Contracts - Breaches and Damages

Contingency: failure of a condition

• If a duty is conditional, duty to perform does not become absolute until the condition is satisfied

• A contract that dictates A must sell their house (to get more money) before buying B’s house. if A does not sell their property, B does not sell theirs

• Contingency is a major deterrent in contracts because it does not guarantee a executed contract. If a condition is not fulfilled, the contract will not be either

Frustration of Purpose: Purpose of contract is undermined due to another event so the performance of the contract is radically different from the original contemplated performance

• A sells animals on their lease until the sale of exotic animals is outlawed in their county. Therefore, the original purpose can no longer be fulfilled and the contract is voided

• Defense to enforcement

Impossibility of Performance: Unforeseen events prevent exchange of consideration

• A’s horse that was being sold to B has a heart attack

• Defense for non-performance of duty/consideration

Novation: Replacement of party with another party with consent from all involved

• A doesn’t want to manufacture widgets any longer for B three years into their five year contract. A, B, and third party C agree to swap out A for C. C will continue the contract in place of A, manufacturing widgets and receiving pay

Hadley v Baxendale: time is of the essence precedent

• undue delay

• advanced notice of circumstance necessary

• information-enforcing rule

• must include potential liquidated damages — does not necessarily have to say “time is of the essence”

Breach: failure without legal excuse of a contract

• Material breach: major breaches to contract, failure to perform, etc

• Minor breach

Steps to determine whether a breach exists:

1. Did the contract exist? What was the consideration?

2. Was the contract modified?

3. Did a breach occur?

4. Was the breach material?

5. Is there any legal defense == fraud, defense, unconscionability?

6. Were the damages foreseeable?

Breaches of Warranty

• Implied Warranty of Merchantability: product needs to be reasonability fit for ordinary purposes which it is intended to be used for (lipstick shouldn’t burn)

• Implied Warranty of Fitness for a Particular Purpose: a product, if advertised for an unintended use by a merchant or expert, must fulfill that unintended use (a merchant cannot advertise a flimsy rod for deep sea fishing)

• Implied Warranty of Habitability: landlords have the duty to maintain rental units and keep it fit for residential occupancy

• Implied Warranty of Marketability: vehicles or homes must have clear titles, or have an identification number pulling up reports of the property

Lien: creditor has priority over unperfected secured party

• Borrower fails to meet obligations of a loan/contract

• Creditor has legal right to seize and sell collateral property/asset part of contract

• Mechanic lien → statutory, real property

  • borrower can foreclose and sell unpaid property with court permission

• Artisan lien → common law for moveable items (cars, etc)

• Secured loans: are backed by collateral

• Collateral: property taken if payments are not made, serve as a guarantee of payment on a loan

Damages

Hawkins v McGee: damages = expected value - actual value

• Pain and suffering damages are not applicable in contract law

• Also known as the “Hairy Hands” case

• Should have been filed under medical malpractice instead of breach of contracts

Remedies

• Damages (compensatory, consequential, punitive, nominal, liquidated)

  • Compensatory: to cover direct losses and costs (refund or loss as direct result of breach after mitigation) - to make the person whole - incidental damages

  • Consequential: to cover indirect foreseeable loses (lost sales from Hadley) in TOE cases even a minor breach can give rise to damages

  • Punitive: punish and deter wrongdoing - not usually awarded in contract disputes

  • Nominal: to recognize wrongdoing when no monetary loss exists

• Rescission & Restitution

  • Rescission: the revocation, cancellation, or repeal of a law, order, or agreement.

  • Restitution: recompense for injury or loss.

• Specific Performance: court ordered actions

• Reformation: a court's equitable power to modify a contract to reflect the parties' true intent where some error has been committed

Construction:

Attorney’s Fees Clause: not usually recoverable except if written in contract or breach of contract involves claim of abuse of legal system (unfounded claim, frivolous, no legal merit of defense)

Equitable Remedies:

• What is “fair” — flexible

• Injunction: prohibits party from act

• Restitution: $ provided to injured party (contract found unenforceable but innocent party already gave consideration)

• Mutual rescission