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Breach of Contract and Remedies
Chapter Introduction
18-1 Damages
18-1a Types of Damages
18-1b Mitigation of Damages
18-1c Liquidated Damages Provisions
18-2 Rescission and Restitution
18-2a Restitution
18-2b Restitution Is Not Limited to Rescission Cases
18-3 Specific Performance
18-3a Sale of Land
18-3b Contracts for Personal Services
18-4 Reformation
18-4a When Fraud or Mutual Mistake Is Present
18-4b Oral Contracts and Covenants Not to Compete
18-5 Recovery Based on Quasi Contract
18-5a When Quasi Contracts Are Used
18-5b The Requirements of Quasi Contract
18-6 Election of Remedies
18-6a The Purpose of the Doctrine
18-6b The UCC's Rejection of the Doctrine
18-6c Pleading in the Alternative
18-7 Waiver of Breach
18-7a Consequences of a Waiver of Breach
18-7b Reasons for Waiving a Breach
18-7c Waiver of Breach and Subsequent Breaches
18-8 Contract Provisions Limiting Remedies
18-8a The UCC Allows Sales Contracts to Limit Remedies
18-8b Enforceability of Limitation-of-Liability Clauses
Chapter Recap
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Chapter Introduction
When one party breaches a contract, the other partythe nonbreaching partycan choose one or more of several remedies. A remedy is the
relief provided for an innocent party when the other party has breached the contract. It is the means employed to enforce a right or to
redress an injury.
The most common remedies available to a nonbreaching party include damages, rescission and restitution, specific performance, and
reformation. As discussed in Chapter 1, a distinction is made between remedies at law and remedies in equity. Today, the remedy at law is
normally monetary damages, which are discussed in the first part of this chapter. Equitable remedies include rescission and restitution,
specific performance, and reformation, all of which will be examined later in the chapter. Usually, a court will not award an equitable remedy
unless the remedy at law is inadequate. Special legal doctrines and concepts relating to remedies will be discussed in the final sections of this
chapter.
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Damages
Ask the Instructor Video: Breach & Remedies: Are attorneys fees recoverable as either compensatory or
consequential damages in a breach of contract case?
A breach of contract entitles the nonbreaching party to sue for monetary damages. As discussed in Chapter 6, damages are designed to
compensate a party for harm suffered as a result of another's wrongful act. In the context of contract law, damages compensate the
nonbreaching party for the loss of the bargain. Often, courts say that innocent parties are to be placed in the position they would have
occupied had the contract been fully performed.
Realize at the outset, though, that collecting damages through a court judgment requires litigation, which can be expensive and time
consuming. Also keep in mind that court judgments are often difficult to enforce, particularly if the breaching party does not have sufficient
assets to pay the damages awarded (as discussed in Chapter 3). For these reasons, the majority of actions for damages (or other remedies)
are settled by the parties before trial.
18-1a
Types of Damages
There are basically four broad categories of damages:
1.
Compensatory (to cover direct losses and costs).
2.
Consequential (to cover indirect and foreseeable losses).
3.
Punitive (to punish and deter wrongdoing).
4.
Nominal (to recognize wrongdoing when no monetary loss is shown).
Compensatory and punitive damages were discussed in Chapter 6 in the context of tort law. Here, we look at these types of damages, as well
as consequential and nominal damages, in the context of contract law.
Compensatory Damages
Damages compensating 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. They simply replace what was lost because of the wrong or damage and, for this reason, are often said to "make the
person whole."
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 her or his actual performance. This amount is reduced by any loss that the injured party has avoided, however.
To illustrate: Wilcox contracts to perform certain services exclusively for Hernandez during the month of March for $4,000. Hernandez
cancels the contract and is in breach. Wilcox is able to find another job during the month of March but can earn only $3,000. He can sue
Hernandez for breach and recover $1,000 as compensatory damages. Wilcox can also recover from Hernandez the amount that he spent to
find the other job. Expenses that are caused directly by a breach of contractsuch as those incurred to obtain performance from another
sourceare known as incidental damages.
The measurement of compensatory damages varies by type of contract. Certain types of contracts deserve special mention. They are
contracts for the sale of goods, land contracts, and construction contracts.
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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 price. For example, suppose that Chrylon Corporation contracts to buy ten model UTS network servers from an XEXO
Corporation dealer for $8,000 each. The dealer, however, fails to deliver the ten servers to Chrylon. The market price of the servers at the
time the buyer learns of the breach is $8,150. Therefore, Chrylon's measure of damages is $1,500 (10 $150) plus any incidental damages
(expenses) caused by the breach. In a situation in which the buyer breaches and the seller has not yet produced the goods, compensatory
damages normally equal lost profits on the sale, not the difference between the contract price and the market price.
Sale of Land
Ordinarily, because 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
that is, the buyer is awarded the parcel of property for which she or he bargained (specific performance is discussed more fully later in this
chapter). When this remedy is unavailable (for example, when the seller has sold the property to someone else), or when the buyer has
breached, the measure of damages is ordinarily the same as in contracts for the sale of goodsthat is, the difference between the contract
price and the market price of the land. The majority of states follow this rule.
A minority of states follow a different rule when the seller breaches the contract and the breach is not deliberate. When the breach was not
willful, these states limit the prospective buyer's damages to a refund of any down payment made plus any expenses incurred (such as fees
for title searches, attorneys, and escrows). This rule effectively returns purchasers to the positions they occupied prior to the sale, rather than
giving them the benefit of the bargain.
Construction Contracts
The measure of damages in a building or construction contract varies depending on which party breaches and when the breach occurs. The
owner can breach at three different stages of the construction:
1.
Before performance has begun.
2.
During performance.
3.
After performance has been completed.
If the owner breaches before performance has begun, the contractor can recover only the profits that would have been made on the contract
(that is, the total contract price less the cost of materials and labor). If the owner breaches during performance, the contractor can recover
the profits plus the costs incurred in partially constructing the building. If the owner breaches after the construction has been completed, the
contractor can recover the entire contract price, plus interest.
