Breach of contracts and remedies

I. Damages Vân
- Definition of breach of contracts: The word “contract” always goes with “obligations”
so when any party that fails to fulfill or refuses to fulfill the contractual obligations, it is
the state of breaching of contract. And when one party breaches a contract, the other
party - the nonbreaching party - can choose one or more of several remedies
- Definition of remedy: Remedy is the means employed to enforce a right or to redress
an injury. And the courts distinguish between remedies at law, which normally is
monetary damages and remedies in equity.
- There are 4 common remedies available to a non-breaching party
+ Damages
+ Rescission and Restitution
+ Specific performance
+ Reformation

A. Types of damages
- There are 4 standard types of damages:
+ Compensatory Damages (cover direct losses/costs)
+ Consequential Damages (cover indirect and foreseeable losses)
+ Punitive Damages (punish and deter wrongdoing)
+ Nominal Damages (recognize wrongdoing when no monetary loss is shown)

- Compensatory and punitive damages were discussed in the context of tort law
- Consequential and nominal damages were in the context of contract law

Compensatory Damages

- Damages that compensate the nonbreaching party for the loss of the bargain are
known as compensatory damages
- These damages compensate the injured party only for damages actually sustained and
proved to have arisen directly from the loss of the bargain caused by the breach of
contract
 Standard Measure

- Standard Measure: The standard measure of compensatory damages is the difference

between the value of the breaching party’s promised performance under the contract
and the value of the actual performance
+ Incidental Damages: Expenses that are caused directly by a breach of contract
are known as incidental damages.

Sale of Goods

- In a contract for the sale of goods, the usual measure of compensatory damages is an
amount equal to the difference between the contract price and the market
+ In the case the buyer breaches when the seller has not yet produced the goods.
Compensatory damages normally equal lost profits on the sale

Sale of Land

- Ordinarily, since each parcel of land is unique, the remedy for a seller’s breach of a
contract for a sale of real estate is specific performance
+ The specific performance is that the buyer is awarded the parcel of property for
which she or he bargained.
- When the buyer is the party in breach, the measure of damages is typically the
difference between the contract price and the market price of the land

Construction Contracts

- The measure of compensatory damages in a building or construction contract varies

depending on which party breaches and when the breach occurs.

+ Breach by owner: Damages depend on three different stages - before, during, or

after construction was completed.
1. If the owner breaches before performance has begun, the contractor can recover
only the profits that would have been made on the contract.
2. If the owner breaches during performance, the contractor can recover the
profits plus the costs incurred in partially constructing the building.
3. If the owner breaches after the construction has been completed, the contractor
can recover the entire contract price, plus interest.
 + Breach by contractor: When the construction contractor breaches the contract
- either by failing to begin construction or by stopping work partway through
the project - the measure of damages is the cost of completion

+ Breach by both owner and contractor: When the performance of both parties
falls short of what their contract required, the courts attempt to strike a fair
balance in awarding damages.

Consequential Damages

- Foreseeable damages that result from a party’s breach of contract are called
consequential damages, or special damages.
- They differ from compensatory damages in that they are caused by special
circumstances beyond the contract itself
- For the nonbreaching party to recover consequential damages, the breaching party
must have known (or had reason to know) that special circumstances would cause the
nonbreaching party to suffer an additional loss.
 Punitive Damages

- Punitive damages are generally not available for mere breach of contract because they
are designed to punish a wrongdoer and set an example to deter similar conduct in the
future.
- However, punitive damages may be available when an action causes both a breach of
contract and a tort.

Nominal Damages

- When no actual damage or financial loss results from a breach of contract and only a
technical injury is involved, the court may award nominal damages to the innocent
party.
- Awards of nominal damages are often small, such as one dollar, but they do establish
that the defendant acted wrongfully.

B. Mitigation of Damages (Quỳnh)

In most situations, when a breach of contract occurs, the innocent injured party is held
to a duty to mitigate, or reduce, the damages that he or she has suffered. Under this
doctrine of mitigation of damages, the duty owed depends on the nature of the
contract.

Rental Agreements

In some states, landlords are obligated to make reasonable efforts to find a new tenant if
a current tenant abandons the premises and fails to pay rent. If the landlord successfully
finds a suitable tenant, they are required to lease the property to them in order to
minimise the damages caused by the former tenant.

