Remedies

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Chapter 13

• Remedies

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Remedies

• Legal Remedies to compensate the other party
  with money for breach of the contract, with
  compensatory, nominal, consequential, punitive,
  and/or liquidated money damages
• Equitable Remedies Granted only when money
  damages will not be adequate,
• specific performance, injunction

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Compensatory

• Purpose To place the injured party in a
  position as good as the one he would have
  occupied had the other party performed as he was
  supposed to under the contract.
• Compensatory damages are all out-of-pocket
  expenses including loss of value, incidental
  damages, and consequential damages, minus the
  cost avoided by the injured party (savings)
• Loss of value is the difference between the
  value of the promised performance , and the value
  of the actual performance, i.e., Seller is to
  deliver widgets, which are valued at 5000, but
  they are defective when delivered, and worth only
  3000. Buyer may then recover 2000 in damages
  from S

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Compensatory Damages

• Compensatory damages flow from the wrongful
  conduct of the breaching party.
• Damages are intended to place the injured party
  in as good a position as if the breaching party
  had not breached and had performed the contract
  as the plaintiff reasonably expected.
• The usual measure of compensatory damages is the
  amount of money necessary to compensate the
  non-breaching party for the breach.

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Compensatory Example

• Harry owned a warehouse, contracted with Drew
  to construct a road to the warehouse. The
  contract price was 42,324. After Drew completed
  the work, some cracks appeared in the road,
  causing improper drainage. Harry hired another
  contractor to do the repairs, costing Harry an
  additional 5,000. Harry refused to pay. Drew
  sued to recover the contract price. Result?
• Answer Drew wins and can recover 37,324, the
  contract price minus the costs of repairs. A
  contractor who has substantially performed the
  work is entitled to be paid, subject to any
  deduction for reasonable costs of repair for any
  deficiencies proved by the owner.

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Consequential Damages

• Consequential damages are special damages, which
  are foreseeable and result from circumstances
  outside the contract, which the breaching party
  must know will cause a special damage, i.e., lost
  profits
• EX. Toms printing press breaks down and he
  needs a new part. Tom contracts to buy the new
  part which must be delivered no later than Nov 15
  because if delivered any later, he wont have
  time to complete a 100,000 Christmas card order.
  The Seller knows Tom needs the part by the 15th,
  and he told Tom it wouldnt be a problem The part
  is not delivered until Dec and Tom loses the
  order. Tom receives 100,000 in consequential
  damages.

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Nominal Damages

• Nominal damages are awarded by jurors when a
  breach of a contract is proven by the plaintiff,
  but the plaintiff did not really suffer actual
  damages, or cannot prove any actual damages
  (loss). Generally speaking, nominal damages are
  very small and sometimes as little as 1 is
  awarded! In fact, several years ago the brand
  new, aspiring USFL football league sued the NFL
  in an antitrust suit. The jurors awarded the
  USFL 1 in nominal damages.

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Example, Nominal damages

• In order to boost his acting career, John agreed
  with Playgirl that it could publish a picture of
  him posing naked at Lion Country Safari as the
  centerfold of Playgirl magazine, without
  compensation. The magazine was published, with
  John as the centerfold, but no immediate career
  boost resulted. In April 1974, Playgirl wished to
  use the photo in its annual edition entitled Best
  of Playgirl. Playgirl and John entered into a
  contract whereby Johns picture was to occupy 1/4
  of the front cover of the annual edition. Due to
  Playboys editorial mix-up, Johns picture did
  not appear John sued for breach of contract.
• RESULT John received nominal damages of 100
  from Playgirl. The jurors acknowledged that
  Playgirl breached its contract, however they did
  not believe John proved that he suffered a loss,
  or reasonably certain damages. John could not
  prove that even if the picture had appeared,
  Johns acting career would have been boosted.

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Incidental Damages

• Damages which arise directly out of the breach.
• Incidental damages make up part of compensatory
  damages
• Ex Agnes employs Bob for 9 months for 20,000
  to supervise construction of a factory, but fires
  him without cause after 3 weeks. Bob spends 350
  attempting to find comparable employment. He may
  recover the 350, plus any other actual loss he
  suffers for being unemployed. However, dont
  forget, he must not sit around home and collect a
  paycheck for not working. He has a duty to
  mitigate damages and look for another job even
  though he had been fired without cause.

