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Valid Contracts

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Valid Contracts document sample

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									      Creating Valid and
      Enforceable Contracts




UT-Austin Edinburgh Summer Program 2002
                    Contracts
 • What is a “contract”?
     – A promise that the law will enforce.

 • Where does contract law come
   from?
     –Common Law
     –Uniform Commercial Code
        •UCC Article 2 governs the sale of goods. “Goods” means
        anything moveable, except for money, securities, and
        certain legal rights.
        •In a mixed contract, Article 2 governs only if the primary
        purpose was the sale of goods.
UT-Austin Edinburgh Summer Program 2002
  • The Purpose of a Contract:
        –to make business matters more predictable.

  • Essential Elements of a Valid Contract
        –Agreement
           •offer, and acceptance
        –Consideration
           •There has to be bargaining that leads to an exchange
           between the parties.
        –Legality
           •The contract must be for a lawful purpose.
        –Capacity
           •The parties must be adults of sound mind.

UT-Austin Edinburgh Summer Program 2002
          More Terminology:
  Types of Contracts (or Agreements)
    Bilateral     vs. Unilateral        Express     vs. Implied

                        Executory   vs. Executed

   Valid    vs.    Unenforceable     vs. Voidable    vs.   Void

  • Bilateral and Unilateral Contracts
      – Bilateral: both parties make a promise.
      – Unilateral: one party makes a promise that
        the other party can accept only by doing
        something


UT-Austin Edinburgh Summer Program 2002
       Types of Contracts (cont’d)
  • Express and Implied Contracts
     – Express: the two parties explicitly state all
       important terms of their agreement.
     – Implied: the words and conduct indicate that
       the parties intended an agreement.
  • Executory and Executed Contracts
     – Executory: when one or more parties has not
       fulfilled its obligations.
     – Executed: when all parties have fulfilled their
       obligations.



UT-Austin Edinburgh Summer Program 2002
     Types of Contracts (cont’d)
  • Valid, Unenforceable, Voidable, and Void
    Agreements
     – Valid: satisfies the law’s requirements.
     – Unenforceable: when the parties intend to
       form a valid bargain but some rule of law
       prevents enforcement.
     – Voidable: when the law permits one party to
       terminate the agreement.
     – Void: one that neither party can enforce,
       usually because the purpose is illegal or one
       of the parties had no legal authority.



UT-Austin Edinburgh Summer Program 2002
       Terminology: Quasi-contract
   •  Even when there is no contract, a court
      may use quasi-contract to compensate a
      plaintiff who can show that:
       – He gave some benefit to the defendant.
       – He reasonably expected to be paid for
         the benefit and the defendant knew this;
         and
       – The defendant would be unjustly
         enriched if she did not pay.
   • The damages awarded are called quantum
      meruit, meaning that the plaintiff gets “as
      much as he deserved.”
UT-Austin Edinburgh Summer Program 2002
     Essential Elements of Valid Contracts:
    Mutual Agreement = Meeting of the Minds

   • The parties can form a contract only if
     they had a meeting of the minds.
     – They must understand each other and intend
       to reach an agreement.
     – A judge will make an objective assessment of
       any disagreements about whether a contract
       was made -- whether or not a reasonable
       person would conclude that there was an
       agreement, based on the parties’ conduct.


UT-Austin Edinburgh Summer Program 2002
       Deciding if a Contract has been
        Formed: Negotiation Terms
  JOE                         BOB
  Offer                       Accept, or
                                  Reject,
   or
  Accept, or                  Counteroffer
  Reject, or
  Counteroffer

UT-Austin Edinburgh Summer Program 2002
       Deciding if a Contract has been
        Formed: Is there an Offer?
     An offer is an act or statement that proposes
     definite terms and permits the other party to
     create a contract by accepting those terms.

     • Problems with Intent
        –   Invitation to bargain is not an offer.
        –   Price quote is generally not an offer.
        –   An advertisement is generally not an offer.
        –   Placing an item up for auction is not an offer, it
            is merely a request for an offer.
     • Problems with Definiteness
        – The term of the offer must be definite.