Employment Contracts

A person whose employment was wrongfully terminated owes a duty to take a similar
job if one is available

If the employee fails to do so, the damages awarded = the person’s former salary - the
income he or she would have received in a similar job obtained by reasonable means.
 Liquidated Damages versus Penalties

What are liquidated damages? What are penalties? How to distinguish

between them? (Enforceability)

- Liquidated damages: Specific amount agreed to be paid as damages in the event

of future default or breach.
- Penalties: specifies a certain amount to be paid in the event of a default or
breach of contract.
- Distinguish:
+ Unlike liquidated damages, it is designed to penalise the breaching party, not to
make the innocent party whole.
+ Liquidated damages: enforceable ; penalties: generally unenforceable
- To determine if a particular provision is for liquidated damages or for a penalty, a
court must answer two questions:
+ When the contract was formed, was it apparent that damages would be
difficult to estimate in the event of a breach?
+ Was the amount set as liquidated 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.

+ (Case về Damages/ Liquidated Damages)

Case study: (Liquidated Damages) Liquidated Damages Cohen contracts to sell his

house and lot to Windsor for $100,000. The terms of the contract call for
Windsor to pay 10 percent of the purchase price as a deposit toward the
purchase price, or a down payment. The terms further stipulate that if the buyer
breaches the contract, Cohen will retain the deposit as liquidated damages.
Windsor pays the deposit, but because her expected financing of the $90,000
balance falls through, she breaches the contract. Two weeks later Cohen sells
the house and lot to Ballard for $105,000. Windsor demands her $10,000 back,
but Cohen refuses, claiming that Windsor’s breach and the contract terms
entitle him to keep the deposit. Discuss who is correct.
Solution:
In the case of Windsor v. Cohen a court would uphold the liquidated damage clause in
the contract. According to the terms of the contract, Windsor agreed to surrender her
deposit if she breached the contract. Unless there was another clause that stipulated
reliance upon financing as a remedy for breach that relieved her responsibility to
surrender the deposit, she is liable for the liquidated damages that she agreed to
regardless of what happens subsequent to her breach.

II. Equitable Remedies Tuyền

A. Rescission and Restitution

What? Rescission is essentially an action to undo, or terminate, a contract—to return the

contracting parties to the positions they occupied prior to the transaction

When? When fraud, a mistake, duress, undue influence, misrepresenta- tion, or lack of capacity
to contract is present. Or in some situations, it is due to statute.

How?

Restitution

Generally, to rescind a contract, both par- ties must make restitution to each other by returning
goods, property, or funds previously conveyed.11 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.

Simply put, restitution means you, the plaintiff receive what you should have received but
because the defendant enriched him/her unjustly, you haven't received it

Katie con- tracts with Mikhail to design a house for her. Katie pays Mikhail $9,000 and agrees to
make two more pay- ments of $9,000 (for a total of $27,000) as the design progresses. The next
day, Mikhail calls Katie and tells her that he has taken a position with a large architec- tural firm
in another state and cannot design the house. Katie decides to hire another architect that
afternoon. Katie can obtain restitution of the $9,000. ■
 Restitution Is Not Limited to Rescission Cases

Restitution does not always link with rescission. That means even if you don’t break any
contracts you may still have to make restitution in some cases. For example, when funds or
property have been transferred by mistake or because of fraud or incapacity. Similarly,
restitution may be available when there has been misconduct by a party in a confidential or
other special relationship. Even in criminal cases, a court can order restitution of funds or
property obtained through embezzlement, conversion, theft, or copyright infringement.

B. Specific Performance

The equitable remedy of specific performance calls for the performance of the act promised in
the contract. Normally, however, specific performance will not be granted unless the party’s legal
remedy (monetary dam- ages) is inadequate.

Sale of Land

A court may grant specific performance to a buyer in an action for a breach of contract involving
the sale of land. In this situation, the legal remedy of monetary damages may not compensate the
buyer adequately because after all the same land in the same location obviously cannot be
obtained elsewhere.

■ Case in Point 19.11 Developer Charles Ghidorzi formed Crabtree Ridge, LLC, for the sole pur-
pose of purchasing twenty-three acres of vacant land from Cohan Lipp, LLC. Crabtree signed a
contract agreeing to pay $3.1 million for the land, which would be developed and paid for in three
phases. When an environmental sur- vey showed that the land might contain some wetlands that
could not be developed, Crabtree backed out of the deal. Lipp sued Crabtree for breach of
contract, seeking specific performance. The court held that Lipp was enti- tled to specific
performance of the land-sale contract.14 ■

Contracts for Personal Services

Contracts for personal services require one party to work personally for another party. Courts
generally refuse to grant specific performance of personal-service contracts. One reason is that
to order a party to perform personal services against his or her will amounts to a type of
involuntary servitude. Moreover, the courts do not want to monitor contracts for personal
services, which usually require the exercise of personal judgment or talent. ■ Example 19.12 Nicole
contracts with a surgeon to perform surgery to remove a tumor on her brain. If he refuses, the
court would not compel (nor would Nicole want) the surgeon to perform under those
circumstances. A court cannot ensure mean ingful performance in such a situation.16 ■

C. Reformation (My)

Reformation is an equitable remedy used when the parties have imperfectly expressed
their agreement in writing. Reformation allows a court to rewrite the contract to reflect
the parties’ true intentions.
There are several situations in which reformation may be ordered:

Fraud or Mutual Mistake Is Present

Courts order reformation most often when fraud or mutual mistake is present.