When the construction contractor breaches the contract either by failing to undertake construction or by stopping work partway through the
project, the measure of damages is the cost of completion, which includes reasonable compensation for any delay in performance. If the
contractor finishes late, the measure of damages is the loss of use. These rules concerning the measurement of damages in breached
construction contracts are summarized in Exhibit 181.
Exhibit 181. Measurement of DamagesBreach of Construction Contracts
Construction Contracts and Economic Waste
If the contractor substantially performs, a court may use the cost-of-completion formula, but only if requiring completion will not entail
unreasonable economic waste. Economic waste occurs when the cost of repairing or completing the performance as required by the contract
greatly outweighs the benefit to the owner. For example, suppose that a contractor discovers that it will cost $20,000 to move a large coral
rock eleven inches as specified in the contract. Because changing the rock's position will alter the appearance of the project only a trifle, a
court would likely conclude that full completion would involve economic waste. Thus, the contractor will not be required to pay the full
$20,000 to complete performance.
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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. They flow from the consequences,
or results, of a breach.
For example, when a seller fails to deliver goods, knowing that the buyer is planning to use or resell those goods immediately, consequential
damages are awarded for the loss of profits from the planned resale. (The buyer will also recover compensatory damages for the difference
between the contract price and the market price of the goods.)
To recover consequential damages, the breaching party must know (or have reason to know) that special circumstances will cause the
nonbreaching party to suffer an additional loss. This rule was enunciated in the classic case of Hadley v. Baxendale, which is presented next.
In reading this decision, it is helpful to understand that in the mid-1800s in England large flour mills customarily kept more than one
crankshaft on hand in the event that the main crankshaft broke and had to be repaired. Also, in those days it was common knowledge that
flour mills did indeed have spare crankshafts. It is against this background that the parties in the case presented here argued their respective
positions on whether the damages resulting from the loss of profits while the crankshaft was repaired were reasonably foreseeable.
Case 18.1: Hadley v. Baxendale
Court of Exchequer, 1854. 156 Eng.Rep. 145.
Background and Facts. The Hadleys (the plaintiffs) ran a flour mill in Gloucester. The crankshaft attached to the steam engine
in the mill broke, causing the mill to shut down. The shaft had to be sent to a foundry located in Greenwich so that the new shaft
could be made to fit the other parts of the engine. Baxendale, the defendant, was a common carrier that transported the shaft from
Gloucester to Greenwich. The freight charges were collected in advance, and Baxendale promised to deliver the shaft the following
day. It was not delivered for a number of days, however. As a consequence, the mill was closed for several days. The Hadleys sued to
recover the profits lost during that time. Baxendale contended that the loss of profits was "too remote" to be recoverable. The court
held for the plaintiffs, and the jury was allowed to take into consideration the lost profits. The defendant appealed.
IN THE LANGUAGE OF THE COURT
ALDERSON, B.
****
* * * Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect
of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual
course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both
parties, at the time they made the contract, as the probable result of the breach of it. Now, if the special circumstances under which the
contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting
from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily
follow from a breach of contract under these special circumstances so known and communicated. * * * Now, in the present case, if we are to
apply the principles above laid down, we find that the only circumstances here communicated by the plaintiffs to the defendants at the time
the contract was made, were, that the article to be carried was the broken shaft of a mill, and that the plaintiffs were the millers of that mill.
* * * [S]pecial circumstances were here never communicated by the plaintiffs to the defendants. It follows, therefore, that the loss of profits
here cannot reasonably be considered such a consequence of the breach of contract as could have been fairly and reasonably contemplated
by both the parties when they made this contract. [Emphasis added.]
Decision and Remedy. The Court of Exchequer ordered a new trial. According to the court, to collect consequential damages,
the plaintiffs would have to have given express notice of the special circumstances that caused the loss of profits.
Impact of This Case on Today's Law. This case established the rule that when damages are awarded, compensation is given
only for those injuries that the defendant could reasonably have foreseen as a probable result of the usual course of events
following a breach. Today, the rule enunciated by the court in this case still applies. To recover consequential damages, the
plaintiff must show that the defendant had reason to know or foresee that a particular loss or injury would occur.
The E-Commerce Dimension. If a Web merchant loses business due to a computer system's failure that can be attributed to
malfunctioning software, can the merchant recover the lost profits from the software maker? Explain.
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Punitive Damages
Punitive, or exemplary, damages generally are not recoverable in contract law, even for an intentional breach of contract. Because punitive
damages are designed to punish a wrongdoer and set an example to deter similar conduct in the future, they have no legitimate place in
contract law. A contract is simply a civil relationship between the parties, so breaching a contract is not a crime; nor does it necessarily harm
society (as torts do). Thus, a court will not award punitive damages but will compensate one party for the loss of the bargainno more and no
less.
In a few situations, however, when a person's actions constitute both a breach of contract and a tort, punitive damages may be available. For
example, some parties, such as an engineer and her client, may establish by contract a certain reasonable standard or duty of care. Failure to
live up to that standard is a breach of contract, and the act itself may constitute negligence. Similarly, some intentional torts, such as fraud,
may be tied to a breach of the terms of a contract and enable the injured party to seek punitive damages. Additionally, when an insurance
company exhibits bad faith in failing to settle a claim on behalf of the insured party, courts may award punitive damages. Overall, though,
punitive damages are almost never available in contract disputes.
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. Most lawsuits for nominal damages are brought as a matter of principle under the theory that a breach has
occurred and some damages must be imposed regardless of actual loss.
For example, suppose that Jackson contracts to buy potatoes from Stanley at fifty cents a pound. Stanley breaches the contract and does not
deliver the potatoes. In the meantime, the price of potatoes has fallen. Jackson is able to buy them in the open market at half the price he
contracted for with Stanley. He is clearly better off because of Stanley's breach. Thus, because Jackson sustained only a technical injury and
suffered no monetary loss, he is likely to be awarded only nominal damages if he brings a suit for breach of contract.
18-1b
Mitigation of Damages
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 suffers. Under this doctrine of mitigation of damages, the duty owed depends on the nature of the contract.
