Chapter 13
Remedies
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
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
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.
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.
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. Tom’s 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 won’t 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 wouldn’t be a problem The part is
not delivered until Dec and Tom loses the order.
Tom receives $100,000 in consequential damages.
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.
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 John’s
picture was to occupy 1/4 of the front cover of the annual
edition. Due to Playboy’s editorial mix-up, John’s 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,
John’s acting career would have been boosted.
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,
don’t 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.
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 didn’t want to correct it)
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 FGCU’s 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.
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.
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.
Liquidated Damages, # 5
• Pam wins.The $10,000 deposited as security
for performance of all of Pam’s covenants
in the lease, to be retained by Louis in case
of any breach on P’s 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.
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 Bob’s breach.
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.
Mitigation of Damages, # 16
• Judgment for Ballard. The general rule is
that an employee’s damages for employer’s
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.
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.
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 won’t 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 Y’s
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.
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.
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.
–
Injunctions/Specific
Performance, # 4
• A. An injunction against Stuart’s
performing for Elaine would probably be
granted if Elaine is a competitor of
Charlotte’s and if Stuart’s 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)
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.
Reformation
• When parties to a contract have an
imperfect written understanding,
reformation allows the contract to be
rewritten to reflect the parties’ true
intention.
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.
Election of Remedies
• Parties may seek as many remedies as they
like, and may choose whatever they desire.