LA 245 Week 14 Notes
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This 13 page Class Notes was uploaded by Frankie Fucci on Sunday May 1, 2016. The Class Notes belongs to LA 245 at Boston University taught by David Randall in Spring 2016. Since its upload, it has received 18 views. For similar materials see Introduction to Law in Law at Boston University.
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Date Created: 05/01/16
Performance, Discharge and Remedies Performance and Discharge o Discharged: party is discharged when he has no more duties under a contract Most contracts are discharged by full performance o Rescind: to terminate a contract When parties discharge a contract by mutual agreement At times, court may discharge a party who has not performed o Performance Strict Performance and Substantial Performance Strict Performance: requires one party to perform its obligations precisely, with no deviation from the contract terms Party generally not required to render strict performance unless the contract expressly demands it AND such a demand is reasonable Substantial Performance: when one party fulfills enough of its contract obligations to warrant payment In contract for service, party that substantially performs its obligations will generally receive the full contract price, minus the value of the defects A party that fails to perform substantially receives nothing on the contract itself and will recover only the value of the work, if any To be considered substantial performance, courts look at: How much benefit has the promisee received? If it is a construction contract, can the owner use the thing for its intended purpose? Can the promisee be compensated with money damages for any defects? Did the promisor act in good faith? Good Faith - parties must carry out their obligations in good faith How far must one side go to meet its good faith burden> Brunswick Hills Racquet Club Inc. v. Route 18 Shopping Center Associates Brunswick Racket Club owner tennis club on property leased from Route 18 Shopping Center Associated (Route 18) Lease ran for 25 years, and Brunswick had spent about $1 million in capital improvements Lease expired, Brunswick had the option of either buying the property or purchasing a 99-year lease, both on favorable terms To exercise its option, Brunswick had to notify Route 18 no later than September 30 and had to pay the option price of $150,000 If Brunswick failed to exercise its option, the existing lease automatically renewed as of September 30, for 25 more years but at more than triple the current rent Brunswick's layer wrote to Rosen Association (the company that managed Route 18) nineteen months before the option for a 99-year lease He requested the lease be sent well in advance so that he could review it He did not make the required payment of $150,000 Rosen replied that it had forwarded Spector's letter to its attorney, who would be in touch April, Spector again wrote, asking for a reply from Rosen or its layer Over the next 6 months, the lawyer continually asked for a copy of the lease or further information, but neither Route 18's lawyer nor anyone else provided any data Eventually deadline passed Route 18's lawyer notified Brunswick that it could not exercise its option to lease because it failed to pay the $150,000 by September 30 Brunswick sued claiming Route 18 had breached its duty of good faith and fair dealing Trail court found that Route 18 had no duty to notify Brunswick of impending deadlines, and gave summary judgment for Route 18 Appellate court affirmed, and Brunswick appealed to the state supreme court Issue: Did Route 18 breach its duty of good faith and fair dealing? Good faith conduct is conduct that doesn't violate community standards of decency, fairness or reasonableness Calls for parties to refrain from doing anything which will have the effect of destroying/injuring the right of the other arty to receive the benefits of the contract During 19-month period of early notice by the plaintiff, defendant engaged in pattern of evasion, sidestepping every request to speak made by the plaintiff Defendant breached covenant of good faith and fair dealing --> plaintiff is entitles to exercise the 99-year lease Time of the Essence Clause - generally makes contract dates strictly enforceable Merely including a date for performance does not make time of the essence Courts don't like time of the essence arguments because even a short delay may mean that one party forfeits everything it expected to gain from the bargain If parties don't clearly state that prompt performance is essential, then both are entitled to reasonable delays o Breach - when one party breaches a contract, the other party is discharged, discharged party has no obligation to perform and may sue for damages Material Breach - courts will discharge a contract only if a party committed a material breach Material breach: one that substantially harms the innocent party and for which it would be hard to compensate without discharging the contract O'Brien v. Ohio State University OSU brought Coach O'Brien to turn the men's basketball team around Reached great success --> names national coach of the year Athletic director