For example, some states require a landlord to use reasonable means to find a new tenant if a tenant abandons the premises and fails to pay
rent. If an acceptable tenant becomes available, the landlord is required to lease the premises to this tenant to mitigate the damages
recoverable from the former tenant. The former tenant is still liable for the difference between the amount of the rent under the original
lease and the rent received from the new tenant. If the landlord has not taken the reasonable steps necessary to find a new tenant, a court
will likely reduce any award made by the amount of rent the landlord could have received had such reasonable means been used.
In the majority of states, a person whose employment has been wrongfully terminated owes a duty to mitigate the damages suffered because
of the employer's breach of the employment contract. In other words, a wrongfully terminated employee has a duty to take a similar job if
one is available. If the employee fails to do this, the damages awarded will be equivalent to the person's salary less the income he or she
would have received in a similar job obtained by reasonable means. The employer has the burden of proving that such a job existed and that
the employee could have been hired. Normally, the employee is under no duty to take a job of a different type and rank, however.
Whether a tenant farmer acceptably attempted to mitigate his damages on his landlord's breach of their lease was at issue in the following
case.
Extended Case 18.2: Hanson v. Boeder
Supreme Court of North Dakota, 2007. 2007 ND 20, 727 N.W.2d 280.
MARING, Justice.
www.ndcourts.com/court/opinions.htm (http://www.ndcourts.com/court/opinions.htm)
In 1998, [Paul] Hanson signed a five-year lease to farm approximately 1,350 tillable acres of [Douglas] Boeder's farmland in Steele County
[North Dakota] for $50 per acre beginning with the 1999 crop year. The lease also allowed Hanson use of grain bins with a capacity of
93,000 bushels and two machine sheds located on the property. The lease addressed * * * the requirement that Hanson farm the land in a
good and farmerlike manner:
****
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[Hanson] agrees to farm the land in a good and farmerlike manner and also
agrees to leave the land tilled in the same manner as when he received it.
Hanson was required to pay cash rent of $67,515 per year, with half due on April 1st, and the balance due on November 1st. In 2003, Boeder
and Hanson renewed the lease for another five-year period ending in 2008.
During the leases, Boeder and Hanson disagreed about Hanson's farming practices, but in 2004 and 2005 their disagreements escalated.
On August 2, 2005, Boeder told Hanson he had enough of Hanson's farming practices, the lease was over, and he had leased the land to
someone else. Boeder also told Hanson not to do the fall tillage because the new tenant wanted to do the work himself.
Hanson sued Boeder [in a North Dakota state court], alleging Boeder intended to breach the contract by leasing the land to a third party.
Hanson * * * requested all damages caused by Boeder's breach of the lease. * * * During this time, Hanson continued to farm the land and
completed the 2005 fall tillage * * * .
After a February 2006 bench trial [a trial before a judge or judges only], the * * * court found Boeder's statement to Hanson that the lease
was over and he had found a new tenant constituted an anticipatory repudiation of the lease. The court * * * [found that] Boeder's
repudiation was not justified because Hanson had farmed the land in a "good and farmerlike manner," and had not breached the lease. The
court awarded Hanson $315,194.26 in damages and costs for lost profits, lost use of the grain bins and machine sheds, and the value of the
fall tillage. [Boeder appealed to the North Dakota Supreme Court.]
****
Boeder argues the [lower] court misapplied the law by failing to apply the doctrine of avoidable consequences [mitigation] to reduce
Hanson's damages. He claims Hanson did not mitigate his damages because Hanson had an opportunity to continue farming the Boeder
land, which would have substantially reduced his damages, and chose not to.
****
* * * For the breach of an obligation arising from contract, the measure of damages, except when otherwise expressly provided by the
laws of this state, is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby or which in
the ordinary course of things would be likely to result therefrom. No damages can be recovered for a breach of contract if they are not
clearly ascertainable in both their nature and origin. [Emphasis added.]
A person injured by the wrongful acts of another has a duty to mitigate or minimize the damages and must protect himself if he can do so
with reasonable exertion or at trifling expense, and can recover from the delinquent party only such damages as he could not, with
reasonable effort, have avoided. The duty to mitigate damages is sometimes referred to as the doctrine of avoidable consequences.
[Emphasis added.]
The [lower] court found that Hanson tried to mitigate his damages by looking for other farmland to rent, but was unsuccessful. The court
also found that Hanson was farming 4,000 acres including the land he leased from Boeder, but had the manpower and equipment to farm
up to 5,000 acres. The court concluded that even if Hanson was able to find other farmland to rent, it would not have been replacement
land but land to expand his farming operation, and therefore it would not have reduced his damages.
The evidence presented at trial supports the court's findings. Hanson testified that he was not aware of any farmland available for rent and
he ran advertisements in the local newspapers looking for farmland to rent. He also testified that during the course of the lease, he was
farming a total of 4,000 acres but he had the ability to farm 5,000 acres, and he was always looking for more land to rent to expand his
farming operation.
Boeder agrees that Hanson attempted to find other farmland to rent and admits he did not present any evidence to rebut Hanson's claim
that he was unable to find any other land available to rent. * * *
****
* * * We * * * conclude the [lower] court did not misapply the law in finding Hanson attempted to mitigate his damages. The evidence
supports the court's findings on lost profits, and we are not left with a definite and firm conviction the court made a mistake in awarding
Hanson damages for lost profits.
****
We affirm the judgment.
Questions
1.
During the trial, Boeder tried to retract his repudiation of the lease to allow Hanson to continue farming for the rest of the lease
term. Should the court have considered this an acceptable substitute to mitigate Hanson's damages? Why or why not?
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Hanson initially asked the lower court to enforce the contract and requested damages only in the alternativethat is, only if specific
performance was not available (pleading in the alternative is discussed later in this chapter). Could the court have awarded Hanson
specific performance of the lease in this case? Should that relief have been granted? Explain.
18-1c
Liquidated Damages Provisions
A liquidated damages provision in a contract specifies that a certain dollar amount is to be paid in the event of a future default or breach
of contract. (Liquidated means determined, settled, or fixed.) For example, a provision requiring a construction contractor to pay $300 for
every day he or she is late in completing the project is a liquidated damages provision. Liquidated damages provisions are frequently used in
construction contracts because it is difficult to estimate the amount of damages that would be caused by a delay in completion. They are also
common in contracts for the sale of goods.
