Chapter 2 The Law of Contract
Contract Discharge
And
Remedies
合同的解除和救济
1
Facing a Legal Problem
The Deleons contract with a construction
company to build a house. The contract specifies
Brand X plasterboard. The builder cannot obtain
Brand X, and the DeLeons are on holiday hiking
in the mountains in France and are unreachable.
The builder decides to install Brand Y instead,
which she knows is identical in quality and
durability to Brand X. All other aspects
construction conform to the Contract. Does this
deviation constitute a breach of contract? Can
the buyers (the DeLeons) avoid their obligation
to pay the builder because Brand Y plasterboard
was used instead of Brand X?
2
Discharge by Performance
Complete Performance 完整的履行:A party
renders performance exactly as required by the
contract. That party’s contractual duties are
discharged.
Substantial Performance 实质的履行:A party
renders performance that deviates only slightly
from complete performance. There is a minor
breach. The nonbreaching party may recover
damages caused by the breach.
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Discharge by Agreement
1. Mutual rescission. The parties mutually agree to
rescind an executory contract.
2. Substituted contract. The parties enter into a
new contract that revokes a prior contract.
3. Novation. The parties agree to the substitution
of a third party for one of the original parties. The
exiting party is relieved of liability, and the
entering party is obligated to perform the contract.
4. Accord and satisfaction. The parties agree to
settle a contract dispute. The satisfaction of the
accord discharges the original contract.
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Example 2-15
You contract with A. Logan Enterprises to sell it
your office-equipment business under an
installment sales contract requiring twelve
monthly payments. Logan later decides not to buy
the business but knows of another party, MBI
Corporation, interested in doing so. All three of
you get together and agree to a new contract under
which MBI agrees to purchase your business.
Is the original contract discharged and replaced
with the new contract?
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Example 2-16
Shea obtains a judgment against Marla for
$4,000 in cash. Later both parties agree that
the judgment can be satisfied by Marla’s
transfer of her automobile to Shea. This
agreement to accept the auto in lieu of
$4,000 in cash is the accord.
If Marla transfers her automobile to Shea,
this performance is the satisfaction. If
Marla refuses to transfer her car, is the
accord breached? Would Shea have any
recourse against Marla?
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Discharge by Impossibility
1. Impossibility of Performance. The
contract is objectively impossible to
perform because of an event.
2. Force Majeure clause. The parties
stipulate in the contract what events will
excuse performance
3. Commercial Impracticability. The contract
is impractical for the promisor to perform
because of an event.
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Discharge by Operation of Law
1. Statute of limitations. A contract that is not
brought within the stipulated limitations period
discharges contractual duties.
2. Bankruptcy. Discharge in bankruptcy relieves
the debtor of legal liability to pay the discharged
debts.
3. Alteration of a contract. If a party to a contract
intentionally alters it materially, the innocent party
may opt either or discharge the contract or to
enforce it on its original or altered terms.
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Monetary Damages
An award of money ---A nonbreaching
party may recover monetary damages from
a breaching party.
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Compensatory Damages
补偿性赔偿金
Compensates a nonbreaching party for the
loss of the bargain. It places the
nonbreaching party in the same position as
if the contract had been fully performed.
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Example 2-16
MediQuick Laboratories contracts with Cal
Computer Industries to purchase ten Model
X-15 computer workstations for $8,000
each. If Cal Computer fails to deliver the
ten workstations, and the current market
price of the workstations is $8,150 each,
what would be MediQuick’s measure of
damages?
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Key
MediQuick’s measure of damages is
$1,500(10$×150), plus incidental damages.
In cases in which the breach is by the buyer,
and the seller has not as yet produced the
goods, compensatory damages normally
equal the lost profits on the sale, not the
difference between the contract price and
the market price.
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Consequential Damages
special damages间接性赔偿金
Compensates a nonbreaching party for
foreseeable special damages. The breaching
party must have known or should have
known that these damages would result
from the breach.
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Example 2-17
Gilmore contracts to have a specific item
shipped to her—one that she desperately
needs to repair her printing press. Gilmore
tells the shipper that she must receive the
item by Monday or she will not be able to
print her paper and will lose $750. If the
shipper is late, what can Gilmore recover?
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Key
Gilmore can recover the consequential
damages caused by the delay (the $ 750 in
losses).
Note: To be liable for consequential
damages, the breaching party must know or
have reason to know that the breach will
cause special damages to the other party.
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Liquidated Damages (1)
约定赔偿金
Damages payable upon breach of contract that
are agreed on in advance by the contracting
parties. Liquidated damages substitute for
actual damages.
a. The actual damages must be extremely
difficult or impracticable to determine.
b. The liquidated amount must be a reasonable
estimate of the harm that would result from the
breach.
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Liquidated Damages
A liquidated damage clause is considered a
penalty if actual damages are clearly
determinable in advance or the liquidated
damages are excessive or unconscionable.
A penalty is unenforceable and the
nonbreaching party may recover actual
damages.
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California and Hawaiian Sugar Co. (C & H)
V.
Sun Ship, Inc
United States Court of appeals,
Ninth Circuit
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1. C&H), a California
corporation, is an agricultural
cooperative owned by 14 sugar
plantations in Hawaii. It
transports raw sugar to its
refinery in California. Sugar is a
seasonal crop, with 70 percent
of the harvest occurring
between April and October.
C&H requires reliable seasonal
shipping of the raw sugar from
Hawaii to California. Sugar
stored on the ground or left
unharvested suffers a loss of
sucrose蔗糖and goes to waste.
