9. CONTRACTS: Remedies

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rubidoux
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151529
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9. CONTRACTS: Remedies
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2012-05-19 16:04:11
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contracts remedies
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  1. SPECIFIC PERFORMANCE
    --> an order from the court to the breaching party to perform or face contempt of court charges; the legal remedy (damages) generally is inadequate when the subject matter of the contract is rare or unique, so specific performance is more likely to make the nonbreaching party whole; usually ordered when contract is for sale of land or unique goods; not available for services even if they are rare/unique.

    • Most courts will grant an order of specific performance to enforce a contract not to compete if: (1) the services to be performed are unique (thus rendering money damages inadequate); and (2) the covenant is reasonable. To be reasonable:
    • (1) The covenant must be reasonably necessary to protect a legitimate interest of the person benefited by the convenant;
    • (2) The covenant must be reasonable as to its geographic scope and duration; and
    • (3) The covenant must not harm the public.
  2. DEFENSES TO SPECIFIC PERFORMANCE
    Because specific performance is an equitable remedy, it is subject to equitable defenses.

    LACHES: arises when a party delays in bringing an equitable action and the delay prejudices the defendant, mere delay w/ no prejudice is not a ground for this defense.

    UNCLEAN HANDS: arises when the party seeking specific performance is guilty of some wrongdoing in the transaction being sued apon; note that the wrongdoing must be related to the transaction, not sufficient that the plaintiff has defrauded other persons in similar transactions.

    SALE TO BONA FIDE PURCHASER: if the subject matter of a goods or land contract has already been sold to another who purchased for value and in good faith, the right to specific performance is cut off.
  3. BUYER'S NONMONETARY REMEDIES UNDER ART 2
    CANCELLATION: if a buyer rightfully rejects goods because they do not conform to the contract, one of her options is simply to cancel the contract.

    • BUYER'S RIGHT TO REPLEVY IDENTIFIED GOODS: if buyer has made at least part payment of the purchase price of goods that have been identified under a contract and the seller has not delivered the goods, the buyer may replevy the goods from the seller in two circumstances:
    • (1) the seller becomes insolvent within 10 days after receiving buyer's first payment; or
    • (2) the goods were purchased for personal, family, or household purposes.
    • In either case, buyer must tender any unpaid portion of the price to seller.

    In addition buyer may replevy undelivered, identified goods from the seller if the buyer, after reasonable effort, is unable to secure adequate substitute goods.

    BUYER'S RIGHT TO SPECIFIC PERFORMANCE: applies only where goods are unique or other proper circumstances; buyer has his choice of replevin or specific performance remedies; replevin will lie only for identified goods whereas specific performance may be decreed even where goods have not been identified.
  4. SELLER'S NONMONETARY REMEDIES UNDER ART 2
    If buyer fails to make a payment due on or before delivery, seller may withhold delivery of the goods; seller may also withhold goods if sold on credit and he has learned that buyer is insolvent, but must deliver if buyer tenders cash.

    If seller learns that buyer is insolvent after delivering goods on credit, he may reclaim the goods on demand made within ten days after the buyer's receipt of goods. If the seller has given buyer a written misrepresentation of solvency within three months before delivery, ten day limitation doesn't apply. Seller's right to reclaim is sublject to the rights of a buyer in the ordinary course or any other good faith purchaser.

    Seller may also stop delivery of goods in the possesion of a carrier or other bailee when he discovers that buyer is insolvent.
  5. ART 2: RIGHT TO DEMAND ASSURANCES
    Actions or circumstances that increase the risk of nonperformance by the other party, but that do not clearly indicate that performance will not be forthcoming, may not be treated immediately as an anticipatory breach; if a party reasonably fears that the other party will not perform, he may demand assurances; until he receives adequate assurances, he may suspend his own performance; if proper assurances are not given within a reasonable time (30 days), he may then treat the contract as repudiated.
  6. COMPENSATORY DAMAGES
    The goal is to put the nonbreaching party where she would have been had the promise been performed so far as money can do that.