UT-Austin Edinburgh Summer Program 2002
              Offers: Definite Terms
•   1. I’ll give a blueberry muffin and a cup of coffee to
    the first person who shows up next class in class
    wearing a top hat.
•   2. Would you consider wearing a top hat if I gave
    you a blueberry muffin and a cup of coffee?
•   3. I couldn’t accept less than $4000 for my car.
•   4. General common law rule: all
    important/essential terms (price, quantity, etc.)
    must be specified. EXCEPTIONS: UCC
    situations, and where industry practice suggests
    how the missing terms will be filled in. E.g.,
    seafood restaurant example.
UT-Austin Edinburgh Summer Program 2002
        Termination of Offers
  • Termination by Revocation
     – Effective when the offeree receives it.
  • Firm Offers and Revocability
     – Common Law Rule
        • Revocation of a firm offer is effective if the offeree
          receives it before he accepts.
     – Option Contract
        • The offeror may not revoke an offer during the
          option period.
     – Sale of Goods/UCC
        • A writing signed by a merchant, offering to hold an
          offer open, may not be revoked.

UT-Austin Edinburgh Summer Program 2002
                 Acceptance
  • The offeree must say or do something to
    accept.
     – In a bilateral contract, the offeree generally
       must accept by making a promise.
     – In a unilateral contract, the offeree must
       accept by performing.
     – If the offer is ambiguous, the offeree may
       accept by either a promise or performance.
  • Mirror Image Rule (Common Law)
     – Requires that acceptance be on precisely the
       same terms as the offer.

UT-Austin Edinburgh Summer Program 2002
            Mirror Image Rule
  1. Stan offers Eric $100 for Eric’s brand new
     racing bicycle.
  2. Eric answers, “I’ll take $100 plus your old,
     broken bike.” (Worth $10).
  3. Stan responds, “Let’s meet back here in 20
     minutes.”
  4. In 20 minutes Stan returns with $100 and a
     different used bicycle (worth $30).
  5. Eric refuses to make the trade.

    DID STAN AND ERIC HAVE A DEAL?
UT-Austin Edinburgh Summer Program 2002
   Exception to the Mirror Image Rule:
     UCC and the “Battle of Forms”
  •   In sale of goods, offeree may include in
      the acceptance terms that are
      additional to or different from those in
      the offer.
      – Additional terms are those that bring up
        new issues.
         • If both parties are merchants, the additional
           terms will generally become part of the contract.
      – Different terms are those that contradict
        terms in the offer.
         • The majority of states hold that different
           (contradictory) terms cancel each other out
         -- Court uses UCC and its judgment to fill gaps
UT-Austin Edinburgh Summer Program 2002
      Communication of Acceptance
  • Medium and Manner of Acceptance
     – If an offer demands acceptance in a
       particular medium or manner, the offeree
       must follow those requirements.
     – If the offer does not specify a type of
       acceptance, the offeree may accept in any
       reasonable manner and medium.
  • Time of Acceptance: The Mailbox Rule
     – An accceptance is generally effective upon
       dispatch, meaning the moment it is out of the
       offeree’s control.

UT-Austin Edinburgh Summer Program 2002
      Essential Elements of a Valid Contract:
                   Consideration
  •    Def’n: “Consideration means that there must be
       bargaining that leads to an exchange between
       the parties.”

  •    Consideration can be anything that someone
       might want to bargain for. It is the inducement to
       make the deal, or the thing that is bargained-for.

  •    Consideration must be present to make any
       promise enforceable, but courts do not generally
       inquire into adequacy of consideration.

UT-Austin Edinburgh Summer Program 2002
  What is the consideration supporting each
                  promise?

  1.  Stan agrees to pay Eric $100 for Stan’s bicycle;
     exchange to take place next Tuesday.
  2. Professor promises to give a cup of coffee and a
     blueberry muffin to the first person to come into
     class in a top hat.
  3. I agree to pay you $500 for your record
     collection.
  4. I promise to pay my son $100 if he does not
     watch MTV for one year.