offered the coach a new multi-year contract work about $800,000/year Section 5.1 - termination provisions Could fire coach for cause if: Material breach of the contract by coach, OR Coach's conduct subjected the school to NCAA sanctions Could fire without cause BUT had to pay him the full salary owed Began recruiting a Serbian player, but learned that he had briefly been paid to play for a Yugoslavian team, so he could not play college basketball The player's family had suffered and the coach wanted to loan the player's mom some money This would be illegal if it was to recruit a player, but the coach felt that since he could never play college basketball anyway Years later - OSI found out about the loan and that the coach had never reported They hoped to avoid trouble with NCAA so they sanctioned themselves and fired the coach Coach sued, claiming he has not materially breached the contract Trial court awarded the coach $2.5 million, OSU appealed Issue: Did O'Brien materially breach the contract? While OSU did suffer some sanctions, the trial court felt they were insubstantial They were banned from post-season and tournament, but when the announcement was made, it was clear OSU wasn't going to go anyway OSU felt their reputation was hurt - but trial court felt that was exaggerated since the player never actually made it to the team Trial court also felt OSU took this opportunity to fire the coach because they were bringing in another amazing coach who recruited one of the best line ups they'd ever had So reputation did not take a big hit OSU argues coach acted in bad faith for lying, but there is no evidence coach tried to cover it up/lie about it, he truly felt he did nothing wrong and therefore had no motive to hide Decision of trial court affirmed Statute of Limitations: statutory time limit within which an injured party must file suit Begins to run at the time of injury Very from state to state and issue to issue Failure to file discharges the party who breached the contract o Impossibility - if performing a contract was truly impossible, a court will discharge the agreement but if honoring the deal merely imposed a financial burden, the law will generally enforce the contract True Impossibility - something has happened making it literally impossible to do what the promisor said he would do, generally limited to three cases: Destruction of the Subject Matter Death of a Promisor in a Personal Services Contract - when promisor agrees personally to render a service that cannot be transferred to someone else, his death discharges the contract Illegality Commercial Impracticability and Frustration of Purpose Commercial impracticability: some event has occurred that neither party anticipated and fulfilling the contract would now be extraordinarily difficult and unfair to one party Frustration of purpose: some event has occurred that neither party anticipated and the contract now has no value for one party Courts consider the following in deciding impracticability and frustration claims: Mere financial difficulties will never suffice to discharge a contract. The event must have been truly unexpected. If promisor must use a different means to accomplish her task, at a greatly increased cost, she probably does have a valid claim of impracticability The UCC, like the common law, permits discharge only for major, unforeseen disruptions Performance, Discharge and Remedies (continued) Remedies Remedy: method a court uses to compensate an injured party; most common is money damages First step court takes in choosing remedy is to decide what interest it is trying to protect o Interest: legal right in something Four principal contract interests that a court may seek to protect: o Expectation interest: designed to put the injured party in the position she would have been had both sides fully performed their obligations Refers to what the injured party reasonably thought she would get from the contract Hawkins v. McGee Hawkins suffered severe electrical burn on palm of his hand After years f living with the scars, he went to Dr. McGee, known for his attempts at skin-grafting surgery Doctor said "I will guarantee to make the hand 100% better" Doctor cut a patch from Hawkin's chest, but the chest hair continued to growing - giving Hawkins hairy palms Hawkins sued, trial court judge instructed the jury to calculate damages in terms of recovering "for what pain and suffering he has been made to endure and what injury he has sustained over and above the injury he had before" Jury awarded $3000, but court reduced the award to $500, Hawkins appealed Issue: How should Hawkins's damages be calculated? Jury was permitted to consider: Pain and suffering due to the operation Positive ill effects of the operation upon the plaintiff's hand This was wrong - damages is intended compensation to put the plaintiff in as good a positive as he would have been in had the defendant kept his contract The measure of recovery is what the defendant should have given the plaintiff, not what the plaintiff has given the defendant or otherwise expended True measure of plaintiff's damage is the difference between the value to him of a perfect hand and the value of his hand in its