FINAL: CH 17 - DAMAGES; CH 18 - CONTRACT REMEDIES

Most common remedies available for breach of contract

1. monetary damages

2. the equitable remedies of specific performance and injunction

3. restitution

Contract remedies are available to protect one or more of the following interests of the injured parties

1. expectation interest

2. reliance interest

3. restitution interest

Compensatory Damages (expectation interest)

place the injured party in a position as good as the one he would have been in had the other party performed under the contract

Loss of Value (compensatory)

the value of the promised performance minus value of actual performance; goal is to compensate the non-breaching party the DIFFERENCE

Cost Avoided (compensatory)

loss or costs the injured party avoid by not having to perform

Incidental Damages (COSTS) (compensatory)

damages that arise directly out of the breach, such as costs incurred to find someone else/seek alternative

Consequential Damages (LOSS) (compensatory)

damages not arising directly out of a breach but arising as a future result of the breach. Consequential damages include lost profits and injury to person or property

Reliance Damages (interest)

place the injured party in a position they would’ve been in had the contract not been made

Nominal Damages

a small sum fixed without regard to the amount of loss

• a legal right has been violated, but without proof of actual, measurable harm or financial loss

Punitive Damages

monetary damages in addition to compensatory damages awarded to a plaintiff in certain situations involving malicious conduct

• are intended to punish a defendant for wrongful conduct and to deter similar behavior in the future

Liquidated Damages

pre-determined amount of money specified in a contract to be paid as compensation if a party fails to meet their obligations

Foreseeability of Damages (limitations on damages)

the plaintiff can recover only the losses that the defendant, at the time the parties made the contract, would reasonably have known would result from the breach

Certainty of Damages (limitations on damages)

requires that the injured party prove their losses with reasonable certainty, meaning the amount cannot be based on speculation or conjecture

Mitigation of Damages (limitations on damages)

the injured party may not recover damages for loss that he could have avoided with reasonable effort

Remedies in Equity: Specific Performance

court decree requiring the breaching party to render promised performance

Remedies in Equity: Injunction

court order prohibiting a party from doing a specific act

Remedies in Equity: Reformation

a process whereby the court “rewrites” or “corrects” a written contract to make it conform to the true agreement of the parties

Restitution Definition

restoration of the injured party to the position she was in before the contract was made

Restitution (help/restoration) is available in several contractual situations:

for a party…

1. injured by breach

2. in default

3. who may not enforce a contract because of the statute of frauds

4. wishing to avoid a voidable contract

Election of Remedies

if remedies are not inconsistent, a party injured by a breach of contract may seek more than one remedy (but must pick one route)

Loss of Power of Avoidance

a party with the power to avoid a contract may lose that power by:

1. Affirming the contract

2. Delaying unreasonably in exercising the power of avoidance

3. Being subordinated to the intervening rights of third parties

There are four kinds of discharge

1. performance by the parties

2. material breach by one or more of the parties

3. agreement of the parties

4. operation of law

Express condition

explicitly set forth in language; no particular form of words is necessary

Implied-in-Fact Conditions

Not stated in express language; they are necessarily inferred from the terms of the contract, the nature of the transaction, or the conduct of the parties

Implied-in-Law Conditions

terms established by legal authority rather than by the agreement of the parties involved

• (1) it’s not contained in the language of the contract (2) only needs to be substantially performed

Satisfaction of a Contracting Party

Parties to a contract may agree that performance by one of them shall be to the satisfaction of the other, who will not be obligated to perform unless he is satisfied.

Subjective satisfaction standard

Where satisfaction relates to a matter of personal taste, opinion, or judgment

(the court will evaluate if the rejection was made honestly and in good faith)

Objective satisfaction standard

quantifiable and factual measure of a party's performance

Satisfaction of a Third Party

A clause stating that one party must fulfill certain duties or requirements owed to an outside entity (a third party) as a condition before they can complete their performance under the contract

Concurrent Conditions

conditions that are to take place at the same time

Condition Precedent

an event that must/must not occur before a contractual performance is due

Condition Subsequent

an event that terminates an existing duty (occurs after formed contract) [if]

Discharge by performance

termination of a contract when parties fully or substantially fulfill their obligations

Tender

an offer by one party—who is ready, willing, and able to perform—to the other party to perform his obligation according to the terms of the contract

Discharge by Breach

termination of a contract when a party fails to perform its terms

Material Breach

unjustified failure to perform substantially the obligations promised in a contract

• discharges the aggrieved party from his duty of performance

Prevention of performance (mb)

One party’s substantial interference with, or prevention of, performance by the other

• constitutes a material breach that discharges the other party to the contract

Perfect Tender Rule (mb)

any deviation from the promised performance constitutes a material breach of the contract and discharges the aggrieved party from his duty of performance

Substantial Performance

holds that a party has fulfilled their obligations if they have completed the essential purpose of the contract, even if there are minor, non-material deviations

Anticipatory Repudiation

an inability or refusal to perform, before performance is due, that is treated as a breach, allowing the nonrepudiating party to bring suit immediately

Unauthorized Material Alteration of Written Contract

a discharge of the entire contract

Discharge by Agreement of the Parties

the parties to a contract may agree to discharge each other from performance under the contract. They may do this by rescission, substituted contract, accord and satisfaction, or novation.

Mutual Rescission

an agreement between the parties to terminate their respective duties under the contract

• a contract to end a contract; must contain all of the essentials of a contract

• If one party has already fully performed, however, a mutual rescission is not binding at common law because of lack of consideration

Substituted Contracts

new contract accepted by both parties

Accord and Satisfaction

a legal agreement to settle a dispute by accepting a different performance than originally agreed upon

Novation

a substituted contract that involves an agreement among three parties to substitute a new promisee for the previous one (discharges the old obligation)

Discharge by Operation of Law

automatically terminates a contract due to legal events, no action is required from the parties involved

Subjective Impossibility

promisor unable to perform because of financial inability, lack of competence, etc. (but someone else could)

• does not typically excuse the promisor from liability

Objective Impossibility

situations in which no one could render performance (death, destruction of subject matter)

• generally discharges the promisor

Subsequent Illegality

if performance becomes illegal as a result of a change in the law, the duty of performance is discharged

Commercial Impracticability 

unforeseen & unjust hardship will excuse nonperformance

• contract is discharged under the code and the restatement (hurricane, covid)

Availability of Restitution

a person who renders more advanced performance under a contract that is discharged by operation of law is entitled to restitution to prevent unjust enrichment of the other party

Bankruptcy

discharge available to a debtor who obtains an order of discharge by the bankruptcy court