Business Law

1
Business Law

• Chapter 11
• Contract Remedies

2
Introduction to Remedies for Breach of Contract

• The right to enter into a contract carries with
  it an inherent right to sue for breach of that
  contract.

3
The Consequences of a Breach

• When one party to a contract breaches it, that
  breach relieves the other party of the duty to
  perform.
• Often the safest route for the nonbreaching party
  to take is to file suit against the other party
  and show how that party failed to perform as
  promised.

4

• When a breach of contract occurs, there are two
  immediate options the nonbreaching party can
  consider the contract rescinded and sue for
  damages or ignore the breach and continue to deal
  with the breaching party.

5
The Contract Provides a Framework for Remedies

• Contracts may provide language specifically
  authorizing certain types of actions for breach,
  or they may have language that limits the
  parties options.

6
Mutual Remedies

• There is no requirement that the parties enjoy
  identical remedies under a contract.

7
The Necessity of Damages

• The law is clear that any breach of a contract,
  no matter how slight, is actionable.
• A minor breach, under most circumstances, would
  not justify the costs of bringing suit.

8
Equitable remedies when money will not satisfy

• A court can exercise its equity power to order an
  injunction, specific performance or other action
  that is normally not part of a courts authority
  under its legal power.

9
A History of Equity Jurisdiction

• Under the English system which forms the basis of
  the American judicial system, law courts and
  equity courts were separate.
• In the United States, the separate powers of law
  and equity were combined into a single court
  system.

10
Jurisdiction

• Jurisdiction The persons about whom and the
  subject matters about which a court has the right
  and power to make decisions that are legally
  binding.

11
Clean Hands

• This ancient doctrine of equity law requires that
  before a plaintiff can ask a court for an order
  sanctioning the other party, the plaintiff must
  show that he did not do anything wrong.

12
The U.S. System Legal and Equitable Jurisdiction
Together

• In the United States, a plaintiff is entitled to
  request that the court use both forms of
  jurisdiction in a single case.

13
Injunction

• When a party seeks an injunction, the party files
  an action with the court stating that the
  defendant's actions will result in serious and
  irreparable damage to the plaintiff.

14

• The plaintiff asks the court to order an
  injunction, which uses the court's power to stop
  the defendant carrying out a specific action.

15
Specific performance

• Specific performance is a court order that
  requires a party to do that which he has already
  agreed to do in the contract.

16
Reformation

• When a party requests reformation, what the party
  is actually requesting is that the contract
  itself be changed to reflect the true intention
  of the parties.

17
Rescission

• Rescission is an action that cancels or voids the
  contract and places the parties back in the
  positions they were in prior to the creation of
  the contract.

18
Legal doctrines

• Courts use principles to guide them in their
  decisions in particular cases.
• Two such principles are quantum meruit and
  quantum valebant.

19
Quantum Meruit

• Quantum meruit is a Latin term that translates
  as much as merited.
• It is a legal doctrine that creates a presumption
  that a person who performs a service for another
  deserves to be paid.

20
Quantum valebant

• This term means, as much as it is worth.
• It arises in situations where goods are sold and
  the parties have not specified the sale price of
  the goods.

21
Monetary Damages

• Damages refer to the monetary, property, or
  personal losses suffered by the plaintiff.

22
Compensatory Damages

• Compensatory damages are designed to restore the
  plaintiff to his or her original condition, or to
  reimburse the plaintiff for her expenses.

23
Assessing monetary damages

• The court creates an award for the nonbreaching
  party that is the financial equivalent of what
  the party would have received if the contract had
  been fulfilled as promised.

24
General Rules Used by Courts to Assess Damages

• Judges are permitted to use some or all of these
  rules in any order that they see fit.

25
Rule Number One Damages Must Be Foreseeable

• When assessing an award, the damages must be both
  reasonable and foreseeable as a direct
  consequence of breach of contract.

26
Rule Number Two Damages Follow a Breach

• The parties understand that an award of damages
  is possible, should they breach the contract.

27
Rule Number Three Damages Are Specific

• Usually, a court will require a reasonable
  degree of certainty in the final award of
  damages.

28
Rule Number Four Mitigation

• A plaintiff is obligated to mitigate or lessen
  his damages whenever possible.
• In a contract case, this principle demands that
  when a contract is breached, the plaintiff must
  seek some alternative method of disposing of the
  property.

29
Damages Should Not Exceed the Total of the
Contract.

• The final rule in assessing damages is that the
  ultimate award should not exceed the amount that
  the nonbreaching party would have received if the
  contract had been fully performed.

30
Punitive Damages

• Punitive damages are rare in contract cases.
• An award of punitive damages is the jurys way of
  punishing the defendant for some action.

31
Nominal Damages

• Nominal damages refer to an award of a small or
  token amount to a plaintiff.

32
Consequential Damages

• Consequential damages are different from
  compensatory damages in that the final award
  amount contains not only the amount that would
  have been obtained under the contract, but also
  losses tied to a particular contract breach.

33
Liquidated Damages

• A liquidated damages clause is one in which the
  parties set out in advance what constitutes a
  breach and how the damages for this breach will
  be assessed.

34
Limiting Damages Through Agreement

• These arrangements are not looked on as favorably
  by the courts as are liquidated damages clauses.
• Courts are reluctant to impose a contract clause
  that eliminates a partys right to seek redress
  through the court system.

35
Liquidated Damages under the UCC

• Under the UCC, any agreement between the parties
  that acts as a liquidated damages provision will
  be enforced if

36

• 1. The stipulated amount is reasonable in
  relation to the actual damages incurred.
• 2. Proving damages without the clause is
  difficult.
• 3. The plaintiff would have no other remedy
  without such a provision.

37
Rights Under Bankruptcy

• Does a contract still apply when one party has
  filed bankruptcy?
• No.

38
What is Bankruptcy?

• Bankruptcy is a process that allows a person who
  is overwhelmed with debt to enter into a
  court-administered plan to either repay a portion
  of that debt or to cancel the entire amount.

39
Effect of Bankruptcy

• Bankruptcy relieves the debtor/party from all
  obligations made part of the bankruptcy petition.