present condition Remanded for new trial Golden rule in contract cases is to give successful plaintiffs "the benefit of the bargain" and not to punish defendants Direct damages: those that flow directly from he contract Most common monetary award for the expectation interest Damages that inevitably result from the breach Consequential damages ("special damages"): those resulting from the unique circumstances of this injured party; reimburse harm that results from the particular circumstance of the plaintiff Only available if they are a foreseeable consequence of the breach Bi-Economy Market, Inc. v. Harleysville Ins. Co. of New York Bi-Economy Market was family-owned mat market in Rochester Insured by Harleysville Insurance Deluxe Business Owner's policy provided replacement for damage to buildings and inventory Coverage also included "business interruption insurance" for one year --> loss of pretax profit plus normal operating expenses, including payroll Company suffered disastrous fire, which destroyed its building and all inventory Market filed with Harleysville, but they responded slowly Eventually offered settlement of $163,000, year later, arbitrator awarded them $407,000 During that year, Harleysville paid for seven months of lost income but declined to pay more Company never recovered or reopened Market sued, claiming Harleysville's slow, inadequate payments destroying the company Company also sough consequential damages for the permanent destruction of its business Harleysville claimed that it was only responsible for damages specified in the contract: building, inventory and lost income Trial court granted summary judgement for Harleysville, appellate court affirmed, Market appealed to state's highest court Issue: Is Bi-Economy entitled to consequential damages for the destruction of its business? Argument for Bi-Economy: From their position, Harleysville knew offering slow payments that barely covered the needs would run the business into the ground Argument for Harleysville: It makes no sense to pay for something not agreed upon in the contract Court can award a fair sum for not paying the Market enough money, but parties never agreed on more money if the business were to be terminated Incidental damages: relatively minor costs that the injured party suffers when responding to the breach o Reliance interest: puts the injured party in the position he would have been in had the parties never entered into a contract To win expectation damages, injured party must prove the breach of contract caused damages that can be quantified with reasonable certainty, sometimes causes a problem for plaintiff Injured party may be unable to show expectation damages, perhaps because it's unclear he would have profited, but may still prove that he spent money in reliance on the agreement and that in fairness, he should receive compensation This remedy focuses on the time and money the injured part spent performing his part of he agreement o Restitution interest: designed to return to the injured party a benefit he has conferred on the other party Injured party may be unable to show an expectation interest or reliance, but has conferred a benefit on the other party o Equitable interest: in some cases, money damages will not suffice to help the injured party, something more is needed, such as an order to transfer property to the injured party (specific performance ) or an order forcing one party to stop doing something (injunction) Specific performance: forces the two parties to perform their contract Court will awarded specific performance only in cases involving the sale of land or some other asset that is considered "unique" Especially used in real estate contracts Injunction: court order that requires someone to do something or to refrain from doing something Preliminary injunction: order issued early in a lawsuit prohibiting a party from doing something during the court of the lawsuit Permanent injunction: if, after trial, it appears the plaintiff has been injured and is entitled to an injunction Milicic v. Basketball Marketing Company, Inc. BMC markets, distributes and sells basketball apparel and related product Signed long-term endorsement contract with a 16-year-old Serbian player who was unknown in the US Two years later - became second pick in NBA draft, making him very marketable After 18th birthday, made buyout offer to BMC, seeking release from his contract so he could arrange more lucrative one elsewhere BMC refused to release him, two weeks later player notified BMC that he was disaffirming the contract, and he returned all the money and goods he got from the company, BMC refused again BMC thought the player was looking to sign with someone else and they sent letters out Those other companies stopped negotiating with the player Player sued BMC, seeking preliminary injunction that would prohibit BMC from sending such letters to competitors Trial court granted the injunction, and BMC appealed Issue: Is Milicic entitled to a preliminary injunction? Milicic did meet all four requirements for injunctive relief: Had strong likelihood of success on the merits Injunctive relief was necessary to prevent immediate and irreparable harm that