breaches the contract and the breach is not deliberate (intentional).
These states limit the prospective buyer’s damages to a refund of any down payment made plus any expenses incurred (such as fees for title searches, attorneys, and escrows). Effectively returns purchasers to the positions they occupied prior to the sale.
Written contracts often have a clause that specifies certain amount of money is to be paid in the event of a future default or breach.
If the court deems this clause to be a penalties clause…
it is not enforced
Sometimes a clause is called a liquidated damages clause but the court deems it to be…
a penalties clause.
Liquidated Damages Clause: enforceable – if:
- When the contract was formed it was clear damages would be difficult to estimate; and
- The amount set as damages is reasonable
Penalties Clause
Not enforceable
To determine if a particular provision is for liquidated damages or for a penalty, a court must answer two questions:
- When the contract was entered into, was it apparent that damages would be difficult to estimate in the event of a breach?
- Was the amount set as damages a reasonable estimate and not excessive?
If the answers to both questions are yes, the provision normally will be enforced. If either answer is no, the provision usually will not be enforced.
Rescission
an action to undo, or terminate, a contract—to return the contracting parties to the positions they occupied prior to the transaction
When is rescission available?
When fraud, a mistake, duress, undue influence, misrepresentation, or lack of capacity to contract is present, unilateral rescission is available. Also could be available by statute
The failure of one party to perfrom entitles the other party to __________ the contract.
rescind
Rescission of a contract on the basis of a breach is appropriate where the breach is found to be…
material and willful
Restitution
An equitable remedy under which a person is restored to his or her original position prior to loss or injury, or placed in the position he or she would have been in had the breach not occurred
What actions must be taken under restitution?
If the property or goods can be returned, they must be. If the goods or property have been consumed, restitution must be made in an equivalent dollar amount.
Specific Performance
An equitable remedy requiring the breaching party to perfrom as promised under the contract; usually granted only when money damages would be an inadequate remedy and the subject mater of the contract is unique (for example, real property)
Why is specific perfromance attractive to a nonbreaching party?
It provides the exact bargain promised in the contract
What are unique goods that could be entitled to specific performance?
Paintings, sculptures, or rare books/coins, LAND
Reformation
an equitable remedy used when the parties have imperfectly expressed their agreement in writing
What does reformation allow the court to do?
rewrite the contract to reflect the parties’ true intentions.
What are instances when reformation would be appropriate?
Fraud, mutual mistake, written contract incorrectly states the parties’ oral agreement, covenants not to compete (unreasonable area/time constraints)
Quantum Meruit
A Latin phrase, meaning “as much as he deserves,” that describes the extent of compensation owed under a quasi contract
Waiver
An intentional, knowing relinquishment of a legal right
What are the consequences of a waiver breach?
The waiver erases the past breach, and the contract continues as if the breach had never occurred
A contract may include provisions stating that…
no damages can be recovered for certain types of breaches or that damages will be limited to a maximum amount
A contract may provide that the only remedy for breach is…
replacement, repair, or refund of the purchase price
A contract may provide that one party can seek injunctive relief if…
the other party breaches the contract
Provisions stating that no damages can be recovered
exculpatory clauses
Provisions that affect the availability of certain remedies
limitation-of-liability clauses
