Question

CHECKLIST FOR CHAPTER # 13 --- BREACH AND REMEDIES

MNGT 262 900

1. Be familiar with the four basic categories of damages.

2. Distinguish compensatory damages in breach of contracts for the sale of goods from contracts from the sale of land, and from construction contracts.

3. In breach of contracts situations, what duty is the injured party held to? Explain what is meant by mitigation of damages.

4. Distinguish liquidated damages from penalties.

5. What two questions must a court answer in determining whether a particular provision is for liquidated damages or is a penalty? If the provision is determined to be a penalty, what are the consequences versus being considered liquidated damages?

6. Review and be aware of the following equitable remedies and when they apply:
• Rescission and Restitution
• Specific Performance
• Reformation

7. What is a quasi contract and when is it used? What are its specific requirements?

8. Review and be familiar with Exhibit 13.2 (Remedies for Breach of Contract) on page 243.

9. Distinguish an exculpatory clause in a contract from a limitation of liability clause in a contract.

Answer 1

1. Four basic categories of damages

1. Compensatory Damages – These damages are provided to the injured party of the contract for all the losses incurred as a result of the breach of contract. The intent of these damages are to compensate the party who has incurred the losses rather than penalizing the party who committed breach of contract.
2. Liquidation Damages – These damages are specifically stated in the contract entered by both the parties. Such clause is incorporated in the contract to estimate the damages in case of breach of contract by either of the party. Courts are hesitant to award liquidated damages in case the amount is too high or not reasonable.
3. Punitive Damages - The intent of such damages is to penalize the party who has committed the breach. These damages are generally provided for fraud cases. This is to restrict parties from committing the breach.
4. Nominal Damages – These damages are awarded to the non-breaching party. The intent is to prove that the injured party is right. As the name suggests, the damages are nominal amounts.

2. Compensatory Damages
   1. For breach of contract of sale of goods – Damages are either the goods replaced or the price of the goods paid to the injured party. In case the injured party had to pay any differential amount to purchase the goods from any other source, this differential also has to be paid by the party who committed breach.
   2. For breach of contract of sale of land – Similar to sale of goods, buyer or seller may seek the compensatory damages from the other party in case of sale of land for the amount already exchanged and any other expenses incurred till date. In the sale of land, the buyer or seller may compel the other party to execute the transaction of sale, however, the court may pass the judgement for the specific performance.
   3. For breach of construction contracts – In construction contract, the damages are calculated in two ways. Court decides on which option to apply.
      1. Diminution in value – The method requires the party who committed the breach of contract to pay for the difference in the value between the completed project and the amount specified in the agreement.
      2. Cost to Complete - The method requires the party who committed the breach of contract to replace or complete the contract. This method is generally adopted in case the performance under the original contract has been defective or incomplete.
3. In breach of contracts situations, duty of the injured party - Injured party may bring the action for the losses suffered due to the breach of contract. Injured party has to prove his/her loss for the damages to be awarded. Here comes the term “mitigation of risk” where the injured party has not only to prove the loss suffered, the injured party has to further prove that reasonable measures were taken by the injured party to minimize the loss. It is not required to make any substantial sacrifices to reduce the losses.
4. Liquidated Damages Vs. Penalties - As per the English law, the amount specified can be interpreted either as liquidated damages or penalty.

Liquidated damages: Amount agreed by both the parties to the agreement is reasonable and an estimate of the loss by a future breach of contract, then it is liquidated damages. Thus, both parties to the agreement agree that the amount is a fair compensation for the breach.

Penalty: Amount agreed by all parties is unreasonable or used to force the performing party to fulfill the obligation, then it is a penalty. In such cases, the amount is not awarded by the court and only actual loss is awarded to the injured party.