Chapter 19 Breach of Contract and Remedies Flashcards
Breach
Failure to act or perform in the manner called for in a contract
Anticipatory breach
Promisor’s repudiation of the contract prior to the time that performance is required when such repudiation is accepted by the promisee as a breach of the contract
Promisor makes it clear contract will not be performed in advance of time of performance is requried
Anticipatory Repudiation
Repudiation made in advance of the time for performance of the contract obligations
Must be clear, absolute, unequivocal refusal to perform the contract according to it’s terms
Refusal to perform contract unless other party does act/makes concession not in contract = anticipatory repudiation
Request for additional payment without refusal to perform is not repudiation
Repudiation can be retracted unless the aggrieved has materially changed it’s positions
May be expressed by conduct that makes it impossible for the repudiating party to perform subsequently
Tips v. Hartland developers
- hartland building airplane hangar for tips payable in three installments
- after first two installments paid tips instructs to cease work as cannot afford to make final payment
- hartland sues tips for amount owing
- trial court allowed to collect amt owed less cost of completion (based on tips anticipatory repudiation)
- tips appealed
- judgement for tips allowing to offset owed amount by cost of required electrical outlets tips had to pay
(Really not sure about this one)
Repudiation
A buyer or seller refusing to perform the contract as stated
Waiver
Release or relinquishment of a known right or objection
Cure of breach by waiver
When it is established that there has been a waiver of a breach, the party waiving the breach cannot take any action on the theory that the contract was broken
Contract continues as if breach had not existed
Waiver may be express or implied from the continued recognition of the contract by the aggrieved party. (If conduct of a party shows an intent to give up a right it waives that right)
Determining existence of waiver of breach
A party allowing the other party to continue performance without objecting that the performance is not satisfactory waives the right to raise the object when sued for payment later.
Waiver may also be declared expressly
Scope of waiver of breach
Only extends to specific matters waived. Does not show intent to ignore other contract provisions.
Anti modification clause
Modern contracts often specific that original contract shall not be deemed modified by waiver as to any breaches
Means that original contract remains as agreed to and either party may insist on compliance with original contract
Reservation of rights
Assertion by a party to a contact that even though a tendered performance (e.g. a defective product) is accepted the right to damages for nonconformity to the contract is reserved
Remedy
Action or procedure that is followed in order to enforce a right or obtain damages for injury to a right
Remedies upon anticipatory repudiation
Aggrieved party may:
- do nothing beyond stating that performance at the proper time will be required (means will not sue for breach until that time)
- regard the contract as definitively broken and bring a lawsuit against the repudiating party without waiting for performance date
- regard repudiation as an offer to cancel the contract, which can be accepted or rejected. If accepted the contract is discharged by cancellation agreement
Quasi contract
Court-imposed obligation to prevent the unjust enrichment in the absence of a contract
Quasi contractual /restitution remedy for breach
- contract is unenforceable for various reason BUT one party provided services for the other
- measure of damages is the reasonable value of services performed (not the contract amount)
Party retaining the benefit must make restitution to the person conferring the benefit
Regular remedy for breach of contract
Award of monetary damages.
Specific performance may be obtained if monetary damages are inadequate
Measure of monetary damages for breach of contract
The sum of money that will place the injured party in the same position that would have been attained if the contract has been performed
Injured party given the benefit of the bargain by the court
Specific performance
Action brought to compel the adverse party to perform a contract on the theory that merely suing for damages for its breach will not be an adequate remedy
Classification of monetary damages
Compensatory
(Split into direct and consequential)
Nominal
Punative
Compensatory damages
Sum of money that will compensate an injured plaintiff for actual loss (incurred as a result of the breach of contract)
Can be direct damages or consequential (special) damsges
Nominal damages
A nominal sum awarded to the plaintiff in order to establish that legal rights have been violated although the plaintiff in fact has not sustained any loss or damages
Party awarded nominal damages is “prevailing party”
Punative damages
Also known as exemplary damages
Damages in excess of those required to compensate the plaintiff for the wrong done, that are imposed in order to punish the defendant because of the particularly wanton or willful character of the wrongdoing
Not ordinarily awarded in contract actions
Direct damages
(sometimes called general damages)
Losses that are causes by breach of a contract
Those losses that flow natural from the content of the contract
Included incidental damages
Incidental damages
Included in direct damages. Extra expenditures made by the injured party to rectify the breach or mitigate damages
Consequential damages
Sometimes called special damages
Damages the buyer experiences as a result of the seller’s breach with respect to a third party
Result from the injured party’s particular circumstances but not specifically part of the contract
May be recovered only if it was reasonably foreseeable to the defendant that the kind of loss in question could be sustained by the job teaching party should the contract be broken
Adams v. Jones (matter of GMC truck)
- Adams ordered a GMC truck from dealership owner Jones for $73,500 (written contract)
- Adams communicated the purpose was to have truck by labor day to bring in crop before first frost and Jones indicated understand
- Truck did not arrive by labor day
- after two weeks Adams obtained same model truck from another dealer for $75,500
- this $2,000 difference is the direct damage - also paid $250 for rental of a similar truck until new truck ready
- an incidental damage that could be recovered - harvesting setbacks from delays due to lack of a truck set work back 5 days, resulting in 30% crop loss estimated at $320,000
- a potentially recoverable consequential damage. Because Jones knew reason Adams needed the truck so the loss can be considered reasonably foreseeable (may not be able to recover full amount if it was possible to do more to mitigate damages)
Mitigation of damages
Injured party is under duty to mitigate damages if reasonably possible (cost of damages should not be permitted to increase if an increase can be prevented by reasonable efforts)
Failure to mitigate damages
Limits the damages recoverable by non-breaching party to what would had been sustained if damages mitigated where possible
Fisher v. Heymann
- 2006: Heymanns contracted to buy a condo from Fisher with an term in the contract that Heymanns could terminate if Fisher refused to fix any “major defect” found on inspection
- inspection report revealed power not flowing to three outlets. Heymanns considered it a major defect and conditioned purchase on a timely response
- Fisher did not response in a reasonable time (though did eventually fix for nominal sum by pushing reset button on outlets)
- Heymanns tenders mutual release to void the agreement but Fisher sued for specific performance or damages
- attempt to mitigate damages by selling condo but refused a 2007 offer for 240,000
- sold in 2011 for 180,000. Wanted damages for difference between this and original contract amount + cost of maintaining condo and attorneys fees
- decision that original issue was not a major complaint and that Heymanns were in breach of contract. BUT that Fisher had not made full efforts to mitigate damages because she refused 2007 offer to purchase condo. So only awarded damages of difference between original contract and 2007 offer and reasonable attorneys fees to 2007
Material breach of contract
When a breach is so substantial that it defeats the object of the parties in making the contract
Recission
When one party commits a material breach of contract the other party may rescind the contract. If party in default objects the aggrieved party may bring action for recission.