Liquidated damages differ from penalties. A penalty specifies a certain amount to be paid in the event of a default or breach of contract and
is designed to penalize the breaching party. Liquidated damages provisions normally are enforceable. In contrast, if a court finds that a
provision calls for a penalty, the agreement as to the amount will not be enforced, and recovery will be limited to actual damages. To
determine if a particular provision is for liquidated damages or for a penalty, the court asks two questions:
1.
When the contract was entered into, was it apparent that damages would be difficult to estimate in the event of a breach?
2.
Was the amount set as 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 normally will not be
enforced. For example, in a case involving a sophisticated business contract to lease computer equipment, the court held that a liquidated
damages provision that valued computer equipment at more than four times its market value was a reasonable estimate. According to the
court, the amount of actual damages was difficult to ascertain at the time the contract was formed because of the "speculative nature of the
value of computers at termination of lease schedules."
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Rescission and Restitution
Law Flix: Bowfinger: Ethics in Negotiation: Misrepresentation
As discussed in Chapter 17, rescission is essentially an action to undo, or terminate, a contractto return the contracting parties to the
positions they occupied prior to the transaction. When fraud, a mistake, duress, undue influence, misrepresentation, or lack of capacity to
contract is present, unilateral rescission is available. Rescission may also be available by statute. The failure of one party to perform entitles
the other party to rescind the contract. The rescinding party must give prompt notice to the breaching party.
18-2a
Restitution
Generally, to rescind a contract, both parties must make restitution to each other by returning goods, property, or funds previously
conveyed. If the physical 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.
Essentially, restitution involves the plaintiff's recapture of a benefit conferred on the defendant through which the defendant has been
unjustly enriched. For example, Katie pays $10,000 to Bob in return for Bob's promise to design a house for her. The next day, Bob calls
Katie and tells her that he has taken a position with a large architectural firm in another state and cannot design the house. Katie decides to
hire another architect that afternoon. Katie can obtain restitution of the $10,000.
18-2b
Restitution Is Not Limited to Rescission Cases
Restitution may be appropriate when a contract is rescinded, but the right to restitution is not limited to rescission cases. Because an award
of restitution basically gives back or returns something to its rightful owner, this remedy may be sought in actions for breach of contract, tort
actions, and other types of actions. For example, restitution can be obtained when funds or property has been transferred by mistake or
because of fraud or incapacity. Restitution may also be available in situations involving embezzlement, conversion, theft, copyright
infringement, or misconduct by a party in a confidential or other special relationship.
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Specific Performance
The equitable remedy of specific performance calls for the performance of the act promised in the contract. This remedy is often
attractive to a nonbreaching party because it provides the exact bargain promised in the contract. It also avoids some of the problems
inherent in a suit for damages. First, the nonbreaching party need not worry about collecting the judgment (see Chapter 3 for a discussion of
the difficulties of enforcing court judgments). Second, the nonbreaching party need not look around for another contract. Third, the actual
performance may be more valuable than the monetary damages.
Normally, however, specific performance will not be granted unless the party's legal remedy (monetary damages) is inadequate. For this
reason, contracts for the sale of goods rarely qualify for specific performance. The legal remedymonetary damagesis ordinarily adequate
in such situations because substantially identical goods can be bought or sold in the market. Only if the goods are unique will a court grant
specific performance. For example, paintings, sculptures, or rare books or coins are so unique that monetary damages will not enable a buyer
to obtain substantially identical substitutes in the market.
18-3a
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 every parcel of land is unique: the same land in the same
location obviously cannot be obtained elsewhere. Only when specific performance is unavailable (for example, when the seller has sold the
property to someone else) will monetary damages be awarded instead.
Is specific performance warranted when one of the parties has substantiallybut not fullyperformed under the contract? That was the
question in the following case.
Case 18.3: Stainbrook v. Low
Court of Appeals of Indiana, 2006. 842 N.E.2d 386.
Background and Facts. In April 2004, Howard Stainbrook agreed to sell to Trent Low forty acres of land in Jennings County,
Indiana, for $45,000. Thirty-two of the acres were wooded and eight were tillable. Under the agreement, Low was to pay for a
survey of the property and other costs, including a tax payment due in November. Low gave Stainbrook a check for $1,000 to show
his intent to fulfill the contract. They agreed to close the deal on May 11, and Low made financial arrangements to meet his
obligations. On May 8, a tractor rolled over on Stainbrook, and he died. Howard's son David became the executor of Stainbrook's
estate. David asked Low to withdraw his offer to buy the forty acres. Low refused and filed a suit against David in an Indiana state
court, seeking to enforce the contract. The court ordered specific performance. David appealed to a state intermediate appellate
court, arguing, among other things, that his father's contract with Low was "ambiguous and inequitable."
IN THE LANGUAGE OF THE COURT
VAIDIK, Judge.
****
The Estate [David] * * * contends that Low failed to preserve the remedy of specific performance here because he failed to perform
sufficiently under the Agreement. * * * [T]he Estate argues that "[i]n order to be entitled to specific performance, the claimant has the
burden to prove full and complete performance on their part of the contract." Low * * * argues that specific performance was appropriate
because he either substantially performed his obligations under the Agreement or offered to do so, and this, rather than full and complete
performance, is all that is required to preserve a claim for specific performance.
We agree with Low. Because Low offered to perform his obligations under the Agreement, specific performance was a proper remedy. * * *
[T]he Estate argues that Low is not entitled to the remedy of specific performance because he did not pay the November 2004 property
taxes. Low, however, * * * offered to make the tax payment and the Estate refused his offer. * * *
The Estate also contends * * * that specific performance was inappropriate because Low failed to tender the purchase price listed in the
Agreement and arrange for a survey of the land before the closing date. * * * [T]he Estate's argument assumes that a party may not be
granted specific performance unless that party has fully and completely performed under the terms of the contract. On the contrary, * * *
specific performance is an appropriate remedy to a party who has substantially performed under the terms of the contract. Regarding
Low's payment of the purchase price, we note that Low * * * had obtained financing before the closing date, and there nothing is * * * to
indicate that he was not prepared to meet his financial obligations at that time. Further, * * * shortly after Stainbrook's death, the Executor
of the Estate requested that Low withdraw his offer, and Low declined to do so, indicating that he was prepared to go forward. Regarding
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Low's failure to order a land survey, the Estate presents no evidence to suggest that this matter, particularly in isolation, reaches the level of
failure to perform under the Agreement, and we decline to sanction such a rule. * * * [Emphasis added.]
