1. Chapter 1: Legal Ethics 1

2. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives 1.What is the difference between compensatory and consequential damages? What are nominal damages and when do courts award them? 2.What is the standard measure of compensatory damages when a contract is breached? How are damages computed differently in construction contracts? 2

3. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives 3.Under what circumstances is the remedy of rescission and restitution available? 4.When do courts grant specific performance as a remedy? 5.What is a limitation-of-liability clause, and when will courts enforce it? 3

4. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Four broad categories of damages: – Compensatory.  – Consequential.  – Punitive.  – Nominal. Damages

5. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Compensatory Damages. – Compensates nonbreaching party for loss of the bargain. – Out-of-pocket costs directly arising from breach. – Standard Measure: difference between value of promised performance and value of actual performance. Damages

6. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Compensatory Damages. – Measurement of Damages: Sale of Goods: difference between contract and market price. Sale of Land: specific performance. Construction Contracts. – CASE 12.1 J AMISON W ELL D RILLING, I NC. V. P FEIFER (2011). – CASE 12.1 J AMISON W ELL D RILLING, I NC. V. P FEIFER (2011). Why did Pfeifer have to pay for the storage container?Damages

7. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Consequential Damages. – Consequential (Special) Damages— foreseeable losses. Breaching party is aware or should be aware, cause the injury party additional loss. CASE 12.2 H ADLEY V. B AXENDALE (1854). CASE 12.2 H ADLEY V. B AXENDALE (1854). What was the principle behind this decision?Damages

8. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Damages  Punitive (Exemplary) Damages. – Deter wrongdoer; set example.  Nominal Damages. – No actual damage occurs, usually $1, for a technical injury. 8

9. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  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.Damages

10. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Liquidated Damages vs. Penalties. – Liquidated Damages: specific amount agreed to be paid as damages in the event of future breach. – Penalties: designed to penalize, generally unenforceable. CASE 12.3 B-S HARP M USICAL P RODUCTIONS, I NC. V. H ABER (2010). CASE 12.3 B-S HARP M USICAL P RODUCTIONS, I NC. V. H ABER (2010). Why was the clause enforceable? Damages

11. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Liquidated Damages vs. Penalties. – Enforceability. Court asks two questions: When contract was entered into, was it apparent damages would be difficult to estimate in the event of a breach? Was the amount set as damages a reasonable estimate and not excessive?Damages

12. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Ex. 12-1 Measurement of Damages 12

13. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Equitable Remedies  Sometimes damages are inadequate remedy.  Court can create equitable remedies: Rescission and Restitution 

14. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Equitable Remedies  Rescission. – Remedy whereby a contract is canceled and the parties are restored to the original positions that they occupied prior to the transactions. 

15. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Equitable Remedies  Restitution: both parties must return goods, property, or money previously conveyed. – Note: Rescission does not always call for restitution. Restitution is called for in some cases not involving rescission.

16. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Equitable Remedies  Specific Performance. – Equitable remedy calling for the performance of the act promised in the contract. – Provides remedy in cases involving unique subject matter: Sale of Land. Contracts for Personal Services.

17. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Equitable Remedies  Reformation. – Equitable remedy allowing a contract to be reformed, or rewritten to reflect the parties true intentions. – Available when an agreement is imperfectly expressed in writing. – Used when fraud or mutual mistake occurs.

18. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Recovery Based on Quasi-Contract  When Quasi Contract is Used. – No actual contract exists, court will create one in the interests of fairness and justice. – Usually granted when one party has performed in good faith and the other has been unjustly enriched. 

19. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Recovery Based on Quasi-Contract  Recovery Based on Quasi-Contract. – To recover, party seeking recovery must show: Party conferred benefit on other party. Party conferred the benefit with reasonable expectation of payment. 

20. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Recovery Based on Quasi-Contract  Recovery Based on Quasi-Contract. – To recover, party seeking recovery must show: Party did not volunteer in performing. Party receiving benefit would be unjustly enriched by retaining benefit without payment.

21. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Exculpatory and Limitation of Liability clauses.  UCC Allows Sales Contracts to Limit Remedies.  Enforceability of Limitation-of- Liability Clauses: depends on type of breach excused by provision. Contract Provisions Limiting Remedies

22. © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Ex. 12-2 Remedies for Breach 22