Tommy the Toad(Toad),a local contractor signs a contract in writing with you to build a screened in porch on the back of your house for$30,000.You give him a$10,000deposit and agree to paythe balance upon completion.He starts to work on the job,and has the porch footings,foundation,and framing completed.He is doing an excellent job.The local building inspector comes by unexpectedlyand asks why no-one got a building permit and indicates your contractor is notlicensed to do business in the town.Assume the value of the work to date is$15,000.What do you do?Can you fire Toad?What is the measure of your damages,if any?Do you owe the Toadany money?If you need more facts,what do you need to know and why?

more source ( Chapter_14_Breaches___Remedies.doc )

In the event of a breach of a contract entered between two parties, the party adversely affected needs to understand and consider the types of remedies that are available before they institute any legal proceedings. The remedy sought from the court must be specied in the pleadings that are filed, particularly the complaint. These remedies that are available are broken down into two major categories: remedies at law and remedies in equity. We will examine both of these categories. In some instances both equitable and legal remedies are available and are awarded. Essentially, remedies at law consist of the award of money by the court in the form of ajudgment. The award of a judgment is to remedy damages that have occurred from the breach. Equitable remedies consist of but are not limited to: foreclosure, eviction, specic performance, rescission, injunction, reformation, and restitution. The relief granted by the court in this category asks the court to direct something to happen- auction that property off, compel somebody to do something, remove the tenant from the apartment, etc. We will look at these forms or relief in greater detail. Money Damages (Remedies at Law) There are four general categories of money damages consisting of compensatory damage_s, consequential damage_s, nominal damages and punitive damage_s. Under these headings we will also discuss liquidated damages and incidental damages. Compensatory damages are awarded to reimburse a party for the loss of what they bargained for under the contract. They must be actually sustained and not speculative, and directly arising from the breach. This category of monetary award takes on different calculation techniques depending upon the circumstances of the case and the timing as to when the breach occurs. Under this category a person can also request and be awarded incidental damages as well. These are reimbursement for expenses directly incurred as a result of the breach. such as the cost for advertising to nd a substitute for the breaching party. In the case of the sale of goods, damages would be calculated on the difference in cost to the affected party to buy the product somewhere else. You agree to rent to me a backhoe for a landscaping project that I am doing for $4,000. You refuse or cannot deliver the backhoe. | nd a different company to rent me a backhoe so I can complete my project, and it costs $5,000 for that same backhoe. I have $1,000 in compensatory damages. In the event of a breach of a construction contract the loss is calculated differently depending upon when it occurs and which party is breaching the agreement. If the Owner of the property is in breach, and it occurs before construction began the loss would be calculated as the loss of profit to be made by the Contractor when he completed the project. If the breach is by the Owner during construction, it would be calculated as the cost of materials and labor(services) not paid for to the date of breach plus the loss of profit. If the breach is by the Owner after the project is complete, it would the contract price less what was paid, plus interest. If the breach is by the Contractor, the loss would be calculated by the extra cost associated with getting a different contractor to complete thejob. Obviously, if the project could be completed for a lower price, there is no damage, and thus no compensatory damages would be awarded. There may be incidental damages for expenses for seking additional bids and for legal services to replace the contractor. If the breach occurs by the Contractor during construction, it would be the extra cost to complete the project over what the total price set forth in the original contract. The second category of damages are known as consequential damages. This award of money would be calculated to compensate the non-breaching party for a loss that does not directly result from the breach, but is foreseeable and causally related to the breach because of special circumstances known to the breaching party. These damages emanate from the consequence of the breach. If you run a factory and the plant is planned to be shut down to replace a major part ofthe manufacturing machinery, and the part is not delivered to the plant because of breach of contract by the freight company shipping the part, the freight company may be held liable for the loss of prot of the company due to the shut down of the plant, if the freight company knew that the plant was being shut down, and it was stated to them that they would loose prot during that shut down cycle. 50 if the shut down cycle was extended because of the delay or non-shipment of the part, there would likely be consequential damages for the loss of prot for the additional days the plant was closed. But, the freight company must have known or should have known that these special circumstances existed(the plant being shut down). This consequence must be reasonably foreseeable. (This is the Landmark in the Law case-Hadley v. Baxendale.) Nominal damages are awarded to recognize the wrong doing but where no actual loss or damage occurs. The award by the court is to establish a principle of wrong doing that could later lead to punitive damages which are awarded to punish the wrong doer for their actions. Punitive damages are awarded to deter further incidences of breaches, such as for deceptive business practices or fraud. Punitive damages are extremely rare in contract and are disfavored by the courts for contract cases. For there to be punitive damages awarded there must normally be some intentional action, some malice in dealing, or deliberate misrepresentation in the contract. The court will typically take the actual compensatory damages and triple the award(sometimes called treble damages), as the punitive award calculation. In some instances the parties