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Punitive Damages

• Awarded to punish the wrongdoer. Usually NOT
  allowed in contract cases, (except maybe if there
  was fraud, or something like a willful and
  malicious action, like an intentional refusal to
  pay valid medical claims of an insured)
• For purposes of the CPA exam, assume that
  punitive damages are NOT awarded for a breach of
  a contract.
• Punitive damages (usually huge amounts) are
  common in tort cases (i.e., awarded to victims
  injured by the Pinto rear-end collisions because
  Pinto knew the entire time that its gas tank was
  in a dangerous place, and didnt want to correct
  it)

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Liquidated Damages

• The parties to a contract agree in advance to the
  damages to be paid in the event there is a
  breach, instead of suing for actual damages for a
  breach of a contract.
• Liquidated damages should reasonably forecast the
  probable loss due to a breach.
• Very common in construction contracts, i.e., Sue
  is the owner of a restaurant which is being
  built. The contractor and Sue agree in advance
  that Sue will receive 2000 a day in liquidated
  damages for every day the construction goes
  beyond the deadline.
• Ex. An academic building is not completed on the
  date as originally scheduled The builders are
  currently in the penalty phase for FGCUs new
  Academic Building, and are paying liquidated
  damages.
• Parties to a contract must choose if they want a
  liquidated damages clause in the contract, or
  keep their right to sue for actual damages in the
  event there is a breach.

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Liquidated Damages Example Text, 2, CH 18

• Answer (a)The contention that the agreement as
  to 1000 a day is a penalty is not a good
  argument. This is a legitimate liquidated
  damages provision. The agreed amount is
  reasonable, considering the cost of the apartment
  building and that damages are not readily
  ascertainable.
• (b) Steven does not have to prove damages. One
  of the purposes of a liquidated damages provision
  is to eliminate the necessity of proving damages.

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Liquidated Damages, 14

• Answer Judgement for insurance company. A
  contract may contain a liquidated damages
  provision, but the sum agreed upon must be a
  reasonable measure of the anticipated harm. The
  amount of the bond was not a reasonable estimate
  of probable monetary harm or damage to the city
  but was rather a penalty. The harm which the
  city contends it would suffer is minimal and
  speculative. Since the agreement to pay 200 a
  day was actually a penalty provision, the court
  will not enforce it.

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Liquidated Damages, 5

• Pam wins.The 10,000 deposited as security for
  performance of all of Pams covenants in the
  lease, to be retained by Louis in case of any
  breach on Ps part, was a provision for a penalty
  rather than one for liquidated damages. For the
  slightest infraction of the lease by Pam, she
  would forfeit 10,000. This amount does not bear
  a rational relationship to such actual damages as
  might accrue in the event of any breach of the
  contract.Louis is limited to recovery of damages
  for breach of contract as if the liquidated
  damages clause were absent.

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Mitigation of Damages

• If a breach of contract occurs, the injured party
  is required to take reasonable steps to mitigate
  (reduce or lessen) damages he may sustain.
• The injured party may not recover damages for
  loss that he could have avoided without undue
  risk or burden.
• The non-breaching party must refrain from piling
  up losses after a breach.
• The non-breaching party must not incur further
  costs, and must make reasonable efforts to limit
  losses by obtaining substitute goods at a
  reasonable price. EX- Sam is to buy widgets for
  1000 from Bob. Bob breaches at the last minute.
  Sam has a duty to look elsewhere and make an
  attempt to purchase them elsewhere. If Sam can
  get them for 1200 from Pat, Sam will recover
  200 from Bob. There are no damages for the
  aggravation that Sam suffered because of Bobs
  breach.

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Mitigation of Damages, 3

• Jane may not recover the purchase price, but is
  entitled to recover such damages as she sustained
  not enhanced by her act in manufacturing the
  second lot of 500 shirts. When Sharon notified
  Jane that she could not use or dispose of the
  other 500 shirts and directed Jane to discontinue
  manufacturing them under the contract, Jane
  should have sought to minimize the damages.