UT-Austin Edinburgh Summer Program 2002
     “Bargaining is obligating yourself in
   order to induce the other side to agree.”

  •   The thing bargained for can be:
      – another promise or action.
      – a benefit to the promisor or a detriment to the
        promisee.
      – a promise to do something or a promise to refrain
        from doing something.
      – Hamer v. Sidway
  •   Must be more than an “Illusory Promise”
      – If one party’s promise is conditional, the other
        party is not bound to the agreement.
UT-Austin Edinburgh Summer Program 2002
                       REAL CASE
1. Mr. C offers to sell his land to Mr. B, who is interested in
   the land’s mineral rights.
2. They agree to a sale contract under which Mr. B will put
   up a $5000 “earnest money” check to be deposited in a
   bank for 60 days while Mr. B performs engineering and
   other studies on the property.
3. If the studies indicate the mineral rights aren’t valuable,
   Mr. B may decide not to buy the land, the earnest money
   will be returned to Mr. B.
4. Mr. B decides he wants to buy, but Mr. C refuses to sell.
            CAN MR. B FORCE MR. C TO SELL?

UT-Austin Edinburgh Summer Program 2002
             Past consideration
  CASE: Promise to pay in return for past favors.
    Old man says, “Since you have been so
    nice to me these past seven years, I will
    provide for you in my will.” Then he dies
    without leaving money to plaintiff.
  • Is this consideration?
  • Was it bargained-for?



UT-Austin Edinburgh Summer Program 2002
       What is the courts’ attitude toward
   evaluating the adequacy of consideration?

   • Courts seldom inquire into the adequacy
     of consideration.
   • Eric agreed to pay $5 for Stan’s $100
     bicycle, and Stan agreed. Stan later
     changes his mind and argues that his
     promise to deliver the bike is not
     enforceable because the $5 is insufficient
     consideration.


UT-Austin Edinburgh Summer Program 2002
     Exceptions to the Requirement of
    Consideration: Promissory Estoppel
  Goff-Hamel case:
  • Did the plaintiff and the defendant have an
     enforceable contract? Were all the essential
     elements of a contract present?
  • What exactly made the defendant’s promise
     to pay enforceable in this case?




UT-Austin Edinburgh Summer Program 2002
       Exceptions to the Requirement of
      Consideration: Promissory Estoppel
  •    Promise meant to induce action,
  •    On which the promisee reasonably relies
  •    To his/her detriment

      Is enforceable in the absence of consideration

   NOTE: All 3 of these factors must be present for
         the promissory estoppel rule to apply

UT-Austin Edinburgh Summer Program 2002
         Promissory Estoppel (cont’d)

  •   Supervisor was pleased with employee’s work
  •   In March, Supervisor promised employee that
      she would get 5% of the company stock as a
      Christmas bonus
  •   Employee turns down several higher paying
      job offers between March and December
  •   Supervisor never made good on that promise
  •   Employee sues to enforce the promise.
                      RESULT?


UT-Austin Edinburgh Summer Program 2002
         Capacity and Consent
  • One seven year old says to another, “I will
    give you a $10 if you give me your baseball
    glove tomorrow at noon.” Second child
    agrees.

     – Offer and acceptance?
     – Consideration?
     – Valid contract?

UT-Austin Edinburgh Summer Program 2002
                   Capacity
  •   What is “capacity”? How does it relate
      to contract law?

  •   What happens if one party to a contract
      lacks capacity?




UT-Austin Edinburgh Summer Program 2002
                      Minors
  •   Valid contract voidable by minor party (< 18)
  •   Disaffirmance
      – A minor generally may disaffirm a contract, either
        by notifying the other party he refuses to be bound
        by the agreement, or by filing a suit to rescind the
        contract, that is, to have a court formally cancel it.
  •   Restitution
      – A minor who disaffirms a contract must return the
        consideration he has received, to the extent he is
        able.
      – What if consideration is destroyed through minor’s
        negligence? Intentional act?