recognize that the ability to calculate damages would be difcult, so the parties insert into their contract a liquidated damages provision. This is a section or clause that species the amount of damages in the event of breach agred to by the parties or the manner or method to calculate them. It takes this calculation out of the hands of the court. However, in order to be enforceable, these provisions must be reasonable in nature and designed to calculate the potential loss. The court will not typically enforce "penalty clauses", which are designed to punish the breaching party for a compensatory loss. In all instances involving a request to the court for monetary damages the non-breaching party must attempt to mitigate damages. That is, the party affected must do its best to minimize the potential loss. The affected party should try to for example, hire a substitute contractor as soon as possible to x the leak, not wait and let the leak do extensive damage to the house. In the case of a tenant breach for non-payment, the landlord must try to re-let the apartment to minimize damages to the landlord for loss of rent. This principle holds true in every instance of contract law where a breach occurs and a party is looking to the court for a remedy at law. Equitable Remedies The concept behind the award of equitable remedies is to try x the problem by making something happen. There is generally a requirement that the pleadings presented to the court assert that there is no adequate remedy at law. Money won't x the problem. If we have a tenant in possession of property who is not paying their rent, until the landlord is put back in possession of the property, the damages will continue to occur. So the petition filed with the court asks thejudge that a warrant be issued directing the sheriff to put the landlord back in possession of the property by removing the tenant. That is equitable relief. But that does not entirely x the problem. The landlord also needs a remedy at law for the loss of rent and generally will receive a judgment of the court for the loss rent, reimbursement of its legal expense, and other costs associated with the breach by the tenant. This is an instance where the court can award both legal and equitable remedies. Foreclosure, a proceeding led by a mortgage holder(typically a bank) to auction off property because of non-payment of the amount due the bank is another example of an equitable remedy. If the breach of a real estate contract occurs, the courts will generally entertain an action for specic performance under the contract. That is, the breaching party would be compelled by the court to perform under the contract. If it is the seller who defaulted, they would be required to sign the deed and transfer the title to the buyer. This is our old case friend- Licy v. Zemer! When the Zemers refused to go through with the sale, Lucy began a lawsuit seeking specific performance-and won.lf it is the buyer who breached they would be required to close title by accepting ownership and paying the seller the amount due under the contract. Land is considered unique by nature and thus the "no adequate remedy at law" principle is presumed in every instance. Again, that principle is, money won't x the problem. Some other examples of equitable remedies applied by the court at the request of the affected party are rescission, reformation, and restitution. Rescission is asking the court to cancel or rescind the contract and put the parties in the same position as if the contract did not exist. This remedy is available where there is fraud, duress, undue inuence, mutual mistake, or lack of adequate consideration occurring. The affected party wants to be relieved of their burden under the contract based upon any one of these factors being present. Reformation is asking the court to change or render nugatory a particular provision in a contract. Assume for the sale of a business, that the owner as part of the deal, signs a covenant not to compete against the person who is buying their business at the closing. Let say it says he cannot compete for 10 years and the geographic range is 100 miles. If this provision is sought to be enforced, the bound party could ask the court to reform that clause of the contract by shortening the duration to let's say 3 years, and to lower the range to 20 miles. The court would not be negating(rescinding) the entire contract but wold be modifying a term(reformation) to do equity, to do justice, to do what is fair. Reformation occurs sometimes where not all of the terms of a contract are spelled out between the parties. If there is enough of a meeting of the minds of the parties for the court to determine there is a contract, the court can reform the contract and determine appropriate times for performance or other reasonable modications to it to resolve a dispute. This can occur where a mutual mistake is present where both parties relied on erroneous information. Finally, restitution is a remedy directed by the court to put a party back in their original position when fraud, embezzlement, theft, or similar conduct occurs during a contract agreement. Remember, employment is a contract. 50 an employee who embezzles or steals or commits some other type of fraud, can be sued for restitution. The court will also need to examine the validity of limitation ofliability clauses that are contained in some contracts. These clauses attempt to minimize the actual damages sustained, and to eliminate consequential damages, and in some instances eliminate liability for negligence. So in addition to calculated actual damages the court must determine ifthis limiting language acts as a defense to an award of the amount that would otherwise be awarded. In reviewing these clauses that are very similar to the exculpatory clauses we examined in Chapter 1 l, the court must look at the equities of the matter. Did the parties have equal barbaining positions when the contract was formed? Was the language clear and conspicuous, or was it an adhesion (attached in small print to the contract)? Each instance will be viewed separately by the court. If these provisions were allowable in the professional arena, such as for doctors, lawyers, and accountants, they could have the patient or client sign a release of liability clause as part of their retainer agreement, and minimize dramatically their exposure. These clauses are carefully scrutinized by the courts and are not favored on the basis of equity. Nonetheless, this is an area of the law that is constantly changing and very controversial