****
The Estate finally argues that the trial court should not have awarded specific performance here because the Agreement between Low and
Stainbrook was unfair. * * * [S]ince Low was twenty-two years old and Stainbrook was eighty-nine at the time of contract, and because the
combined estimates of property and timber values was as high as $121,000.00 and Low and Stainbrook had agreed to a $45,000.00
purchase price, the Estate argues that the trial court should have found the contract to be unfair or unconscionable and to have found that
Low would be unjustly enriched by its execution. * * *
* * * [T]he Estate stipulated at trial that Stainbrook was competent at the time of contract, and evidence was presented that Stainbrook
consulted a lawyer regarding the Agreement and that he insisted upon several handwritten changes to the contract that benefited his own
interests. We find no support for the Estate's contention that Stainbrook was anything less than a party entirely capable of entering into this
Agreement, nor for its contention that the Agreement was unfair.
Decision and Remedy. The state intermediate appellate court held that specific performance was an appropriate remedy in
this case and affirmed the lower court's order. The appellate court explained that a contracting party's substantial performance is
sufficient to support a court's order for specific performance. Here, "Low both offered to perform and substantially performed his
contractual obligations."
The Ethical Dimension. Should a party who seeks specific performance of a contract be required to prove that he or she has
performed, substantially performed, or offered to perform his or her contract obligations? Why or why not?
The Global Dimension. Suppose that Stainbrook and Low had been citizens and residents of other countries. Would the
location of the land that was the subject of their contract have been sufficient to support the Indiana state court's jurisdiction and
award in this case? Discuss.
18-3b
Contracts for Personal Services
Personal-service contracts require one party to work personally for another party. Courts normally refuse to grant specific performance of
personal-service contracts because 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 have to monitor a service contract if supervision would be difficultas it would be if the contract
required the exercise of personal judgment or talent. For example, if you contracted with a brain surgeon to perform brain surgery on you
and the surgeon refused to perform, the court would not compel (and you certainly would not want) the surgeon to perform under those
circumstances. A court cannot assure meaningful performance in such a situation. If a contract is not deemed personal, the remedy at law
of monetary damages may be adequate if substantially identical service (for example, lawn mowing) is available from other persons.
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Reformation
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.
18-4a
When Fraud or Mutual Mistake Is Present
Courts order reformation most often when fraud or mutual mistake (for example, a clerical error) is present. Typically, a party seeks
reformation so that some other remedy may then be pursued. For example, if Keshan contracts to buy a certain parcel of land from Malboa
but their contract mistakenly refers to a parcel of land different from the one being sold, the contract does not reflect the parties' intentions.
Accordingly, a court can reform the contract so that it conforms to the parties' intentions and accurately refers to the parcel of land being
sold. Keshan can then, if necessary, show that Malboa has breached the contract as reformed. She can at that time request an order for
specific performance.
18-4b
Oral Contracts and Covenants Not to Compete
Courts also frequently reform contracts in two other situations. The first involves two parties who have made a binding oral contract. They
further agree to put the oral contract in writing, but in doing so, they make an error in stating the terms. Normally, a court will allow into
evidence the correct terms of the oral contract, thereby reforming the written contract.
The second situation occurs when the parties have executed a written covenant not to compete (discussed in Chapter 13). If the covenant is
for a valid and legitimate purpose (such as the sale of a business) but the area or time restraints of the covenant are unreasonable, some
courts will reform the restraints by making them reasonable and will enforce the entire contract as reformed. Other courts, however, will
throw out the entire restrictive covenant as illegal.
Exhibit 182 graphically summarizes the remedies, including reformation, that are available to the nonbreaching party.
Exhibit 182. Remedies for Breach of Contract
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Recovery Based on Quasi Contract
Recall from Chapter 10 that quasi contract is not a true contract but rather a fictional contract that is imposed on the parties to prevent
unjust enrichment. Hence, quasi contract provides a basis for relief when no enforceable contract exists. The legal obligation arises because
the law considers that the party accepting the benefits has made an implied promise to pay for them. Generally, when one party has
conferred a benefit on another party, justice requires the party receiving the benefit to pay the reasonable value for it. The party conferring
the benefit can recover in quantum meruit, which means "as much as he or she deserves" (see Chapter 10).
18-5a
When Quasi Contracts Are Used
In addition to being used when there is no actual contract or agreement between the parties, quasi contract may be available when the
parties have a contract, but it is unenforceable for some reason. Quasi-contractual recovery is often granted 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, measured in some cases according to the benefit received and in others according to the
detriment suffered.
For example, suppose that Watson contracts to build two oil derricks for Energy Industries. The derricks are to be built over a period of three
years, but the parties do not make a written contract. The Statute of Frauds will thus bar the enforcement of the contract. After Watson
completes one derrick, Energy Industries informs him that it will not pay for the derrick. Watson can sue Energy Industries under the theory
of quasi contract.
18-5b
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 by retaining the benefit without paying for it.
In the example just given, Watson can sue in quasi contract because all of the conditions for quasi-contractual recovery have been fulfilled.
Watson conferred a benefit on Energy Industries with the reasonable expectation of being paid. The derrick conferred an obvious benefit on
Energy Industries. Allowing Energy Industries to retain the derrick without paying Watson would enrich the company unjustly. Therefore,
Watson should be able to recover in quantum meruit the reasonable value of the oil derrick, which is ordinarily equal to its fair market value.
(Concept Summary 18.1 reviews all of the equitable remedies, including quasi contract, that may be available in the event that a contract is
breached.)
Concept Summary 18.1: Equitable Remedies
Remedy
Description
Rescission and
Restitution
1. RescissionA remedy whereby a contract is canceled and the
parties are restored to the original positions that they occupied
prior to the transaction.
