Contract Defenses, Discharge, and Remedies

1. Contract Defenses, Discharge, and Remedies Ethical Considerations Question, p. 220 – Reading of Contract – same issue as next slide The contract “shall continue in force for a period of five years from the date it is made and thereafter for successive five year terms, unless and until terminated by one year prior notice in writing by either party.

2. Mistake • End of Chapter Question 8 , p. 250 Group 7 V. $92,885,000.00 or $92,855.00

3. Ethical Considerations, P. 260 $50 desk at garage sale worth $15k Map sold for $3 but worth $19 million? One of the ships “Peerless” Raffles v. Wichelhaus Two Ships Peerless. Wichelhaus purchased a shipment of cotton from Raffles to arrive on a ship called the Peerless from Bombay, India. Wichelhaus meant a ship called Peerless sailing from Bombay in October; Raffles meant another ship called the Peerless sailing from Bombay in December. When the goods were finally delivered in December, Wichelhaus refused them. Should Wichelhaus be forced to accept the goods?

4. Examples of each

5. Genuineness of Assent • Mistake of Fact by both parties makes the contract voidable. • Substantiality of the Mistake. • Allocation of the Risks. • CASE 7.5Honda v. Board of Trustees of the Employees’ Retirement System of the State of Hawaii (2005). • Timing.

6. Parties may agree to dischargetheir contractual obligations inseveral ways: By Rescission And Restitution By Accord and By Novation Satisfaction The parties The parties A new party is mutually agree agree to render substituted for to rescind performance one of the (cancel) the different from primary parties contract. that originally to a contract. agreed on. Discharge by Agreement

7. Agreement to Settle Based on Bad Information • End of Chapter Question 4 , p. 249 • Agreed to settle with insurance company for $15,000, the amount he thought was his policy limit. • His policy in fact had a $250,000 limit • When he learned of the higher limit can he rescind his contract to settle? Lanci v. Metropolitan Insurance

8. Case re: termination of catering job 5 days before picnic • $7,000 contract for catering • Cancelled 5 days before • Contract required full payment if cancelled • Plaintiff asserts it's an unlawful penalty clause Types of Damages Compensatory Damages Consequential Damages Punitive Damages Nominal Damages Liquidated Damages

9. Hadley v. Baxendale (1854) • The question before the court was whether Hadley (the mill owner) could recover for consequential damages—the lost profits—caused by Baxendale’s delay in delivering a broken crankshaft. • The court held that the Hadleys could recover only if Baxendale knew or should have known that the mill would have to be shut down while the crankshaft was being repaired. Was Baxendale aware of this? • If it had not been the custom in the mid-1800s for mills to have extra crankshafts on hand, how would this circumstance have affected the court’s ruling?

10. Mitigation of Damages • When breach of contract occurs, the innocent injured party is held to a duty to reduce the damages that he or she suffered. • Duty owed depends on the nature of the contract. Classic Case You install a window as part of your business and the window breaks after you leave due to your negligence. The homeowner fails to cover the window and additional damages in the home results.

11. Punitive Damages • Punitive damages are awarded to punish the breaching party and deter similar conduct in the future. • These are usually notawarded in an action for breach of contract unless a tort is involved.

12. Nominal Damages • Nominal damages are those small in amount (such as one dollar) that are awarded when a breach had occurred but no actual damages have been suffered. • They are often awarded only to establish that the defendant acted wrongfully.

13. End-of-Chapter Q. 2, p. 249 • Sound Finacial, LLC v. Unisearch (2002). • Liability limited to $25.

14. Green Park Inn, Inc. v. Moore (2002). Sale of hotel - $500,000 liquidated damages Liquidated Damages • Damages Stated in Contract. Damages that may be specified in a contract as the amount to be paid to the nonbreaching party in the event the contract is later breached. • Damages Difficult to Estimate and Reasonable Amount. Clauses providing for liquidated damages are enforced if the damages were difficult to estimate at the time the contract was formed and if the amount stipulated is reasonable. • If Penalty – Not Enforced.

15. Reimbursement Collision with semi left Deborah Shank permanently brain damaged. Her husband sued and won $700,000 compensatory damages. Wall-Mart insurance company sued for the money.

16. Specific Performance • Performance Not Damages. An equitable remedy calling for the performance of the act promised in the contract. • Limited Application. Specific performance is only available in special situations, such as • those involving contracts for the sale of unique goods or land, or • when monetary damages would be an inadequate remedy. • Not for Personal Services. 1 2 3 4

17. Oral Agreement • End of Chapter Question 5 , p. 249 • Cindy Sawyer approached Melbourne Mills, an attorney, regarding an idea to sue on behalf of fen-phen users. • Mills agreed to pay her $1 million, plus $65,000 over 10 years, if successful • Oral agreement • He won $23 million but only paid her $160,000

19. Parol Evidence • No Oral Evidence. Terms of a written agreement intended to be the final expression of parties’ intentions, cannot be contradicted by prior or contemporaneous agreements. • Exceptions to the rule: • Contracts subsequently modified. • Voidable or Void contracts. • Contracts containing ambiguous terms. • Prior dealing, course of performance, or usage of trade. • Contracts subject to orally agreed-on conditions. • Contracts with an obvious or gross clerical error that clearly would not represent the agreement of the parties.

20. Changed Circumstances • Impossibility: an event causes obligations to be discharged. • Impracticality: performance is possible but commercially impractical. • Frustration of Purpose: performance is possible, but changed circumstances have made the contract useless to one or both of the parties. • Sovereign Acts Doctrine: the government cannot be held liable for breach of contract due to legislative or executive acts.

21. Houseboat example Provisions Limiting Remedies • Exculpatory Clause. A contract may provide that no damages (or only a limited amount of damages) can be recovered in the event the contract is breached. • Enforceability of Clauses. Whether such provisions are enforced depends on the type of breach that is excused by the provision. For example: • Fraud. Clauses excluding liability for fraudulent or intentional injury or for illegal acts cannot be enforced. • Negligence. Clauses excluding liability for negligence may be enforced if both parties hold roughly equal bargaining power.

22. Contrary to Public Policy and Quasi Contract • Contrary to Public Policy • Restraint of trade • Covenant not to compete • Unconscionable • Adhesion Contract • Exculpatory Clauses (exclude liability for fraud, intentional injury, or illegal acts) • Quasi Contract - Implied In Law • Quasi Contract • Unjust enrichment

23. Current Events Report – ATT/Tmobile Antitrust – week 4AnkurNick