LECTURE NOTES: COMMON LAW CONTRACTS
LECTURE II: DEFENCES, DAMAGES AND REMEDIES
Dr. Wilder, University of Bonn
First Question: Do we really have a contract?
I.
Non-Binding K’s – 3 classifications:
1.Void –
2.Voidable –
3. Unenforcable –
II.
Uncertainty/Incompleteness –
1. No agreement on key issues = no K
2. However, Court will attempt to give effect to commercial
a. Sale of goods = Standards of general business practices
b. Court may imply terms (e.g. reasonable price)
III.
In order to preserve the contract, the court may ?
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Parties may want to argue that a K does exist, even though it does not meet K
‘rules’. TWO arguments can be made at common law in order for ‘justice’ to be
served:
I.
Promissory Estoppel =
II.
Quasi-Contract =
What constitutes a breach of contract?
I.
A breach of contract is defined as: “failure, without legal excuse, to
perform any promise that forms all or part of the contract.”
What is the difference between a Material and Minor breach of contract?
I.
Material:
A. Factors to determine material breach:
B. If a material breach has happened, the non-breaching party is no longer
required to perform their part of the contract.
Minor Breach:
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What form does a Breach of Contract take? –
1. Implicit
2. Explicit = party announces intention not to perform their end of the K. This
is known at law as: repudiation or anticipatory breach.
3. Disablement = one party acts in such a way as to make performance
impossible.
If party thinks or knows other party is in material breach, TWO options:
1.
2.
What are valid defenses against a material breach of contract claim?
1.
2.
3.
4.
5.
6.
Assuming material breach AND no defense, can seek a remedy for breach of
contract in court = DAMAGES
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CONTRACT DAMAGES:
Goal of Damages =
Punitive damages ? (to punish) – at Common Law, punitive damages will not be granted
for breach of contract unless?
In order to determine damages must:
1. Identify Expectation
2. Classify Expectation
a. Economic Damages =
b. Non-Economic Damages =
Basis of deciding what remedy should be granted – 3 Possible standards:
1. Universal expectation =
2. Usual expectation =
3. Unique =
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There are 3 principles that LIMIT the award of damages for breach of contract:
1. Causation =
2. Remoteness of Damage =
3. Mitigation of Loss = duty to mitigate, in other words, to do his or her best not to
increase the amount of damages done. 3 RULES:
1. Plaintiff cannot recover for loss reasonably avoidable
2. Plaintiff cannot recover for loss actually avoided.
3. Plaintiff may recover loss incurred in taking reasonable steps to
mitigate, even if not successful. (Not expected to take risks)
When $ damages are not enough = EQUITY
1. Equitable relief is granted in order to avoid ‘injustice’
2. Usually granted when money damages are not enough to make the party
‘whole’.
3. The granting of equitable relief is discretionary = court can chose to
grant or not to grant.
4. Equitable relief can be granted along with money damages
TWO types of Equitable Relief:
I.
II.
Injunction = stops the party from doing something.
A. 3 Types of Injunction:
1. Interlocutory =
2. Prohibitory =
3. Mandatory =
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Specific Performance = the second type of equitable relief, granted when $
damages are inadequate.
NOTE: In order to avoid the uncertainty of how much damages will be granted by the
court based on the standards outlined above, the parties can always decide to set the
amount of damages for breach in the contract itself. These are known as Liquidated
Damages. Liquidated damages are an attempt to set $ damages in situations where it is
difficult to do so. With liquidated damages, the parties place a provision in the K that
specifies the amount of the damages in event of a breach. Such predetermined damages =
liquidated damages.
THE UNIFORM COMMERCIAL CODE (UCC)
When Does the UCC Apply?
Situation
Does the UCC
apply?
A fruit store buys apples from an apple dealer.
Jesse buys a radio from an electronics store.
A rug dealer buys some rugs from a weaver who is not a
business person.
Bob contracts to buy 50 CDs from Layla’s garage sale.
Jim contracts to buy Marsha’s mountain cabin.
How Can a Contract Be Modified?
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Defenses :
1. Statute of Frauds –
2. Parole Evidence Rule
3. Good Faith –
4. No Violation of Public Policy –
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EXERCISES:
Exercise 4
Brunhilda and Frank had a valid contract under which Frank would buy all of the
fruit from Brunhilda’s orchard. A fire swept through Brunhilda’s orchard just
before the harvest, destroying all of the fruit trees. Brunhilda tells Frank that she
will not be able to supply him with the fruit. Frank sues Brunhilda for breach of
contract.
How should the judge rule?
A. For Brunhilda, because it has become impossible for her to perform the
contract.
B. For Frank, because Brunhilda did not supply him with fruit as they had
agreed.
Exercise 5
Green Company has a contract with Red Company to buy 400 golf balls, to be
delivered to Green Company on July 16. The contract states that “time is of the
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essence.” On July 18, Red Company delivers the 400 golf balls to Green
Company. Green Company refuses to accept the golf balls because of the delay
and sues Red Company for breach of contract.