2. RestitutionWhen a contract is rescinded, both parties must
make restitution to each other by returning the goods, property,
or funds previously conveyed.
Specific
An equitable remedy calling for the performance of the act
Performance
promised in the contract. Only available when monetary
damages would be inadequatesuch as in contracts for the sale
of land or unique goodsand never available in personal-service
contracts.
Reformation
An equitable remedy allowing a contract to be "reformed," or
rewritten, to reflect the parties' true intentions. Available when
an agreement is imperfectly expressed in writing, such as when
a mutual mistake has occurred.
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Recovery Based
An equitable theory under which a party who confers a benefit
on Quasi
Contract
on another with the reasonable expectation of being paid can
seek a court order for the fair market value of the benefit
conferred.
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Election of Remedies
Drama of the Law: Breach and Remedies: Building for a Better Tomorrow
In many cases, a nonbreaching party has several remedies available. When the remedies are inconsistent with one another, the common law
of contracts requires the party to choose which remedy to pursue. This is called election of remedies.
18-6a
The Purpose of the Doctrine
The purpose of the doctrine of election of remedies is to prevent double recovery. Suppose, for example, that McCarthy agrees in writing to
sell his land to Tally. Then McCarthy changes his mind and repudiates the contract. Tally can sue for compensatory damages or for specific
performance. If Tally could seek compensatory damages in addition to specific performance, she would recover twice for the same breach of
contract. The doctrine of election of remedies requires Tally to choose the remedy she wants, and it eliminates any possibility of double
recovery. In other words, the election doctrine represents the legal embodiment of the adage "You can't have your cake and eat it, too."
The doctrine has often been applied in a rigid and technical manner, leading to some harsh results. For example, suppose that Beacham is
fraudulently induced to buy a parcel of land for $150,000. He spends an additional $10,000 moving onto the land and then discovers the
fraud. Instead of suing for damages, Beacham sues to rescind the contract. The court allows Beacham to recover the purchase price of
$150,000 in restitution, but not the additional $10,000 in moving expenses (because the seller did not receive this payment, he or she will
not be required to return it). So Beacham suffers a net loss of $10,000 on the transaction. If Beacham had elected to sue for damages instead
of seeking the remedy of rescission and restitution, he could have recovered the $10,000 as well as the $150,000.
18-6b
The UCC's Rejection of the Doctrine
Because of the many problems associated with the doctrine of election of remedies, the UCC expressly rejects it. As will be discussed in
Chapter 22, remedies under the UCC are not exclusive but are cumulative in nature and include all the available remedies for breach of
contract.
18-6c
Pleading in the Alternative
Although the nonbreaching party must ultimately elect which remedy to pursue, modern court procedures do allow plaintiffs to plead their
cases "in the alternative" (pleadings were discussed in Chapter 3). In other words, when the plaintiff originally files a lawsuit, he or she can
ask the court to order either rescission (and restitution) or damages, for example. Then, as the case progresses to trial, the party can elect the
remedy that is most beneficial or appropriate, or the judge can order one remedy and not another. This process still prevents double recovery
because the party can be awarded only one of the remedies that was requested.
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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.
18-7a
Consequences of a Waiver of Breach
When a waiver of a breach of contract occurs, the party waiving the breach cannot take any later action on it. In effect, the waiver erases the
past breach; the contract continues as if the breach had never occurred. Of course, the waiver of breach of contract extends only to the matter
waived and not to the whole contract.
18-7b
Reasons for Waiving a Breach
Businesspersons often waive breaches of contract to get whatever benefit is still possible out of the contract. For example, a seller contracts
with a buyer to deliver to the buyer ten thousand tons of coal on or before November 1. The contract calls for the buyer to pay by November
10 for coal delivered. Because of a coal miners' strike, coal is hard to find. The seller breaches the contract by not tendering delivery until
November 5. The buyer will likely choose to waive the seller's breach, accept delivery of the coal, and pay as contracted.
18-7c
Waiver of Breach and Subsequent Breaches
Ordinarily, the waiver by a contracting party will not operate to waive subsequent, additional, or future breaches of contract. This is always
true when the subsequent breaches are unrelated to the first breach. For example, an owner who waives the right to sue for late completion
of a stage of construction does not waive the right to sue for failure to comply with engineering specifications on the same job. A waiver will
be extended to subsequent defective performance, however, if a reasonable person would conclude that similar defective performance in the
future will be acceptable. Therefore, a pattern of conduct that waives a number of successive breaches will operate as a continued waiver. To
change this result, the nonbreaching party should give notice to the breaching party that full performance will be required in the future.
The party who has rendered defective or less-than-full performance remains liable for the damages caused by the breach of contract. In
effect, the waiver operates to keep the contract going. The waiver prevents the nonbreaching party from calling the contract to an end or
rescinding the contract. The contract continues, but the nonbreaching party can recover damages caused by the defective or less-than-full
performance.
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Contract Provisions Limiting Remedies
A contract may include provisions stating that no damages can be recovered for certain types of breaches or that damages will be limited to a
maximum amount. The contract may also provide that the only remedy for breach is replacement, repair, or refund of the purchase price.
Provisions stating that no damages can be recovered are called exculpatory clauses (see Chapter 13). Provisions that affect the availability of
certain remedies are called limitation-of-liability clauses.
18-8a
The UCC Allows Sales Contracts to Limit Remedies
The UCC provides that in a contract for the sale of goods, remedies can be limited. We will examine the UCC provisions on limited remedies
in Chapter 22, in the context of the remedies available on the breach of a contract for the sale or lease of goods.
18-8b
Enforceability of Limitation-of-Liability Clauses
Whether a limitation-of-liability clause in a contract will be enforced depends on the type of breach that is excused by the provision. For
example, a provision excluding liability for fraudulent or intentional injury will not be enforced. Likewise, a clause excluding liability for
illegal acts or violations of law will not be enforced.
A clause excluding liability for negligence may be enforced in certain situations, however. 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.
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Chapter Recap: Reviewing: Breach of Contract and Remedies
Kyle Bruno enters 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 to be produced, 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 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.
One day, while Bruno is preparing for a difficult stunt, he gets into an argument with the director and refuses to perform any stunts
at all. Can X Entertainment seek specific performance of the contract? Why or why not?