UT-Austin Edinburgh Summer Program 2002
                     REAL CASE

  •   P, a minor, bought two pairs of chinchillas
      from D, for a total of $1850. They multiplied,
      producing a total of 8.
  •   While still a minor, P disaffirmed the contract,
      and offered to return the 6 chinchillas that
      were still alive at the time.
  •   D refused. P sued.
  •   At the time of trial, only 2 chinchillas were still
      alive, thanks to P’s careless failure to “water
      them properly.”
                      RESULT?
UT-Austin Edinburgh Summer Program 2002
          Minors -- Exceptions
  • Timing of disaffirmance & Ratification
     – Minors may disaffirm a contract up to a
       reasonable time after turning 18, unless
       they ratify the contract after turning 18.




UT-Austin Edinburgh Summer Program 2002
   Mentally Impaired Persons
  •   Definition
       – A person with mental illness or defect, who
         is unable to understand the nature and
         consequences of a transaction.
       – Impairment must be more than mere
         eccentricity or volatility.
       – E.g., insanity, dementia, schizophrenia,
         mental retardation.
       – Generally creates only a voidable contract.
  •   Restitution
       – A mentally infirm party who seeks to void a
         contract must make restitution.

UT-Austin Edinburgh Summer Program 2002
       Mentally Impaired Persons (cont’d)

  • Intoxication
     – When an intoxicated person makes a
       contract, it is voidable.
     – Must be so intoxicated as to be unable to
       understand the nature and consequences
       of the transaction.
  • Mental Incapacity may be temporary
     – Senile       Not senile      Senile
     – Ratification


UT-Austin Edinburgh Summer Program 2002
                        Illegality
 Why is the contract in Brunswick Floors
   unenforceable? Weren’t offer, acceptance
   and consideration all present?
    Covenant not to compete is so broad that it
    violates our public policy in favor of free mobility
    of labor.
 What sorts of contracts are illegal?
   Illegal/criminal purpose (e.g. gambling debts),
   contrary to public policy (covenant not to compete)


UT-Austin Edinburgh Summer Program 2002
                    Mistake


 Raffles v. Wichelhaus:
 • Why was the contract to ship cotton
   unenforceable?
 • In what sense was this a “mutual” mistake?




UT-Austin Edinburgh Summer Program 2002
           Mistake -- Bilateral
  • A bilateral mistake occurs when both parties
    negotiate based on the same factual error.
     – If the parties contract based on an important
       factual error, the contract is voidable by the
       injured party.
  • Conscious Uncertainty
     – No rescission is allowed where one of the
       parties knows she is taking a risk.



UT-Austin Edinburgh Summer Program 2002
          Mistake -- Unilateral
  • Sometimes only one party enters a
    contract under a mistaken assumption,
    a situation called unilateral mistake.
     – to rescind for unilateral mistake, a party
       must demonstrate that she entered the
       contract of a basic factual error and that
       either
        • (1) enforcing the contract would be
          unconscionable or
        • (2) the nonmistaken party knew of the error.

UT-Austin Edinburgh Summer Program 2002
    Other Facts Undermining Consent:
      Misrepresentation and Fraud
  • Innocent misrepresentation
     – means the owner believes the statement to be
       true and has a good reason for that belief.
  • Fraudulent misrepresentation
     – means the owner knows that the statement is
       false.
  • Remedy may depend upon speaker’s intent



UT-Austin Edinburgh Summer Program 2002
    Misrepresentation and Fraud (cont’d)

  • To rescind a contract based on
    misrepresentation or fraud, a party
    must show three things:
     – (1) there was a false statement of fact;
     – (2) the statement was fraudulent or
       material; and
     – (3) the injured person justifiably relied
       on the statement.


UT-Austin Edinburgh Summer Program 2002
      Misrepresentation and Fraud (cont’d)

  •     Statements of fact vs. Opinion and “Puffery”
        – Salesperson says: “This vacation property is
          beautiful waterfront property that your family will
          love.” In fact it is mostly swampland.
        – Salesperson says: “For my money, the Maytag
          XKG-47 is the finest washing machine ever
          made because owning it will make your life
          hassle-free. Owning one will make you a
          happier person.”