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Mitigation of Damages, 16

• Judgment for Ballard. The general rule is that
  an employees damages for employers breach of
  contract will be mitigated by the amount she
  would earn if she found similar employment
  immediately after termination. The burden of
  showing the availability of such employment,
  however, is on the breaching party. The
  defendant (breacher) must assert that the
  employee-plaintiff had a duty to mitigate,and
  prove that there was other available employment.
  

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Mitigation, 12

• Judgment in part for Copenhaver. Although
  Berryman is liable for the monetary loss
  sustained by Copenhaver, C must exercise
  reasonable efforts in an attempt to minimize
  damages. C suffered no damages after the 6 month
  period because all his equipment was in use in
  other locations and was generating at least as
  much income. Moreover, C failed to prove that he
  could have expanded to the new locations had
  Berryman not breached the contract. Therefore, C
  may recover only 3525.84 as damages for losses
  sustained during the 6 month period.

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Specific Performance

• An equitable remedy, awarded where monetary
  damages are not an adequate remedy. Awarded when
  the contract is unique,ie, rare painting , land.
• Ex. A court might order a Seller to specifically
  perform a contract for the sale of land if the
  Seller changes his mind tells the Buyer he
  wont sell.
• Ex. X contracts to sell his unique coin
  collection to Y for 5000. Y pays the 5000 but
  X decides he wants to give the collection to his
  son instead, and X offers to return the 5000,
  plus 100 for Ys trouble. Y does not want the
  money back - he wants the coins! Y can
  successfully sue X for specific performance of
  the contract and require X to transfer the coin
  collection for 5000.

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Specific Performance, 6

• A. Decision for Anne. Where shares of stock
  have no market value and are not on the market
  for sale, money damages are not an adequate
  remedy for breach of contract. For the sale of a
  part of these corporate shares , the purchaser
  may obtain specific performance of the contract.
• B. Decision for Mary. Specific performance is
  denied where the remedy at law is adequate.
  Money damages may be awarded here in a lawsuit.
  Shares of U.S. Steel are readily available on the
  market.
• Decision for Anne. A contract for the sale of
  land may be enforced by specific performance.
  Land is always unique, it is not the same as
  another parcel. The lack of commercial value, or
  its underdeveloped condition, are immaterial.

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Injunction

• A formal court order enjoining (commanding) a
  person to refrain from doing a specific act.
• Equitable remedy
• An employer may get an injunction to enjoin a
  former employee from breaching a non-compete
  clause.

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Injunctions/Specific Performance, 4

• A. An injunction against Stuarts performing for
  Elaine would probably be granted if Elaine is a
  competitor of Charlottes and if Stuarts
  services are unique or extraordinary.
• Specific Performance should not be granted
  because a promise to render personal services
  will not be specifically enforced. This would
  allow for involuntary servitude (slavery)

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Rescission

• Rescission cancels a contract and returns the
  parties to a position they would have occupied if
  the contract had not been made.
• Rescission may be brought about by mutual consent
  of the parties, conduct of the parties, or the
  court will un-do the contract.
• Rescission is appropriate if
• a mutual mistake in contract formation
• A material breach, unjustified failure to perform
• A minor rescinds contract (disaffirms)
• A unilateral mistake due to fraud, duress or
  undue influence
• The other party knew or should have known of the
  mistake. The mistake was so obvious that a
  reasonable person must suspect that a mistake was
  made.

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Reformation

• When parties to a contract have an imperfect
  written understanding, reformation allows the
  contract to be rewritten to reflect the parties
  true intention.

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Restitution

• Restitution is the act of returning the
  consideration, value, to the aggrieved (innocent)
  party.
• The purpose of restitution is to restore the
  aggrieved party to the position he occupied
  before the contract was made.
• Minors might have to make restitution if they
  return damaged goods.

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Election of Remedies

• Parties may seek as many remedies as they like,
  and may choose whatever they desire.