2.
Suppose that while performing a high-speed wheelie on a motorcycle, Bruno is injured by the intentionally reckless act of an X
Entertainment employee. Will a court be likely to enforce the limitation-of-liability clause? Why or why not?
3.
What factors would a court consider to determine whether the $1 million liquidated damages provision constitutes valid damages or
is a penalty?
4.
Suppose that the contract had no liquidated damages provision (or the court refused to enforce it) and X Entertainment breached the
contract. The breach caused the release of the film to be delayed until the fall. Could Bruno seek consequential (special) damages for
lost profits from the summer movie market in that situation? Explain.
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Chapter Recap: Questions and Case Problems
181. 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.
182. Question with Sample Answer. In which of the following situations would specific performance be an appropriate remedy?
Discuss fully.
(a) Thompson contracts to sell her house and lot to Cousteau. Then, on finding another buyer willing to pay a higher purchase price,
she refuses to deed the property to Cousteau.
(b) Amy contracts to sing and dance in Fred's nightclub for one month, beginning May 1. She then refuses to perform.
(c) Hoffman contracts to purchase a rare coin owned by Erikson, who is breaking up his coin collection. At the last minute, Erikson
decides to keep his coin collection intact and refuses to deliver the coin to Hoffman.
(d) ABC Corp. has three shareholders: Panozzo, who owns 48 percent of the stock; Chang, who owns another 48 percent; and Ryan,
who owns 4 percent. Ryan contracts to sell her 4 percent to Chang. Later, Ryan refuses to transfer the shares to Chang.
For a sample answer to Question 182, go to Appendix I at the end of this text.
183. Ken owns and operates a famous candy store and makes most of the candy sold in the store. Business is particularly heavy during the
Christmas season. Ken contracts with Sweet, Inc., to purchase ten thousand pounds of sugar to be delivered on or before November 15. Ken
has informed Sweet that this particular order is to be used for the Christmas season business. Because of problems at the refinery, the sugar
is not tendered to Ken until December 10, at which time Ken refuses it as being too late. Ken has been unable to purchase the quantity of
sugar needed to meet his Christmas orders and has had to turn down numerous regular customers, some of whom have indicated that they
will purchase candy elsewhere in the future. The sugar Ken has been able to purchase has cost him 10 cents per pound above the price
contracted for with Sweet. Ken sues Sweet for breach of contract, claiming as damages the higher price paid for sugar from others, lost
profits from this year's lost Christmas sales, future lost profits from customers who have indicated that they will discontinue doing business
with him, and punitive damages for failure to meet the contracted delivery date. Sweet claims Ken is limited to compensatory damages only.
Discuss who is correct, and why.
184. Mitigation of Damages. William West, an engineer, worked for Bechtel Corp., an organization of about 150 engineering and
construction companies, which is headquartered in San Francisco, California, and operates worldwide. Except for a two-month period in
1985, Bechtel employed West on long-term assignments or short-term projects for thirty years. In October 1997, West was offered a position
on a project with Saudi Arabian Bechtel Co. (SABCO), which West understood would be for two years. In November, however, West was
terminated for what he believed was his "age and lack of display of energy." After his return to California, West received numerous offers
from Bechtel for work that suited his abilities and met his salary expectations, but he did not accept any of them and did not look for other
work. Three months later, he filed a suit in a California state court against Bechtel, alleging, in part, breach of contract and seeking the salary
he would have earned during two years with SABCO. Bechtel responded, in part, that, even if there had been a breach, West had failed to
mitigate his damages. Is Bechtel correct? Discuss. [West v. Bechtel Corp., 96 Cal.App.4th 966, 117 Cal.Rptr.2d 647 (1 Dist. 2002)]
185. Liquidated Damages versus Penalties. Every homeowner in the Putnam County, Indiana, subdivision of Stardust Hills must be
a member of the Stardust Hills Owners Association, Inc., and must pay annual dues of $200 for the maintenance of common areas and other
community services. Under the association's rules, dues paid more than ten days late "shall bear a delinquent fee at a rate of $2.00 per day."
Phyllis Gaddis owned a Stardust Hills lot on which she failed to pay the dues. Late fees began to accrue. Nearly two months later, the
association filed a suit in an Indiana state court to collect the unpaid dues and the late fees. Gaddis argued in response that the delinquent
fee was an unenforceable penalty. What questions should be considered in determining the status of this fee? Should the association's rule
regarding assessment of the fee be enforced? Explain. [Gaddis v. Stardust Hills Owners Association, Inc., 804 N.E.2d 231 (Ind.App. 2004)]
186. Case Problem with Sample Answer. Tyna Ek met Russell Peterson in Seattle, Washington. Peterson persuaded Ek to buy a boat
that he had once owned, the O'Hana Kai, which was in Juneau, Alaska. Ek paid $43,000 for the boat, and in January 2000, the parties
entered into a contract. In the contract, Peterson agreed to make the vessel seaworthy so that within one month it could be transported to
Seattle, where he would pay its moorage costs. He would also renovate the boat at his own expense in return for a portion of the profit on its
resale in 2001. At the time of the resale, Ek would recover her costs, after which she would reimburse Peterson for his expenses. Ek loaned
Peterson her cell phone so that they could communicate while he prepared the vessel for the trip to Seattle. In March, Peterson, who was still
in Alaska, borrowed $4,000 from Ek. Two months later, Ek began to receive unanticipated, unauthorized bills for vessel parts and moorage,
the use of her phone, and charges on her credit card. She went to Juneau to take possession of the boat. Peterson moved it to Petersburg,
Alaska, where he registered it under a false name, and then to Taku Harbor, where the police seized it. Ek filed a suit in an Alaska state court
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against Peterson, alleging breach of contract and seeking damages. If the court finds in Ek's favor, what should her damages include?
