Contract Law Damages Quiz

Breach of Contract and Remedies

• A remedy is the relief provided to an innocent party when another party breaches a contract.
• Remedies are available at law or in equity.

Introduction (1)

• Remedy is the relief provided to the innocent party when the other party breaches the contract.
• Remedies are classified as legal (at law) or equitable.

Introduction (2)

• Most common remedies at law are damages.
• Common remedies in equity include rescission and restitution, specific performance, reformation, and recovery based on quasi-contract.

19-1: Damages (1)

• Damages aim to compensate the injured party for harm suffered due to the breach.
• The goal is to put the innocent party in the position they would have been in if the contract had been fulfilled.

Damages (2)

• Legal proceedings for collecting damages are typically time-consuming and expensive.
• Many cases are settled through alternative dispute resolution (ADR) methods like arbitration, negotiation, or mediation.

Types of Damages (3)

• Compensatory damages cover direct losses and expenses.
• Consequential damages cover indirect losses that were foreseeable.
• Punitive damages are meant to punish and deter wrongdoing.
• Nominal damages acknowledge wrongdoing without monetary loss.

Compensatory Damages (1)

• Compensatory damages aim to compensate the non-breaching party for the loss of the bargain.
• The injured party is compensated only for proven damages.
• The measure of damages is the difference between the value of promised performance and the value of actual performance.
• Example 19.1 is referenced.

Compensatory Damages (2)

• A case example (Baird v. Owens Community College, 2016) is provided regarding the loss of accreditation impacting student earning capacity.
• Damages for lost earning capacity are measured by the difference in earnings before and after the injury.

Compensatory Damages (3)

• An illustrative example is given where a party (P) contracted to provide services for $4,000. However, the other party (D) cancelled the contract. P found another job for $3,000.
• P recovered $1,000 in compensatory damages plus incidental expenses.
• See Example 19.3.

Compensatory Damages (4)

• In sales of goods, if a seller breaches, the buyer's damages are measured by the difference between the contract and market price, plus any incidental damages.
• Example 19.4 is referenced.
• If a buyer breaches a contract where the seller hasn't produced the goods, the seller's damages are usually the lost profits.

Compensatory Damages (5)

• For sales of land, specific performance is typically used as a remedy due to the uniqueness of each parcel.
• If specific performance is not granted, damages are the difference between contract and market price.
• A minority rule is noted where buyer damages are limited to down payment and costs incurred by the buyer if seller breaches without intent.

Compensatory Damages (6)

• Regarding construction contracts where the owner breaches:
  • Before construction: Contractor can recover profits.
  • During construction: Contractor can recover profit plus incurred costs.
  • After construction: Contractor can recover complete contract price plus interest.

Compensatory Damages (7)

• Regarding construction contracts where the contractor breaches:
  • The cost of completion, including compensation for delays is the measure of damages.
  • Late completion results in loss of use damages.
  • Case example 19.5 is cited.

Compensatory Damages (8)

• Construction contracts and economic waste: costs associated with repairs greatly outweigh the benefit, courts will not award full cost of repair.
• Classic case example (Jacob & Youngs v. Kent, 1921) is referenced, dealing with the difference in value as completed compared to as specified in the contract.

Measurement of Damages

• A table provides measurement of damages based on the party in breach and the time of breach in construction contracts.

Consequential (Special) Damages (1)

• Foreseeable losses caused by circumstances beyond the immediate terms of the contract.
• The breaching party must be aware or should know that a breach will lead to additional losses.

Consequential (Special) Damages (2)

• An example scenario illustrates consequential damages where the seller knew the buyer planned immediate resale of goods. The seller's failure to deliver led to lost profits from the planned resale (Example 19.7).
• The buyer can also recover compensatory damages for late delivery, measured by the difference between the contract price and market value as of the delivery date.
• A case example (HDAV Outdoor, LLC v. Red Square Holdings, LLC, 2019) is provided regarding lost profits due to delivery delays of a custom truck.

Punitive Damages

• Punitive damages aim to punish or deter future similar conduct by the wrongdoer.
• Punitive damages are generally not available for mere breach of a contract.
• A tort element (e.g., fraud) is often included.

Nominal Damages

• Awarded when there's no financial loss, but only a technical breach.
• The defendant is liable for the technical injury.
• Example 19.8 is a cited example.

Mitigation of Damages (1)

• The injured party has a duty to mitigate (reduce) damages after a breach of contract.
• The duty depends on the precise terms of the contract.