UT-Austin Edinburgh Summer Program 2002
        Fraudulent or Material
  •   Fraudulent: without regard to truth or falsity
      – Seller says “The air conditioning in this house is
        working fine” knowing that is untrue.
      – Seller says “This house is built on solid rock”
        without any reasonable belief that is true.
  •   Material: integral to other party’s agreement
      – Seller says “This roof is only two years old.”
        Seller believed that was true, but roof was
        actually 14 years old (beyond normal useful life
        of shingles).
      – What if the roof is two years and three months
        old?

UT-Austin Edinburgh Summer Program 2002
           Justifiable Reliance
  • What if buyer agreed to buy house
    before the seller misled him about the
    age of the roof?
  • What if it was obvious that the roof was
    much older than two years old, because
    it was decayed and falling apart?
  • No duty to investigate

UT-Austin Edinburgh Summer Program 2002
     Nondisclosure of a Fact
  • Is misrepresentation only:
     – To Correct a Previous Assertion
     – To Correct a Basic Mistaken Assumption
        • A seller must report any known latent defect that
          the buyer is not expected to discover himself.
     – To Correct a Mistaken Understanding about
       a Writing
     – In A Relationship of Trust
        • When one party naturally expects openness and
          honesty, based on a close relationship, the other
          party must act accordingly.



UT-Austin Edinburgh Summer Program 2002
    Other Reasons for Voiding Contracts
 Duress: A signs contract at the insistence of B,
   who is holding a gun to his head.
 Economic Duress: Pursuant to their contract,
   A owed B a delivery of widgets on July1.
   On June 29, A tells B he won’t deliver
   unless B agrees to pay more than the
   contract price for the widgets. B agrees.




UT-Austin Edinburgh Summer Program 2002
Performance and Breach
of Contract
                  Discharge
 •   What does it mean to say that a party to a
     contract “is discharged”?
     Generally, a party is discharged when she
     has no more duties under a contract.

 •   How does discharge occur?
     Either by full performance, or by mutual
     agreement. General rule: parties must perform
     as promised. A breach is a failure to perform as
     promised.
UT-Austin Edinburgh Summer Program 2002
                  Conditions
  •   A condition is an event that must occur before
      a party becomes obligated under a contract.
  •   Conditions
      – No special language is necessary to create the
        condition, but it must be understood clearly
        somehow.
      – I agree to do X if you do Y.
      – I will pay you $500 for your car provided that you
        get me a mechanic’s certification that it is in good
        working order.
      – Landlord’s duty to fix problems with the premises is
        conditioned upon tenant notifying landlord of
        problem.
UT-Austin Edinburgh Summer Program 2002
      Performance & Breach

   What is the difference between
     complete (or “strict”) performance
     and substantial performance?
   What is the significance of this
     distinction?




UT-Austin Edinburgh Summer Program 2002
      Performance & Breach
  •   Complete (or “strict”) Performance
       – Performance that is exactly what is
         promised
  •   Substantial Performance
       – A party that substantially performs its
         obligations will receive the full contract
         price, minus the value of any defects.
       – A party that fails to perform substantially
         receives nothing on the contract.
       – Performance that falls short of substantial
         performance constitutes a material breach
         of the contract.


UT-Austin Edinburgh Summer Program 2002
      Performance & Breach (cont’d)
  In a contract for the construction of a home that
      specified the size of decorative exposed
      beams, beams in the finished house are
      smaller than specified, by 5%?
      Material breach? Remedy?
      How much money does buyer owe builder, if any?

  What if the beams are load supporting beams?
      Material breach? Remedy?
      How much money does buyer owe builder, if any?



UT-Austin Edinburgh Summer Program 2002
       Performance & Breach (cont’d)
•    What if contract for construction of house
     specifies hardwood floors made of oak, with
     clear stain. Buyer gets hickory, with oak-
     colored stain.
    Parties can define terms as essential such that
    strict performance of those terms is required,
    and breach of those terms is a material breach.
•   Contract specifies that oak floors are an
    essential element of the contract.
•   Filing cabinet delivery example.


