Class Rreflection 2

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ACC 150
THE LEGAL ENVIRONMENT OF BUSINESS

With Doreen Smith, Esquire

Chapter 19

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BREACH OF CONTRACT

  • Breach
  • Failure to act or perform in the

manner called for by the contract.

  • “Anticipatory Breach”
  • When a party makes it clear that he or she does not intend to fulfill the contract.
  • Example:
  • When your house painter calls you and tells you he will not be able to paint your house even though he has entered into a written contract to do so.

WAIVER OF BREACH

  • The effect of a breach is nullified if the aggrieved (injured) person by word or conduct waives the right to object to the breach.
  • Waiver
  • When the injured party, relinquishes a known right or objection.
  • Example:
  • Your house painter tells you they cannot paint your house. You tell the house painter that it is no problem, you can paint the house yourself.
  • An aggrieved party may accept a defective performance without waiving a claim for breach if the party reserves their right to sue.

REMEDIES

  • What is a remedy?
  • Action or procedure that is followed in order to obtain damages for an injury
  • When there is an anticipatory repudiation the injured party has three choices:

Do nothing and require performance as outlined in the contract;

Regard the contract as breached-bring a lawsuit for damages

Regard the repudiation as an offer to cancel the contract.

MEASURE OF DAMAGES

  • Rule for Breach of Contract Cases
  • Award the injured party the amount of money that would place them in the same position as if the contract had been performed (referred to as Compensatory damages).
  • Plaintiff is awarded the benefit of the bargain.

MONETARY DAMAGES

  • Nominal Damages
  • Amount awarded when injured party has no actual loss but the nominal damages indicate that there has been a breach of contract.

  • Punitive Damages (exemplary damages)
  • Damages awarded to punish the Defendant (damages in excess of actual loss)—Not usually awarded in breach of contract cases.

Chapter 20

MEASURE OF DAMAGES

  • Compensatory (money damages) that may be recovered can be direct or consequential.
  • Direct damages are those caused by the breach.
  • Ex. Failure to perform contract to put a new roof on a home. Direct damages would be the difference in cost of having another roofer put on the new roof minus the cost of the original contract.
  • Consequential damages are extra expenditures made by the injured party to rectify the breach.
  • Ex. Roofing contract above. Consequential damages would be damage to interior of home caused by rain water that came into the house because of delay in getting new roof caused by the original contractors failure to perform.

CONTRACT DAMAGES

  • Not all damages will be awarded in a contract action:
  • Typically two types of damages will not be awarded:
  • Punitive damages (exemplary damages): Damages use to punish the defendant.
  • Normally, damages for mental or emotional pain and suffering are not awarded in a contract action.

MITIGATION OF DAMAGES

  • Definition
  • The obligation in a breach of contract case that the injured party take reasonable steps to reduce their damages.
  • The injured party must prevent additional damages from occurring.
  • Example: Roofing case where roofer does not perform. Homeowner has duty to tarp the roof to prevent rain from coming into the house.

EQUITABLE RELIEF

  • A special category of damages
  • This is where fairness would require damages other than money to be awarded. So, instead of awarding money damages, the court awards equitable relief.
  • Examples:
  • Rescission
  • Specific Performance
  • Injunction
  • Reformation

RESCISSION

  • Rescission
  • When one party is guilty of a material breach, the other party may set aside the contract.
  • Damages with a rescission
  • If the injured party has performed, they can recover the reasonable value of performance.

Chapter 20

SPECIFIC PERFORMANCE

  • When an aggrieved party compels the other party to perform the acts called for by the contract.
  • Specific performance is typically obtainable for a breach of a contract to sell land or real estate on the theory that such property has a unique value.

INJUNCTIVE RELIEF

  • Order of a Court that the Defendant cannot do something.
  • Example
  • A vocalist has a contract that gives a record label an exclusive record deal. The vocalist breaches the contract. The court may order injunctive relief which prevents the vocalist from entering into a contract with another record label.

REFORMATION

  • Written contract that does not clearly state the agreement of the parties.
  • Court will reform or correct the writing to reflect the original intentions of the parties.
  • Assumes parties want to continue to do business.

CONTRACT TERMS

  • Liquidated Damages
  • Provision in contract which specifies how much will be paid if the contract is breached.
  • Court will enforce a liquidated damage clause if:
  • Contract situation makes it difficult or impossible to determine actual damages and
  • The amount specified is not excessive.
  • Attorney fees
  • American rule-attorneys fees paid by each party unless a contract provision or statutory provision to the contrary.
  • Limitation of Liability (Exculpatory) clauses
  • Private agreement to limit one party’s liability
  • Invalid when public interest is involved and there is gross negligence or intentional acts.