could not be adequately compensated by the awarding of monetary damages Greater injury would have occurred from denying the injunction than from granting the injunction Preliminary injunction restored the parties to the status quo that existed prior to the wrongful conduct Order affirmed Reformation: the process by which a court rewrites a contract to ensure its accuracy or viability o Special Issues Mitigation of Damages - a party injured by a breach of contract may not recover for damages that he could have avoided with reasonable efforts When one party perceives the other has breach/will breach the contract, injured party must try to prevent unnecessary loss, party is expected to mitigate his damages Mitigate: to keep damages as low as is reasonable Liquidated Damages: a clause stating in advance how much a party must pay if it breaches Court will generally enforce a liquidated clause if: At the time of creating the contract, it was very difficult to estimate actual damages AND The liquidated amount is reasonable Performance and Discharge A party is discharged from where a contract when there is: o Full performance - the party has fulfilled all his contract obligations o Rescission - the parties have released each other from performing their respective obligations Where is the consideration? Bargained for exchange - both agree to rip up the contract Legal value - don't legally have to rip up the contract o A failure of a condition to occur o A breach by one party that excuses the other party's performance Must be a material breach Implied covenant of good faith and fair dealing Implied by law in every contract Should the law require contract performance to be strict, or should substantial performance suffice? The law only requires substantial performance Novation P1 ("obligor")\ o | \P1 transfers all of its obligations to P3 o | \ o |Contract P3("delegatee") o | / o | / P2 agrees to release P1 from all liability under contract/look only to P3 to perform obligations P2 ("obligee")/ Time of the Essence Clauses - make contract's dates strictly enforceable The fact the contract has this clause doesn't by itself mean the court will make the date enforceable o Courts also look at the circumstances, to see if there is harm if date is delayed Breach Occurs when on party's performance is neither: o Complete, NOR o Substantial If one party materially breaches, other party is excused from performing/can sue for damages caused by breach Remedies Expectation interest - what the injured party reasonably believed she would get from the contract o Remedy to protect expectation interest puts injured part in position she would have been in had the contract been performed o Compensatory damages - typical remedy for breach of contract Damages that flow directly from the breach of contract o Consequential damages - damages that result from unique circumstances of injured party; ripple effect Injured party may recover these damages only if the breaching party should have foreseen them *foreseeability here is must stricter than under negligence Foreseeability=being able to see quite specifically the actual consequential damages that the party would incur Should the party that caused the injury be liable for all the damages that occurred after his breach of contract, even if damages are an indirect result of the breach? Under common law, consequential damages are very difficult to obtain, because in essence they are a proxy for lost profits If parties of a contract knew they could be liable for lost profits or anything beyond what they were expected (compensatory) they would charge more for their product/services Many contracts now state in the contract that is it a breach of contract to sue for consequential damages Reliance Interest - concerns money the injured party expended in reasonable reliance on the other party's performance of its contract obligations o These damages are awarded in promissory estoppel cases Restitution - concerns the value of a benefit the injured party conferred on the other party o Courts apply restitution damages in quasi-contract and fraud cases Equitable interest - when money damages will not adequately address the non-breaching party's injury o Examples Specific performance - orders breaching party to perform the contract Only for contract involving sale of land or other unique assets (fine art, rare gemstome, etc.) Injunctive relief Nominal damages - small amount of money (ex: $100) awarded when the defendant breached a contract but the plaintiff did not incur serious injury o Very common in contracts that it makes economical sense to break a contract Punitive damages are VERY RARE in contract law, much more common in tort law o Contract law is purely economic Mitigation of damages - if other party of the contract breaches, you have an obligation under common law to take reasonable steps to reduce your damages/the magnitude of your economic harm Liquidated damages - clause in the contract that says if a party breaches, then non-breaching party should be due payment of X amount of money o Liquidated = definite sum of money o Typical in residential purchase and sale agreements
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