UT-Austin Edinburgh Summer Program 2002
      Performance & Breach (cont’d)

   • Jacobs and Young case
   • Van Steenhouse case




UT-Austin Edinburgh Summer Program 2002
        Time of the Essence Clauses
 Is untimely performance a material breach of
 contract?

  •   A time of the essence clause will generally
      make contract dates strictly enforceable.
  •   Merely including a date for performance does
      not make time of the essence.
  •   Complicated construction contracts: In this
      context, even with time of the essence
      clauses, courts may not excuse payment if
      breaching party has substantially performed.

UT-Austin Edinburgh Summer Program 2002
       Material and Non-material
           Breach: Recap
  • Courts won’t enforce strict performance, but
  will instead grant injured party damages =
  contract price minus the value of the defects
  • But if performance falls short of substantial
  performance, injured party’s duty to perform
  is excused.



UT-Austin Edinburgh Summer Program 2002
               Breach (cont’d)
  •   Anticipatory Breach
      – Anticipatory breach is committed by one
        party making it unmistakably clear that he
        will not honor the contract.
      – A delivers widgets to B’s factory weekly; B
        is obligated to pay monthly for previous
        month’s deliveries. B’s bank accounts are
        seized by the court to pay creditors.
      – A need not make next delivery and may
        sue for payment for deliveries made, even
        though time for payment under the contract
        has not yet arrived.


UT-Austin Edinburgh Summer Program 2002
          Discharge by Agreement
 1. Rescission
 2. Amendment or substitution  Remember the
                                         problem of
 3. Accord and satisfaction              economic duress

    Usually to discharge an
    outstanding disputed debt for less
    than the amount the creditor
    believes s/he is owed.

 4. Novation

UT-Austin Edinburgh Summer Program 2002
       Discharge by Law: Impossibility
•   When is performance excused due to change
    in circumstances? That is, must promisor make
    good on promise (through own or substitute
    performance), or is s/he excused?
• True Impossibility
    –Something has happened making it utterly impossible to
    fulfill the promise.
    –Objective vs. subjective determination
    –Courts will ask whether substitute performance will fulfill
    the parties’ original intentions.


UT-Austin Edinburgh Summer Program 2002
         Impossibility (cont’d)
  • Portrait painter becomes ill and cannot
    paint your portrait as required by the
    contract?
     – Must painter provide substitute performance?
  • House painter can’t paint your house
    because his employees go on strike?
     – Must painter provide substitute performance?
  • Key: Can will of the parties be met?



UT-Austin Edinburgh Summer Program 2002
       Impossibility: related doctrines
•   Commercial Impracticability
     – Some event has occurred that neither party anticipated,
       making the contract extra-ordinarily difficult and unfair to
       one party.
     – Wartime examples vs. Gulf War example
     – Distinguish market volatility/contemplated risk in long
       term contracts
•   Frustration of Purpose
     – Some event has occurred that neither party anticipated
       and the contract now has no value for one party.
     – Coronation cases
     – I agree to meet the day of the concert and pay $50 for
       front row seat. Concert is cancelled.


UT-Austin Edinburgh Summer Program 2002
         Impossibility and Force Majeure
  •   Spells out the kinds of impossibility that will
      excuse performance. For example:

      – Performance under this agreement shall be
        excused if prevented by unforeseeable acts
        beyond the parties’ control, including acts of
        God, acts of a public enemy, labor disputes,
        fires, insurrections, floods, acts of government.

  •   Parties can define force majeure narrowly or
      broadly, to include all sorts of disruptions.