Injured party may recover reasonable value of any performance rendered (restitutionary/quasi-contractual damages) or any money paid
Recission on mutual mistake of fact also possible (damages more limited). Injured party must also return what they have received from party in default
ZAN LLC v. Ripley Cove
- ZAN entered into contract to purchase land including a slip for a boat with specific width requirements
- just before closing ZAN discovered that slip being sold was actually two slips
- Ripley Cove agents assured ZAN that the sellers owned the second slip and clearance would not be a problem.
- later they discovered that Ripley Cove did NOT own second slip and the boat in question could not fit into the slip sold
- original judgement for ZAN (breach of contract damages) but not recission. ZAN appealed. Appeal decision for ZAN. Recission allowed.
- it was a material breach since the main purpose of the contract was to get a slip for the boat
Pedro Morena v. Jason Alexander
- Morena purchases real estate from Alexander having been assured the property did not have a flooding problem
- property flooded regularly
- Morena entirely to return of purchase price and reasonable value of improvements made to property
- Alexander entitled to setoff for reasonable rental value of property during time Morena was in posession
Action for specific performance
Compels the other party to carry out the terms of a contract. Only under special circumstances if the subject matter of the contract is “unique” and therefore monetary damages inadequate
- Contracts for purchase of land
- specific performance of contracts to sell personal property only enforced when article is of unusual age, beauty, unique history, or other distinction (Revolutionary War musket)
If damages can be measured in monetary terms specific performance will be refused
Performances of personal services not specifically ordered because becomes a matter of involuntary servitude
Injunction
Order of a court of equity to refrain from doing (negative injunction) or to do (affirmative or mandatory injunction) a specified act
Breach of contract can result in action for an injunction
Reformation of contract by a court
When the written contract does not correctly state the agreement that was made the parties may seek to have the court reform or correct a written contract to state the agreement actually made.
Burden of proof on the party seeking reformation to show what they agreement actually was. High level of proof requried to change written contract
Unilateral mistake and reformation of contract
When a unilateral mistake is made and it is of such consequence that enforcing the contract according to the terms would be unconscionable the court may reform the contract to correct the mistake.
Limitation of remedies
The contract signed by the parties may limit the remedies of the aggrieved parites
Liquidated damages
Provision stipulating the amount of damages to be paid in the event of default or breach of contract. (May be fixed sum or percent)
Liquidated damages clause
Specification of exact compensation in case of a breach of contract. Binds the defaulting party to pay the damages once breach has been established. Cannot change amount depending on circumstances
To be valid:
- the situation must be one in which it is difficult or impossible to determine the actual damages
And
- the amount specified must not be excessive when compared to the probable damages that might be sustained
Determined on facts existing when clause agreed to
When liquidated damages clauses are invalid
If invalid are void/unenforceable as a penalty. Only erases that clause, injured party may still recover damages for breach as proved in court
- if clause calls for payment that is clearly unreasonably large and unrelated to potential actual damages
“Penalty” provisions (about punishing parties rather than restitution) generally unenforceable
American rule
States that each party is responsible for its own attorneys fees in the absence of an express contractual or statutory provision to the contrary
Even with a valid contractual provision a court has the discretion to allow only a reasonable sum or to disallow recovery of attorney fees all together if recovery seemed inequitable
Exculpatory clause
Provision in a contract stating that one of the parties is not liable for damages in case of breach
Limitation of liability clause: exculpatory clause when a monetary limit to damages is set in the contract
Not favored by courts (encourage lack of care). Strictly construed against the party seeking to escape liability. Will be upheld when language and intent are clearly exculpatory (parties free to bind themselves as they see fit)
Limited liability and negligent conduct
If an exculpatory/ limited liability clause limits liability for damages causes by negligent conduct, liability is neither excluded nor limited if the conduct is found to be GROSSLY negligent, willful, or wanton
Release forms
Release forms signed by participants in athletic and sporting events that the sponsor/proprietor/ operator shall not be liable for injuries sustained by participants due to negligence are generally binding
Hamill v. Cheley Colorado Camps
- Chelsey Hamill’s parents signed a liability/release form before she attended camp
- Chelsey then fell off a horse and broke her arm
- sued camp for gross negligence
- judgement for camp Cheley. Parents had sufficient information to make informed decision before signing the release. No gross negligence shown.