Written Contract Incorrectly States the Parties’ Oral Agreement

A court will reform a contract when two parties enter into a binding oral contract but
make an error when attempting to put the terms into writing.

Covenants Not to Compete

Some courts reform the terms by making them reasonable and then enforcing the entire
contract as reformed. Other courts throw out the entire restrictive covenant as illegal.

+ (Case về Reformation)
Dr. John Holm signed a two-year employment agreement with Gateway Anesthesia
Associates, PLLC. During negotiations for the agreement, Gateway’s president, Dr. Jon
Nottingham, told Holm that on completion of the contract he would become a partner
in the firm and that during the term he would be paid “like a partner.” The written
agreement did not reflect this promise—the contract read that Holm would be paid
based on “net collections” for his services and did not state that he would become a
partner. Later, Gateway told Holm that it did not intend to make him a partner. Holm
filed a complaint in an Arizona state court against Gateway, alleging breach. Before
the trial, Holm filed a motion to reform the contract to express what he had been told.
Nottingham did not dispute Holm’s account.
 a. What is the basis for the reformation of a contract?
The basis for the reformation of a contract is the imperfect expression of the parties'
true intentions in writing. When there is a clear disparity between the written contract
and the actual agreement due to a mutual mistake or misrepresentation, a court can
intervene and rewrite the contract to reflect the parties' true intentions.
b. Is it appropriate in this case? Why or why not?
Yes, reformation is appropriate in the circumstances of this case. The basis for seeking
reformation is the fact that the employer's president, Nottingham, made explicit oral
representations to the potential employee, Holm, stating that he would be paid "like a
partner" during the contract term and would eventually become a partner. However, the
written contract did not reflect these oral representations. As there is no genuine
dispute regarding the mistake in the written expression and the parties' actual
agreement, reformation is appropriate to align the contract with their true intentions.

III. Recovery Based on Quasi Contract ( Tút)

What is a Quasi Contract?

- Quasi contract is a legal theory under which an obligation is imposed in the

absence of an agreement.

- It is a remedy created by courts to obtain justice and prevent unjust enrichment.

- Party conferring benefit can recover in quantum meruit (“as much as she
deserves”)

A. When Quasi Contract Is Used

- When one party has partially performed under a contract that is
unenforceable
- It provides an alternative to suing for damages and allows the party
to recover the reasonable value of the partial performance
● Example of Quasi Contract :The restaurant delivers a pizza
to the wrong address, and the recipient is not the one
paying for it. If the person at that incorrect address does
not admit fault and instead receives the pizza, that person
may be deemed to have accepted the food, and therefore
obligated to pay for it.

A court can then order a contract that roughly requires the

pizza recipient to pay the cost of the food back to the party
who purchased it or to the pizzeria if they subsequently
delivered a second pizza. two for the buyer. The
contractually mandated indemnification is mostly intended
to resolve the issue of fairness.

B. The Requirements of Quasi Contract

- To recover under the theory of quasi contract, the party seeking
recovery must show the following:
1. The party has conferred a benefit on the other party.

2. The party conferred the benefit with the reasonable expectation

of being paid.

3. The party did not act as a volunteer in conferring the benefit.

 4. The party receiving the benefit would be unjustly enriched if
allowed to retain the benefit without paying for it

IV. Waiver of Breach :

- Under certain circumstances, a nonbreaching party may be willing to accept a
defective performance of the contract. This knowing relinquishment of a legal
right (that is, the right to require satisfactory and full performance) is called a
waiver.

A. Consequences of a Waiver of Breach :

- When a waiver occurs, the party waiving a breach cannot take any later action of
it. The waiver of breach of contract extends only to the matter waived and not to
the whole contract

B. Reasons for Waiving a Breach :

- Businesspersons often waive breaches of contract to obtain whatever benefit is
still possible out of the contract.