UT-Austin Edinburgh Summer Program 2002
     Remedies for Breaching the Contract

  • Someone breaches a contract when he
    fails to perform a duty without a valid
    excuse.
  • A remedy is the method a court uses to
    compensate an injured party.
  • Damages, or an order forcing someone
    to do something
  • Damages are most common remedy
UT-Austin Edinburgh Summer Program 2002
            Compensatory Damages
  •   Compensatory damages are the most
      common monetary awards.
  •   They generally flow directly from the
      contract, such as an order to pay what was
      promised or to pay for expenses caused by
      the breach.
      – We agree that I will paint your house for $500,
        and you pay in advance; I paint 80% of the
        house.
  •   The injured party must prove the breach
      caused damages that can be quantified with
      reasonable certainty.

UT-Austin Edinburgh Summer Program 2002
                  Incidental Damages
  • Incidental damages are the relatively minor
    costs incurred when the injured party
    responds to the breach (obtaining cover),
    such as the extra cost of buying replacement
    goods.
   Acme agrees to sell       Big Bob has to   Big Bob can recover
   1000 widgets to Big     buy 1000 widgets   incidental damages
    Bob’s for $1 each,      from ConCo for      of the extra $250
   but fails to deliver.     $1.25 each.          from Acme.




UT-Austin Edinburgh Summer Program 2002
            Consequential Damages

  •   Consequential damages (a/k/a “special
      damages) are those resulting from the unique
      circumstances of this injured party.
  •   Plaintiff can recover consequential damages
      only if the breaching party should have
      foreseen them. Hadley v. Baxendale
  •   EXAMPLE: Hauler’s truck is stolen; he files
      insurance claim; insurer delays payment,
      causing lost profits. Agent knows that this is
      Hauler’s only truck.
                    WHAT RESULT?

UT-Austin Edinburgh Summer Program 2002
       Consequential Damages (cont’d)

  • Examples:
     – Lost profits
     – Damages paid on related contracts

  • Because damage calculation can be
    complex, there are companies that
    specialize in doing the work on behalf of
    litigants or other interested parties.

UT-Austin Edinburgh Summer Program 2002
      Special Issues of Damages
  •   Mitigation of Damages
       – A party may not recover for damages that could
         be avoided with reasonable efforts.
       – Lease agreements
       – Employment agreements: Parker v. Twentieth
         Century Fox
  •   Nominal Damages
       – Nominal damages are a token sum, such as $1,
         given to a plaintiff who demonstrates that the
         defendant breached the contract but cannot
         prove damages.


UT-Austin Edinburgh Summer Program 2002
          Liquidated Damages
  •   A liquidated damages clause, is a provision
      stating in advance how much a party must
      pay it if it breaches.
  •   A court will generally enforce a liquidated
      damages clause if :
      – (1) at the time of creating the contract it was very
        difficult to estimate actual damages, and
      – (2) the liquidated amount is reasonable.
  •   Court will not enforce if it is clearly a penalty
      for breaching contract.
UT-Austin Edinburgh Summer Program 2002
            Punitive Damages
  •   Designed not to compensate the injured
      party, but to punish the breaching party.
  •   In awarding punitive damages, a court must
      consider three “guideposts”:
      – The reprehensibility of the conduct,
      – The ratio between the harm suffered and the
        award; and
      – The difference between the punitive award and
        any civil or criminal penalties used in similar
        cases.
      – BMW v. Gore

UT-Austin Edinburgh Summer Program 2002
               Law and Equity
   •   Restitution in Cases of a Valid Contract
       – Restitution is a common remedy in contracts
         involving fraud, misrepresentation, mistake, and
         duress. It means giving back the benefits
         received.
       – Rescission = undoing the contract, and often
         accompanies restitution.
   •   Restitution in Cases of Quasi-Contract
       – A court may award restitution, even in the
         absence of a contract, where one party has
         conferred a benefit on another and it would be
         unjust for the other party to retain the benefit.


UT-Austin Edinburgh Summer Program 2002
      Other Equitable Interests
  •   Specific Performance
       – A court will order the parties to perform the
         contract only in cases involving the sale of
         land or some other asset that is unique.
  •   Injunction
       – An injunction is a court order that requires
         someone to do something or refrain from
         doing something.
  •   Reformation (rare): to correct error in
      contract and better give effect to
      original intent of parties

UT-Austin Edinburgh Summer Program 2002

								
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