Chapter 13:

Contract Remedies and Torts Associated with Contracts

A. PERFORMANCE AND BREACH

1. Levels of performance

a. Complete

(1) Tender of Performance will also discharge a contract, so long as the tender is an unconditional and absolute offer to perform his or her contractual obligations.

b. Substantial

W. E. Erickson Construction, Inc. v. Congress-Kenilworth Corp, 503 N.E. 2d 233 (Ill, 1986).

FACTS: Erickson contracted with Congress-Kenilworth to build a slide. After completion, cracks developed that had to be repaired at a substantial cost. Congress-Kenilworth refused to pay Erickson the full contract amount, and Erickson sued. The trial judgment awarding an amount to Erickson was affirmed on appeal. Congress-Kenilworth appealed.

ISSUE: Had Erickson substantially performed?

HOLDING: Yes.

REASONING: If Erickson substantially performed, its in entitled to the contract price less an allowance for repairing the defects. Substantial performance means performance in all essential elements to accomplish the purpose of the contract. The slide was completed on time and could be used even thought it needed to be repaired. The purpose of the contract was accomplished. Therefore, Erickson has substantially performed.

 

c. Inferior Performance: Material Breach

(1) rescind and seek restitution of compensation paid and be discharged from further performance.

(2) treat the contract as in effect and sue for damages caused by the material breach.

2. Anticipatory breach occurs when one party to a contract informs the other, by words or by conduct, that they will not perform their contractual duties when they are due in the future. This gives the other party an immediate cause of action for breach of contract, even though performance is not yet due.

B. MONETARY DAMAGES

1. Monetary damages

a. Compensatory damages

b. Consequential damages

 

Super Valu Stores v. Peterson, 506 So. 2d 317 (Ala, 1987).

FACTS: Peterson retired form his job at super Value after super Valu had approved him as the operator of a new retail store because Super Valu did not allow employees to operate (own) retail groceries. Super Valu was to build the store and lease it to Peterson. Super Valu failed to build the store so Peterson sued for breach of contract. The trial court awarded him $5 million in lost profits, and Super Value appealed.

ISSUE: Are lost profits from an un-established business recoverable as lost profits?

HOLDING: Yes

REASONING: Anticipated profits of an established business are recoverable as consequential damages if proven with reasonable certainty. The rule of reasonable certainty is necessary to deter parties from breaching contracts with new businesses. If the rule was not followed, a party could breach such a contract with little risk of damages being owed the aggrieved party. Peterson provided evidence that allowed the jury to calculate the amount of lost profits with reasonable certainty. Therefore, Peterson is entitled to damages.

 

c. Nominal damages

d. Liquidated damages

 

California and Hawaiian Sugar Co. v. Sun Ship, Inc., 794 F. 2d 1433 (9th Cir., 1986).

FACTS: California and Hawaiian contracted with Sun Ship to build a ship for transport of sugar cane. The ship was to be finished by June 30, 1981 during the height of the harvest season, and at the time of the contract, it was critical to California and Hawaiian that the ship be done on time. The contract contained a liquidated damages clause providing that Sun Ship would pay a sum of $1,700 a day for each day of non-delivery. The ship was delivered in March of 1982, and California and Hawaiian sued to enforce the clause even though actual damages had been much less. Sun Ship appealed a trial court judgment for California and Hawaiian.

ISSUE: Is the clause an unenforceable penalty clause?

HOLDING: No

REASONING: Where sophisticated parties with bargain parity has agreed as to what nonperformance would mean, and it is now difficult to measure what nonperformance did mean, the court will uphold the parties' bargain and not substitute its own judgment. At the time bargained, they knew what failure of performance might mean. They agreed upon what both thought was a fair figure. Therefore, the value is enforceable.

 

2. Mitigation of damages requires the nonbreaching party to take reasonable steps to avoid or reduce the damages they have suffered due to the breaching party.

 

Parker v. Twentieth Century-Fox Film Corp., 3 Cal. 3d 176 (1970).

FACTS: Parker and Twentieth Century had a contract under which Parker was to star in a film to be made in Los Angeles for a guaranteed compensation. Twentieth Century notified Parker that the film would not be made, but offered Parker a part in another movie to be made in Australia. Parker rejected the offer and sued to enforce the guaranteed compensation clause. Fox appealed a judgment for Parker.

ISSUE: Did Parker fail to mitigate damages by rejecting the offer?

HOLDING: No

REASONING: The measure of damages for a wrongfully discharged employee is the amount the employee would have earned minus what the employee had earned during the time period and what the employee might have earned at comparable jobs if he had made a reasonable effort to locate other employment. The potential other employment must be comparable or substantially similar to the employment that was lost. The two types of employment for Parker were not comparable. The second movie was entirely different and inferior to the role agreed upon in the contract. Therefore, Parker has not failed to mitigate damages by rejecting the offer.

 

C. RESCISSION AND RESTITUTION

1. Rescission and restitution restore the parties to the same

position they occupied before the contract.

a. Rescission is an action taken to undo the contract.

b. Restitution is the return of any benefit or

D. EQUITABLE REMEDIES

1. Equitable remedies are available if the nonbreaching party

a. Specific performance is an court order ordering the

Okun V. Morton, 203 Cal. App. 3rd 805 (App, 1988).

FACTS: Okun and Morton had a contract whereby Okun acquired an interest in a general partnership to operate businesses under the name of Hard Rock Café. The contract provided that Okun would have the opportunity to acquire a similar interest in any business opportunities using the Hard Rock Café name. Morton opened new locations without giving Okun a chance to invest in them. Okun sued for specific performance of the contracts. Morton appealed a lower court decision in favor of Okun.

ISSUE: Is specific performance an appropriate remedy?

HOLDING: Yes

REASONING: An agreement can be specifically enforced when the terms are definite, the subject matter is unique, and such enforcement in not unduly burdensome for the court. The parties had already abided by the terms of the contract up until their disagreement. The words of the contract reinforced by the performance of parties definitely state what the parties were to do, the situation is unique, and enforcement would not be unduly burdensome. Therefore, specific performance is an appropriate remedy in this case.

 

b. Reformation permits a court to rewrite a contract to express parties true intentions, especially to correct clerical or mathematically errors.

c. Quasi-contract is used to prevent unjust enrichment when no actual contract between the parties exists. Also called implied-in-law contract and quantum meruit.

d. Injunction is an equitable remedy which orders a party not to do something if the innocent party will be irreparably injured if the injunction is not granted.

 

E. TORTS ASSOCIATED WITH CONTRACTS

1. Types

a. Intentional interference with contractual relations.

b. Breach of implied covenant of good faith and fair dealing. Available only in certain contracts (insurance). Also called tort of bad faith.

 

2. Tort damages include the actual damages available in

most torts (personal injury, pain and suffering, emotional

distress, etc.) plus punitive damages since these torts

involve intentional and in most cases egregious conduct.

Gourley v. State Farm Mutual Automobile Insurance Co., 227 Cal. App. 3d (App., 1990).

FACTS:

ISSUE:

HOLDING:

REASONING:

 

E. ENFORCEMENT OF REMEDIES

1. Judgment is issued by the court after the trial or hearing and will specify the remedy the prevailing party has against the breaching party.

2. Methods of satisfying the judgment is the defendant does not pay it:

a Writ of attachment is a court order to the sheriff to seize the defendant's property and to sell the property at auction. Proceeds are paid to the plaintiff.

b. Writ of garnishment is a court order to a third party (bank, employer, etc.) who holds property of the defendant to deliver the property to the court. Wage garnishments are subject to limits set by law.