    EXPECTATION DAMAGES: in most cases, standard measure of damages will be based on an expectation measure, ie, sufficient damages to allow her to buy a substitute performance.

    RELIANCE DAMAGES: if plaintiff's expectation damages are too speculative to measure, the plaintiff may elect to recover based on a reliance measure; reliance damages award the plaintiff the cost of her performance, ie, they are designed to put plaintiff in the position she would have been in had the contract never been formed.

    CONSEQUENTIAL DAMAGES: consist of losses resulting from the breach that any reasonable person would have foreseen at the time time of entry into the contract; plaintiff must show that both parties were aware of the special circumstances that existed a the time of formation, which would involve a substantial amount of risk and resulting damage if the contract were to be breached; note that in sales of goods, only buyer can recover consequential damages.

    INCIDENTAL DAMAGES: in contracts for sales of goods, compensatory damages may also include incidental damages which include expenses reasonably incurred by the buyer in inspection, receipt, transportation, care, and custody of the goods rightfully rejected and other expenses reasonably incident to the seller's breach, and by the seller in storing, shipping, returning, and reselling the goods as a result of the buyer's breach.
  7. LIQUIDATED DAMAGES
    Damages that the parties stipulate in the event of a breach; must be in an amount that is reasonable in view of the actual or anticipated harm caused by the breach.

    • Will be enforceable if the following two requirements are met:
    • (1) damages for contractual breach must have been difficult to estimate or ascertain at the time the contract was formed; and
    • (2) the amount agreed on must have been a reasonable forecast of compensatory damages in the case of breach; the test for reasonableness is a comparison between the amount of damages prospectively probable at the time of contract formation and the liquidated damages figure. If the liquidated damages amount is unreasonable, the courts will construe this as a penalty and will not enforce the provision.

    UCC allows a court to consider actual damages to validate a liquidated damages clause. Even if it was not reasonable at the time of formation, the court will validate it if it was reasonable in light of the subsequent actual damages.
  8. SPECIFIC SITUATIONS: CONTRACT FOR SALE OF GOODS
    BUYER'S DAMAGES WHERE SELLER DOES NOT DELIVER OR BUYER REJECTS OR REVOKES ACCEPTANCE
    Buyer's damages consist of the difference between the contract price and either the market price (ie, benefit of the bargain) or the cost of buying replacement goods (ie, cover) plus incidental and consequential damages, if any, less expenses saved as a result of the seller's breach.

    In the case of anticipatory repudiation, the buyer's damages are measured as of the time she learns of the breach. Seller's damages are measured as of the time for delivery.

    If buyer chooses cover (cost of replacement goods), she must make a reasonable contract for substitute goods in good faith and without unreasonable delay.
  9. SPECIFIC SITUATIONS: CONTRACT FOR SALE OF GOODS
    BUYER'S DAMAGES WHERE SELLER DELIVERS NONCONFORMING GOODS THAT BUYER ACCEPTS
    The basic measure of damages is the difference between the value of the goods as delivered and the value they would have had if they had been according to the contract, plus incidental and consequential damages.

    To recover damages for any defect as to accepted goods, the buyer must, within a reasonable amount of time after she discovers the defect, notify the seller.
  10. SPECIFIC SITUATIONS: CONTRACT FOR SALE OF GOODS
    BUYER'S DAMAGES WHERE SELLER ANTICIPATORILY BREACHES CONTRACT
    the difference between market price at the time of the breach and the contract price
  11. SPECIFIC SITUATIONS: CONTRACT FOR SALE OF GOODS
    SELLER'S DAMAGES WHERE BUYER REFUSES TO ACCEPT OR ANTICIPATORILY BREACHES
    Seller's basic damages are either the difference between the contract price and the market price or the difference between the contract price and the resale price of the particular goods, plus incidental (but not consequential) damages, if any, less the expenses saved as a result of the breach. If these measures don't put the seller in as good a position as performance, then the seller may recover lost profits plus incidental damages.