Example : A seller, Purdue Resources, contracts with a buyer, Bladco Enterprises, to

deliver ten thousand tons of coal on or before November 1. The contract calls for Bladco
to pay by November 10 for coal delivered. Because of a coal miners’ strike, coal is hard to
find. Purdue breaches the contract by not tendering delivery until November 5. Bladco
will likely choose to waive the seller’s breach, accept delivery of the coal, and pay as
contracted

C.Waiver of Breach and Subsequent Breaches :

- Generally, a single waiver will not waive subsequent, additional or future

breaches, especially if not related to initial breach.

● Pattern- of - Conduct Exception :

- Reasonable people standard
 - A pattern of conduct that waives successive breaches can operate as a
continued waiver.
● Effect on the Contract :
- Non-waiving party remains liable for damages, but the contract continues.

V. Contract Provisions Limiting Remedies

Certain rules in a contract can limit the amount of compensation you can receive if
someone violates the agreement. These rules are referred to as provisions.

One form of provision states that if a specific type of breach happens, you will not be
entitled to seek compensation for the resulting damages. Another sort of provision caps
the amount of money you can get as compensation.

In some contracts, the only way to resolve a breach is to replace the item, repair it, or
receive a refund of the purchase price. This means you can't file a lawsuit to get further
pay.

A contract may also allow one party to seek legal action known as "injunctive relief" if
the other side breaches the contract. This means that they can seek the court to
prevent the other party from doing something or to compel them to execute their
obligations.

Exculpatory clauses are those that prevent you from claiming damages, whereas
limitation-of-liability clauses are those that limit your possible remedies.

A. The UCC Allows Sales Contracts to Limit Remedies

 B. Enforceability of Limitation-of-Liability Clauses

A limitation-of-liability clause in a contract is only enforceable if it covers the type of

breach that it covers. In general, a rule that gets rid of responsibility for harm caused on
purpose or by fraud will not be supported. In the same way, a clause that lets someone
off the hook for doing something illegal, goes against public policy, or breaks the law will
not be applied. But a clause that says negligence isn't a reason for liability may be
supported in some cases when both sides have the same ability to negotiate.

For example, SFG Venture, LLC gave a loan of $15 million to help build a hotel in
Wisconsin. Lee Bank & Trust Company bought a 3.36 percent part of that loan. They
signed a contract with SFG that had a clause that limited SFG's duty, except in cases of
extreme negligence or intentional wrongdoing. When the user paid back the loan, SFG
gave Lee Bank 3.36 percent of each payment. Unfortunately, the borrower stopped
making payments in the end, which led to court action. Lee Bank sued SFG, saying that
SFG should be held responsible even though there was a clause that said responsibility
was limited. At first, the lower court said that the clause couldn't be enforced, but a
state appeals court overturned that ruling. The court of appeals said that the phrase was
legal. It was written down in the contract, and it was a fair way to divide up the risks in a
business deal between two separate people.

+ (Case Breach and Remedies)

Kyle Bruno enters into a contract with X Entertainment to be a stuntman in a movie.

Bruno is widely known as the best motorcycle stuntman in the business, and the movie,
Xtreme Riders, has numerous scenes involving high-speed freestyle street-bike stunts.
Filming is set to begin August 1 and end by December 1 so that the film can be released
the following summer. Both parties to the contract have stipulated that the filming must
end on time in order to capture the profits from the summer movie market.The contract
states that Bruno will be paid 10 percent of the net proceeds from the movie for his
stunts. The contract also includes a liquidated damages provision, which specifies that if
Bruno breaches the contract, he will owe X Entertainment $1 million. In addition, the
contract includes a limitation-of-liability clause stating that if Bruno is injured during
filming, X Entertainment’s liability is limited to nominal damages.

Using the information presented in the chapter, answer the following questions.

1. Suppose that while performing a high-speed wheelie on a motorcycle, Bruno is

injured by an intentionally reckless act of an X Entertainment employee. Will a
court be likely to enforce the limitation-of-liability clause? Why or why not?

Solution

In light of the status of Bruno in the stunt industry, the clause may be enforced. When
an exculpatory clause for negligence is contained in a contract made between parties
who have roughly equal bargaining positions, the clause usually will be enforced.
Besides, his presumed experience and knowledge indicate that he likely carries his own
insurance.

2. What factors would a court consider to determine if the $1 million liquidated

damages clause is valid or is it a penalty?

Solution

To determine whether a provision is for liquidated damages or for a penalty, a court asks
(1) at the time the contract was formed, was it apparent that damages would be difficult
to estimate in the event of a breach, and (2) was the amount set as damages a
reasonable estimate of the potential damages and not excessive? If the answers to both
questions are yes, the provision normally will be enforced. If either answer is no, the
provision will normally not be enforced.