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Chapter 17

Contracts — Breach of
Contract and Remedies
Rescission and Restitution.
Specific Performance.
Recovery Based on Quasi Contract.

§1: Damages
Types of Damages:
Consequential Damages.
• Breaching party is aware or should be aware, cause
the injury party additional loss.
Punitive Damages.
• Available when tort is also involved.
Nominal Damages.
• No financial loss.

§2: 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
Duty owed depends on the nature of the

Liquidated Damages vs. Penalties

Liquidated Damages.
A contract provides a specific amount to be
paid as damages in the event of future default
or breach of contract.
Specify a certain amount to be paid in the event
of a default or breach of contract and are
designed to penalize the breaching party.
§2: Rescission and Restitution
A remedy whereby a contract is canceled and
the parties are restored to the original positions
that they occupied prior to the transactions.
Both parties must return goods, property, or
money previously conveyed.
Note: Rescission does not always call for
restitution. Restitution called for in some cases
not involving rescission.

§3: Specific Performance
Equitable remedy calling for the
performance of the act promised in the
Remedy in cases where the consideration
Scarce; or
Not available remedy in contracts for personal
§4: 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.

§5: Recovery Based on
Quasi Contract
Equitable theory imposed by courts to obtain
justice and prevent unjust enrichment.
Quantum meruit. Party seeking recovery must
show the following:
A benefit was conferred to the other party.
Party conferring did so with the reasonable expectation
of being paid.
The benefit was not volunteered.
Retaining benefit without paying for it would result in
unjust enrichment of the party receiving the benefit.
§6: Election of Remedies
Doctrine created to prevent double
Nonbreaching party must choose which
remedy to pursue.
UCC rejects election of remedies.
Cumulative in nature and include all the
available remedies for breach of contract.

§7: Waiver of Breach
A pattern of conduct that waives a number of
successive breaches will operate as a continued
Nonbreaching party can still recover damages,
but contract is not terminated.
Nonbreaching party should give notice to the
breaching party that full performance will be
required in the future.

§8: Contract Provisions
Limiting Remedies
Exculpatory clauses.
Provisions stating that no damages can be
Limitation of liability clauses.
Provisions that affect the availability of certain

Case 17.1: Fujitsu v. Federal Express
(Mitigation of Damages)

Fujitsu shipped a container of silicon wafers
from Japan, to Ross in Austin, TX using FedEx.
The next day, the container arrived in Austin
and was held for clearance by the U.S.
Customs Service. Meanwhile, Ross told FedEx
it was rejecting the shipment and that FedEx
should return the goods to Fujitsu at Ross’s
The goods left Austin in good condition, but
when they arrived in Japan, Fujitsu found the
goods covered with an oily residue. Fujitsu
reported the damage to FedEx. 13
Case 17.1: Fujitsu v. Federal Express
(Mitigation of Damages)

FACTS (cont’d)
Fujitsu’s insurance company directed FedEx
to dispose the entire container of chips
without opening the bags.
Fujitsu filed suit for breach of contracts and
the court found FedEx liable for $726,640 in
FedEx appealed arguing that Fujitsu failed
to mitigate its damages.
Fujitsu could not mitigate its damages
because because the chips could only be
opened in a clean room, which was not
Case 17.2: Atel Financial v.
Quaker Coal Company
(Liquidated Damages)
Atel leased heavy mining equipment to
Quaker Coal Company, a Kentucky firm
engaged in coal mining.
The lease provided for liquidated damages
in “an amount equal to the present value of
all monies to be paid by Lessee during the
remaining Basic Term or any successive
period then in effect, plus *  *  * the
anticipated residual of the Equipment.”
Later, Quaker asked Atel to temporarily
forego payments so that Quaker could
refinance its debts. Atel agreed. 15
Case 17.2: Atel Financial v.
Quaker Coal Company
(Liquidated Damages)
FACTS (cont’d)
Months later, when Quaker was over
$700,000 in arrears, Atel declared a default
and demanded liquidated damages.
Two weeks later, Quaker finalized its debt
restructuring and sent Atel a check for all
outstanding invoices. The next day, Atel
sued Quaker for breach of contract.
By the time of trial, Quaker had made all
past due payments.

Case 17.2: Atel Financial v.
Quaker Coal Company
(Liquidated Damages)
Court denied Atel’s request for liquidated
damages and entered a judgment in favor
of Quaker.
Court considered the liquidated damages
clause to be a penalty clause.
“[A] liquidated damages clause will
generally be considered unreasonable, and
hence unenforceable, if it bears no
reasonable relationship to the range of
actual damages that the parties could have
anticipated would flow from a breach.” 17
Case 17.3: Maglica v. Maglica
Maglica founded a machine shop business, Mag
Instrument, in 1955. In 1971, he and Halasz
began to live together, holding themselves out
as man and wife, but they never married.
Halasz worked with Maglica to build Mag
Instrument, although on its incorporation in
1974, all shares were issued to Anthony.
Maglica, as president, and Halasz, as secretary,
were paid equal salaries.
In 1978, the business began manufacturing the
“Mag” flashlights, and thanks to ideas and hard
work on Claire’s part, the business boomed. 18
Case 17.3: Maglica v. Maglica
FACTS (cont’d)
The couple split in 1992, and Halasz sued
Maglica seeking a recovery based on
quantum meruit. The jury awarded Claire
$84 million, based on the business’s benefit
from her services. Maglica appealed.
Remanded for recalculation of award.
Claire could recover for the value of her
services, but not for the benefit conferred
on the business. In this case, the court will
not impose “a highly generous and
extraordinary contract that the parties did 19