Discuss. [Peterson v. Ek, 93 P.3d 458 (Alaska 2004)]
187. Waiver of Breach. In May 1998, RDP Royal Palm Hotel, L.P., contracted with Clark Construction Group, Inc., to build the Royal
Palms Crowne Plaza Resort in Miami Beach, Florida. The deadline for "substantial completion" was February 28, 2000, but RDP could ask
for changes, and the date would be adjusted accordingly. During construction, Clark faced many setbacks, including a buried seawall,
contaminated soil, the unforeseen deterioration of the existing hotel, and RDP's issue of hundreds of change orders. Clark requested
extensions of the deadline, and RDP agreed, but the parties never specified a date. After the original deadline passed, RDP continued to issue
change orders, Clark continued to perform, and RDP accepted the work. In March 2002, when the resort was substantially complete, RDP
stopped paying Clark. Clark stopped working. RDP hired another contractor to finish the resort, which opened in May. RDP filed a suit in a
federal district court against Clark, alleging, among other things, breach of contract for the two-year delay in the resort's completion. In
whose favor should the court rule, and why? Discuss. [RDP Royal Palm Hotel, L.P. v. Clark Construction Group, Inc., __ F.3d __ (11th Cir.
2006)]
188. Remedies. On July 7, 2000, Frances Morelli agreed to sell to Judith Bucklin a house at 126 Lakedell Drive in Warwick, Rhode
Island, for $77,000. Bucklin made a deposit on the house. The closing at which the parties would exchange the deed for the price was
scheduled for September 1. The agreement did not state that "time is of the essence," but it did provide, in "Paragraph 10," that "[i]f Seller is
unable to [convey good, clear, insurable, and marketable title], Buyer shall have the option to: (a) accept such title as Seller is able to convey
without abatement or reduction of the Purchase Price, or (b) cancel this Agreement and receive a return of all Deposits." An examination of
the public records revealed that the house did not have marketable title. Wishing to be flexible, Bucklin offered Morelli time to resolve the
problem, and the closing did not occur as scheduled. Morelli decided "the deal is over" and offered to return the deposit. Bucklin refused
and, in mid-October, decided to exercise her option under Paragraph 10(a). She notified Morelli, who did not respond. Bucklin filed a suit in
a Rhode Island state court against Morelli. In whose favor should the court rule? Should damages be awarded? If not, what is the appropriate
remedy? Why? [Bucklin v. Morelli, 912 A.2d 931 (R.I. 2007)]
189. A Question of Ethics. In 2004, Tamara Cohen, a real estate broker, began showing property in Manhattan to Steven Galistinos,
who represented comedian Jerry Seinfeld and his wife, Jessica. According to Cohen, she told Galistinos that her commission would be 5 or
6 percent, and he agreed. According to Galistinos, there was no such agreement. Cohen spoke with Maximillan Sanchez, another broker,
about a townhouse owned by Ray and Harriet Mayeri. According to Cohen, Sanchez said that the commission would be 6 percent, which
they agreed to split equally. Sanchez later acknowledged that they agreed to split the fee, but claimed that they did not discuss a specific
amount. On a Friday in February 2005, Cohen showed the townhouse to Jessica. According to Cohen, she told Jessica that the commission
would be 6 percent, with the Seinfelds paying half, and Jessica agreed. According to Jessica, there was no such conversation. Later that
day, Galistinos asked Cohen to arrange for the Seinfelds to see the premises again. Cohen told Galistinos that her religious beliefs
prevented her from showing property on Friday evenings or Saturdays before sundown. She suggested the following Monday or Tuesday,
but Galistinos said that Jerry would not be available and asked her to contact Carolyn Liebling, Jerry's business manager. Cohen left
Liebling a message. Over the weekend, the Seinfelds toured the building on their own and agreed to buy the property for $3.95 million.
Despite repeated attempts, they were unable to contact Cohen. [Cohen v. Seinfeld, 15 Misc.3d 1118(A), 839 N.Y.S.2d 432 (Sup. 2007)]
(a) The contract between the Seinfelds and the Mayeris stated that the sellers would pay Sanchez's fee and the "buyers will pay
buyer's real estate broker's fees." The Mayeris paid Sanchez $118,500, which is 3 percent of $3.95 million. The Seinfelds refused to
pay Cohen. She filed a suit in a New York state court against them, asserting, among other things, breach of contract. Should the
court order the Seinfelds to pay Cohen? If so, is she entitled to a full commission even though she was not available to show the
townhouse when the Seinfelds wanted to see it? Explain.
(b) What obligation do parties involved in business deals owe to each other with respect to their religious beliefs? How might the
situation in this case have been avoided?
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Chapter Recap: Law on the Web
For a summary of how contracts may be breached and other information on contract law, go to Lawyers.com's Web page at
contracts.lawyers.com (http://contracts.lawyers.com/)
The following sites offer information on contract law, including breach of contract and remedies:
www.nolo.com (http://www.nolo.com/)
www.law.cornell.edu/wex/index.php/Contracts (http://www.law.cornell.edu/wex/index.php/Contracts)
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Chapter Recap: Key Terms
consequential damages
Special damages that compensate for a loss that is not direct or immediate (for example, lost profits). The special damages must have
been reasonably foreseeable at the time the breach or injury occurred in order for the plaintiff to collect them.
incidental damages
Losses reasonably associated with, or related to, actual damages resulting from a breach of contract.
liquidated damages
An amount, stipulated in the contract, that the parties to a contract believe to be a reasonable estimation of the damages that will
occur in the event of a breach.
mitigation of damages
A rule requiring a plaintiff to have done whatever was reasonable to minimize the damages caused by the defendant.
nominal damages
A small monetary award (often one dollar) granted to a plaintiff when no actual damage was suffered or when the plaintiff is unable
to show such loss with sufficient certainty.
penalty
A sum inserted into a contract, not as a measure of compensation for its breach but rather as punishment for a default. The
agreement as to the amount will not be enforced, and recovery will be limited to actual damages.
reformation
A court-ordered correction of a written contract so that it reflects the true intentions of the parties.
restitution
An equitable remedy under which a person is restored to his or her original position prior to loss or injury, or placed in the position
he or she would have been in had the breach not occurred.
specific performance
An equitable remedy requiring the breaching party to perform as promised under the contract; usually granted only when money
damages would be an inadequate remedy and the subject matter of the contract is unique (for example, real property).
waiver
An intentional, knowing relinquishment of a legal right.
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