How should the judge rule?
A. For Green Company, because the late delivery of golf balls constituted a
material breach.
B. For Red Company, because the delivery was only two days late.
Exercise 6
Carlotta sees a horse running in Troy’s fields and decides to see if Troy will sell
her the horse. During the course of negotiations, Troy realizes that Carlotta is
confused about the name of the horse she wants–she keeps using the name
Misty, who is actually an old broken-down nag, when the horse she saw in the
field is named Sissy. Troy draws up a written contract in which he agrees to sell
Misty to Carlotta for $3000 and they both sign it. When Carlotta brings a trailer
to pick up her horse, she realizes that she has bought the wrong horse and
refuses to pay for Misty. Troy sues Carlotta for breach of contract.
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How should the judge rule?
A. For Troy, because Carlotta agreed to pay $3000 for Misty.
B. For Carlotta, because Troy knew that Carlotta was making a mistake about
the horse’s name.
Exercise 7
Mr. Brown makes a contract for Mr. Yellow to do repair work to his living room,
which is to be finished by June 3. Mr. Yellow comes down with a bad case of the
flu and is delayed in finishing the work. He is able to complete the work on June
8. Mr. Brown sues Mr. Yellow for breach of contract.
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How should the judge rule?
A. In Mr. Brown’s favor, because Mr. Yellow’s delay was a material breach of the
contract.
B. In Mr. Yellow’s favor, because the breach was minor.
Exercise 8
Jeff makes a contract with Acme Farms to buy 1000 apples for $200, which is
the average price for apples at that time. The contract specifies that Jeff must
have the apples by April 2 so that he can make his specialty apple pies to sell to
Yummy Bakery. On March 15, Acme Farms informs Jeff that they will not be able
to meet his order. On April 4, Jeff files suit against Acme Farms for breach of
contract and wins the case. Jeff asks for consequential damages that will
reimburse him for the amount of profit that he would have been paid by Yummy
Bakery if he had been able to make his apple pies. Acme presents evidence
proving that Jeff had not even tried to find substitute apples, even though he
had sufficient time before his deadline and there were other farms nearby that
could have supplied him with apples for the same $200 price.
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How should the judge rule?
A. Jeff should not recover any damages because he did not look for another
apple supplier.
B. Jeff can recover damages, but such recovery should be reduced by the
amount that he could have avoided if he had tried to buy his apples elsewhere.
C. Jeff should get full damages that include the amount that he would have been
paid by Yummy Baker for his apple pies.
Exercise 9
Tory and Cathy entered into a contract under which Cathy was supposed to
provide the floral arrangements for Tory’s wedding on May 23. The day of the
wedding arrives, but Cathy does not deliver the floral arrangements. Cory is
devastated and feels that her wedding was ruined by the lack of floral
arrangements. She sues Cathy successfully for breach of contract and then asks
for punitive damages because her wedding was ruined. The evidence presented
at court only shows that Cathy did not deliver the arrangements because she
had accidentally written the wrong delivery date on her calendar.
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How should the judge rule?
A. Only award compensatory damages and not punitive, because there is not
sufficient evidence to prove that Cathy had the requisite mental state for an
award of punitive damages.
B. Award punitive damages, because Cathy should have known that the breach
would ruin Cory’s wedding.
Exercise 10
Marcy is the owner of the Merry Elves Shop. She enters into a written contract to
buy 200 Christmas tree ornaments from Bob for delivery October 1. They later
modify the agreement in writing, so that Marcy will buy a total of 300 ornaments
that will all be delivered October 15. On October 3, Marcy sues Bob, stating that
he should have delivered the 200 ornaments to her on October 1 because the
contract modification was not valid. She says that there was a lack of additional
consideration for the modification.
How should the judge rule?
A. For Bob, because additional consideration was not necessary.
B. For Marcy, because additional consideration was necessary in order to modify
their contract.
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Exercise 11
Diana and Jim enter into a written contract under which Diana will sell Jim some
of her rare comic books for $300. The contract contains a list of each comic book
that is supposed to be part of the sale. The contract states that it contains the
complete and final agreement reached by Diana and Jim. When Jim receives the
comics, he is upset to find out that Diana did not include a particular Superman
comic. He sues Diana, stating that even though the written contract does not
mention that particular Superman issue, he and Diana had orally agreed, just
after the contract was written, that she would include the Superman in the deal.
Jim wants to submit evidence of their oral agreement. Diana argues that such
evidence would violate the parol evidence rule.
How should the judge rule?
A. For Diana, because the contract states that it is the complete and final
agreement..
B. For Jim, because he is presenting evidence that is an exception to the parol
evidence rule.
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Exercise 12
In the same scenario, Jim now claims that before he signed the contract he and
Diana agreed orally that at least half the comics would be Superman. Diana
denies the conversation took place and argues that such evidence would violate
the parol evidence rule.
How should the judge rule?
A. For Diana, because the contract states that it is the complete and final
agreement.
B. For Jim, because he is presenting evidence that is an exception to the parol
evidence rule.
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