Mitigation of Damages (2)

• A landlord must use reasonable means to find a new tenant after a tenant defaults.

Liquidated Damages Provisions (1)

• Contract clauses with specific amounts set for damages in the event of a breach.
• This amount must be a reasonable and determined estimation. The term "determined, settled or fixed" is used to describe this.
• Example: Contract requiring $300 per day for late project completion.

Liquidated Damages Provisions (2)

• Penalty clauses establish a specific amount to be paid in the event of default or breach and are designed to punish the breaching party.
• Courts will not enforce penalty clauses unless damages were difficult to estimate at contract formation.
• Courts may limit penalties to actual damages.

Liquidated Damages Provisions (3)

• For a liquidated damages clause to be enforceable, courts consider:
  • Was damage estimation difficult during contract formation?
  • Was the stipulated amount reasonable and not excessive?

Liquidated Damages Provisions (4)

• Case example (Kent State University v. Ford, 2015): Court determined damages were difficult to estimate and the clause was valid compensation, not a penalty.

19-2: Remedies in Equity

• Monetary damages may be insufficient in some cases.
• Types of equitable remedies: Rescission and Restitution, Specific Performance, Reformation, Quasi Contract.

Rescission and Restitution (1)

• Rescission is an action to terminate a contract.
• Restitution acts to cancel the contract and restore both parties to their previous status.
• Mutual rescission is discussed.

Rescission and Restitution (2)

• Restitution involves restoring money or property exchanged. Example 19.10.
• Unilateral rescission is possible under circumstances such as fraud, undue influence, mistakes (with exceptions), duress, or incapacity.

Specific Performance (1)

• Equitable remedy that compels a party to perform the contract, avoiding the difficulties of collecting damages.
• It's preferred when actual performance is more valuable than money.

Specific Performance (2)

• Specific performance may be suitable in cases of land sales, given the unique nature of each parcel.
• Monetary damages may be inadequate in these cases.
• Case example 19.11.

Specific Performance (3)

• In cases concerning personal services, Courts typically will not mandate performance to avoid involuntary servitude.
• Example 19.12.

Reformation (1)

• Available when parties imperfectly express agreement in writing.
• Court can reform contract to reflect real intent.

Reformation (2)

• Reformation occurs with elements like fraud or mutual mistakes (e.g., clerical error), especially concerning a mistaken description or reference.

Reformation (3)

• Reformation can apply to correcting errors in oral contracts or covenants-not-to-compete (when time or area are unreasonable).
• Case analysis in Combs v. Elite Title Company, Inc (2022) addresses this.

19-3: Recovery Based on Quasi Contract (1)

• A fictional contract created in situations where no actual contract exists.
• Used to prevent unjust enrichment when a contract is unenforceable.

Recovery Based on Quasi Contract (2)

• A party can recover benefits conferred on another in "quantum meruit," meaning "as much as deserved."

Recovery Based on Quasi Contract (3)

• Party seeking quantum meruit must establish four factors:
  • Benefits conferred on the other party.
  • Expectation of being paid by conferring benefit.
  • Absence of volunteering benefit.
  • Unjust enrichment were the benefit received without payment.

Recovery Based on Quasi Contract (4)

• Example: Parties contract to build oil derricks, but the contract exceeds statutory limitations. Builder can recover under quantum meruit for their work.

19-4: Waiver of Breach (1)

• The nonbreaching party accepts a defective performance.
• Generally, a waiver doesn't extend to subsequent or other breaches.

Waiver of Breach (2)

• The nonbreaching party should notify the breaching party of their intent to require full performance in the future.
• Recovery for damages for the defective performance is still possible.

19-5: Contract Provisions Limiting Remedies (1)

• Exculpatory clauses (often in employment) prevent recovery of damages.
• Limitation-of-liability clauses dictate certain remedies availability.
• These limitations aren't enforceable if due to fraud or intentional misconduct.

Contract Provisions Limiting Remedies (2)

• The UCC (Uniform Commercial Code) allows for sales contract remedies limitations that may be addressed in Chapter 22.

Review: Types of Damages

• Review of compensatory, consequential, punitive, and nominal damages.

Review: Remedies in Equity

• A review of equitable remedies, including rescission, restitution, specific performance, and reformation, and quasi contract.

Test your knowledge on damages awarded in contract breaches, particularly in the sale of goods and construction contracts. This quiz covers what buyers and contractors can recover in different breach scenarios. Perfect for law students and professionals alike!