    Seller's damages are measured as of actual time for performance, unless suit comes to trial before that time in which case damages are measured as of the time seller learned of breach.

    Market price is measured as of the time and place for delivery.

    Breaching buyer must be given reasonable notice of intention to resell unless the goods are perishable or will decline rapidly in value.

    Lost profit is measured by the contract price with the breaching buyer minus the cost to the seller.
  12. SPECIFIC SITUATIONS:
    CONTRACTS FOR SALE OF LAND
    The standard measure of damages for breach of land sale contracts is the difference between the contract price and the fair market value of the land.
  13. SPECIFIC SITUATIONS:
    EMPLOYMENT CONTRACTS
    EMPLOYER BREACH: standard measure of employee's damages is the full contract price.

    EMPLOYEE INTENTIONAL BREACH: the employer is entitled to a standard measure of damages computed according to what it costs to replace the employee, ie, the difference between the cost incurred to get a second employee to do the work and the cost to the employer had the first breaching party done the work; the modern view allows the employee to offset any monies due from work done to date.

    EMPLOYEE UNINTENTIONAL BREACH: same as for intentional except that employee may have a right to quasi-contractual recovery for work done to date.
  14. SPECIFIC SITUATIONS:
    CONSTRUCTION CONTRACTS
    • BREACH BY OWNER:
    • before start of construction --> builder entitled to profits he would have derived from contract
    • during construction --> builder entitled to any profit he would have derived plus any costs he has incurred to date -- also stated as contract price minus cost of completion
    • after construction completed --> builder entitled to full contract price plus interest

    • BREACH BY BUILDER:
    • before start of construction: owner's measure of damages is the cost of completion, ie, the amount above the contract price that it will cost to get the building completed plus reasonable compensation for any delay in performance
    • during construction: owner entitled to cost of completion plus reasonable compensation for any delay in performance; if completion would involve undue economic waste, the measure of damages will be the difference between the value of what the owner would have received if the builder had properly performed and of what the owner actually received.
    • breach by late performance: owner has a right to damages for any loss incurred by not being able to use property when performance was due, ie, loss of reasonable rental value, however if it's hard to calculate or was not foreseeable at the time of the contract formaion, the owner can recover only the interest on the value of the building as a capital investment
  15. SPECIFIC SITUATIONS:
    CONTRACTS WITH INSTALLMENT PAYMENTS
    A missing payment is a partial breach. The other party is limited to recovering ony the missed payment, however, the contract may include an acceleration clause making the entire amount due on any late payment.
  16. CERTAINTY RULE
    Plaintiff must prove that the losses suffered were certain in their nature and not speculative. If the breaching party prevented the nonbreaching party from setting up a new business, courts would not award lost profits because they would be too speculative.
  17. RESTITUTION:
    GENERAL
    Not really part of contract law, but rather is a distinct concept based on preventing unjust enrichment when one has conferred a benefit on another without gratuitous intent. Can provide a remedy when a contract is unenforceable, and in some cases when no contractual relationship exists at all between the parties (called an action in quasi-contract).

    The measure of restitution is the value of the benefit conferred. Can measure either the value conferred on defendant or the detriment suffered by the plaintiff if the benefits are difficult to measure or the benefit measure would lead to an unfair result.
  18. RESTITUTION:
    SPECIFIC APPLICATIONS
    When the contract has been breached and nonbreaching party has not fully performed, he may choose to rescind the contract and sue for restitution. If plaintiff has fully performed, he is limited to damages under the contract. This may be less than he would have received in a restitutionary action because a restitutionary action is not limited to the contract price.

    When contract is unenforceable.

    • When there was no contract, if:
    • (1) the plaintiff has conferred a benefit on the defendant by rendering services or expending properties;
    • (2) the plaintiff conferred the benefit with the reasonable expectation of being compensated for its value; and
    • (3) the defendant would be unjustly enriched if he were allowed to retain the benefit without compensating the plaintiff.

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