2. After C&H was notified
by its normal shipper that
it would be withdrawing
its services as of
January1981,C&H
commissioned the design
of a large hybrid vessel....
After substantial
negotiation, C&H
contracted with Sun Ship,
Inc. a Pennsylvania
corporation, to build the
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vessel for $25,405,000.
3. The contract, which was
signed in fall of 1979,
provided a delivery date of
June 30,1981. The contract
also contained a liquidated
damage clause calling for a
payment of $17,000 per day
for each day that the vessel
was not delivered to C&H
after June 30,1981. Sun ship
did not complete the vessel
until March 16, 1982. The
vessel was commissioned in
mid-July 1982 and christened
the Moku Pabu.
4.During the 1981 season,
C&H was able to find other
means of shipping the crop
from Hawaii to its California
refinery. Evidence established
that actual damages suffered
by C&H because of the
nonavailability of the vessel
from Sun Ship were $368,000.
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5. When Sun Ship refused to pay the liquidated damages,
C&H filed suit to require payment of $4,413,000 in
liquidated damages under the contract. The district court
entered judgment in favor of C&H and awarded the
corporation $4,413,000 plus interest. Sun ship appealed.
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Is the liquidated damage clause
enforceable, or is it a penalty clause that
is not enforceable?
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1. Contracts are contracts
because they contain
enforceable promises.
Absent some overriding
public policy, those
promises are to be enforced.
Parties who agree to pay
damages of a fixed amount
normally have a good
sense of what damages can
occur, and the courts are
reluctant to override their
judgment.
2. In this case, the court of
appeals stated: “Proof of this
loss is difficult. Whatever the
loss, the parties had promised
each other that $17,000 per
day was a reasonable measure.
When sophisticated parties
with bargaining parity have
agreed what lack of this prize
would mean, and it is now
difficult to measure what the
lack did mean, the court will
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uphold the parties’ bargain.”
The court of appeals held that the
liquidated damage clause was not a
penalty and was therefore
enforceable. Affirmed.
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Nominal Damages
象征性的损害赔偿金
Damages awarded against the breaching
party even though the nonbreaching party
has suffered no actual damages because of
the breach. A small amount (e.g, $1) is
usually awarded. It is usually awarded “on
principle”.
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Punitive Damages
exemplary damages惩罚性赔偿金
They are generally not recoverable in an
action for breach of contract. Punitive
damages are designed to punish and make
an example of wrongdoer for the purpose of
deterring使…不敢, 阻止 similar conduct in
the future.
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Julie Gourley (Gourley ) v. State Farm Mutual
Automobile Insurance Co. (State Farm)
California Court of Appeals (1990)
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1. In late 1981, Gourley was a
passenger in an automobile that
was struck by an out-of-control
vehicle driven by an uninsured
drunk driver. She was not
wearing a seat belt at the time
of the accident, suffered a
fractured right shoulder….
Gourley made a claim under the
uninsured motorist coverage in
her automobile policy with
State Farm.
2. Medical evidence showed that
Gourley had some permanent
disability.. and might require
surgery in the future. She
demanded the policy limit of
$100,000 in September 1982,
State Farm’s attorney, Barry Allen,
advised Gourley that State Farm
would contest the proximate cause
of the injuries based on Gourley’s
failure to wear her seat belt.
Evidence showed that under
California law the seat belt issue
was not a defense. State Farm
offered a settlement of $20,000.
Gourley refused it.
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3. When Gourley reduced her
demand to $60,000, State Farm
responded with a counteroffer of
$25,000. Since the parties could
not reach a settlement, the case
went to arbitration仲裁. In October
1984, the arbitrator awarded
Gourley $88,137, which State
Farm promptly paid.
4. Gourley sued state farm
for breach of the implied
covenant of good faith and
fair dealing in handling the
claim and sought actual
damages for emotional
distress and punitive
damages. The jury awarded
her $15,765 in actual
damages and $1,576,000 in
punitive damages. State
Farm appealed.
29
Did State Farm’s conduct amount to a bad
faith tort for which punitive damages
could be awarded?
30
1.There is an implied covenant in
every insurance contract that the
insurer will do nothing to impair the
insured’s right to receive the benefit
of the contractual bargain. That is, the
insurer is expected to promptly pay to
the insured all sums due under the
contract.
2. A major motivation for the purchase of
insurance is the peace of mind that claims
will be paid promptly. Withholding benefits
is unreasonable if it is without proper cause
. In reaching its decision, the
appellate上诉的 court state: “The jury
could reasonably find” intentional bad faith.
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3. Gourley presented substantial
evidence that State Farm adopted a
stonewall of see-you-in-court attitude
as exhibited by grossly insufficient
offers to settle. The evidence was
sufficient to support the jury’s finding
of bad faith… State Farm… argues
the evidence was insufficient as a
matter of law to support the award of
punitive damages. Not so. To support
an award of punitive damages, the
plaintiff must show oppression, fraud,
or malice. There was ample evidence
to support an award of punitive
damages.
Decision
The appellate court held
that state Farm’s actions in
not settling the claim under
the policy limits by
asserting an illegal defense
(failure of Gourley to wear
a seat belt) constituted bad
faith. Affirmed.
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Rescission &Restitution
Rescission: an action to undo, or cancel a
contract---to return non-breaching parties to
the positions that they have occupied prior
to the transaction.
Restitution: the capture of a benefit conferred
on the defendant through which the
defendant has been unjustly enriched
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Equitable Remedies
1.Specific performance
2.Reformation
3.Quasi contract
4.Injunction
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