2. Contracts for Personal Services
Normally, specific performance of personal service contracts is refused, because public policy discourages
involuntary servitude. Also, courts do not want to monitor a continuing service contract if supervision would
be difficult.
ANSWER TO VIDEO QUESTION LTR. B
Would the equitable remedy of specific performance be available to either Jack or Eddie in the event of a breach?
C. REFORMATION
Reformation allows a contract to be rewritten to reflect the parties’ true intentions.
1. When Fraud or Mutual Mistake Is Present
It applies most often when fraud or mutual mistake occurs. Reformation is often sought so that some other
remedy may be pursued (if a contract for a sale of land mistakenly refers to the wrong property, for
example, the contract may be reformed to conform to the parties’ intentions, and specific performance can
then be sought).
CASE SYNOPSIS—
Case 18.3: Drake v. Hance
Eric and Debra Hance agreed to buy Garry and Wanda Drake’s home in Monroe, North Carolina. The contract
described the property as “#15 Legacy Lake.” The deed listed “lot 15, Legacy Lake” and “lot 11, Legacy Lake.” Lot 15 is
the property on which the home sits. Lot 11 is a vacant lot across the street. After the sale, the deed was filed with the
May 2006.
What might have occurred in this case if the Hances had sold the vacant lot to a third party before the Drakes
discovered the mistake? The result might have been the same—that is, the Drakes’ interest in the lot would most likely
have been acknowledged—but the details would depend on the circumstances. More parties would certainly have
been involved in the litigation.
ANSWER TO “THE E-COMMERCE DIMENSION”
QUESTION IN CASE 18.3
Is a mistake such as the one in this case likely to occur when software is used to draft a document? Why or why
not? When technology is used to execute a document, there may be different types of errors, but the use of software
may not contribute to fewer mistakes. Technology only responds to the directions of the person who uses it.
Transposed numbers, misspelled words, omitted information, and other mistakes can still occur. There may be
“checks” and prompts built into software, however, that could prevent some errors.
ANSWER TO “THE ETHICAL DIMENSION” QUESTION IN CASE 18.3
What may have motivated the defendants in this case to assert that there was no mistake in the deed? Discuss.
One motivation behind the defendants’ denial of a mistake might have been greed—in this case, a desire to get
ADDITIONAL CASES ADDRESSING THIS ISSUE —
Recent cases in which contracts were reformed based on a mutual mistake of the parties include the following.
• Grand Acadian, Inc. v. Fluor Corp., __ F.Supp.2d __ (W.D. La. 2009): (a subcontract was reformed to include a
general contractor as there was an obvious clerical mistake in listing “Fluor Enterprises, Inc.” as “Flour Contract
Management”—the misspelled name was a division of the general contractor and not a separate legal entity, the main
contract listed the correct name, and the subcontract referred to the main contract).
• Ameriquest Mortgage Co. v. Hanson, __ N.W.2d __ (Minn.App. 2009): (reforming and reinstating a mortgage on
intentionally mixed up the descriptions).
2. Oral Contracts and Covenants Not to Compete
It applies when the written draft of an oral contract contains an error, and when the terms of a covenant
not to compete are unreasonable.
III. Recovery Based on Quasi Contract
A. WHEN QUASI CONTRACTS ARE USED
Quasi-contractual recovery may be awarded when a party has partially performed under a contract that is
unenforceable.
B. THE REQUIREMENTS OF QUASI CONTRACT
To recover, a party must show that—
• He or she conferred a benefit on another.
• He or she conferred the benefit with the reasonable expectation of being paid.
• He or she did not act as a volunteer in conferring the benefit.
• The party receiving the benefit would be unjustly enriched by retaining it without paying.
ANSWER TO VIDEO QUESTION LTR. C
Now assume that the contract between Eddie and Jack is unenforceable. Nevertheless, Jack performs his side of
the bargain (brings in the Duke). Can Jack recover from Eddie in this situation under the theory of quasi contract? Why
IV. Election of Remedies
A. THE PURPOSE OF THE DOCTRINE
wrong amount).
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The purpose of the election of remedies doctrine is to prevent double recovery—if a party could recover
compensatory damages and specific performance, he or she would recover twice for the same breach. The text
includes an example and notes the harshness of the doctrine.
CHAPTER 18: BREACH OF CONTRACTS AND REMEDIES 439
B. THE UCC’S REJECTION OF THE DOCTRINE
Under the UCC, remedies are cumulative. In a suit based on fraud, for instance, the defrauded party may obtain
rescission of the contract, restitution of the benefits conferred, and any damages due to the fraud. Of course,
parties may still not recover twice for the same harm.
V. Waiver of Breach
A. CONSEQUENCES OF A WAIVER OF BREACH
If a nonbreaching party accepts defective performance, he or she cannot take later action on the theory that the
contract was broken.
B. REASONS FOR WAIVING A BREACH
A breach may be waived to obtain whatever benefit may still be possible.
C. WAIVER OF BREACH AND SUBSEQUENT BREACHES
VI. Contract Provisions Limiting Remedies
Provisions that affect the availability of certain remedies may be enforced, depending on the type of breach excused by
the provision.
A. THE UCC ALLOWS SALES CONTRACTS TO LIMIT REMEDIES
Under the UCC, remedies can be limited, but different rules apply (see Chapter 21).
B. ENFORCEABILITY OF LIMITATION–OF-LIABILITY CLAUSES
ENHANCING YOUR LECTURE—
WHAT DO YOU DO WHEN YOU CANNOT PERFORM?
Not every contract can be performed. If you are a contractor, you may take on a job that, for one reason or
another, you cannot or do not wish to perform. Simply walking away from the job and hoping for the best normally is
440 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
not the most effective way to avoid litigation—which can be costly, time-consuming, and emotionally draining. Instead,
you should consider different options that may reduce the likelihood of litigation.
For example, suppose that you are a building contractor and you sign a contract to build a home for the
Andersons. Performance is to begin on June 15. On June 1, Central Enterprises offers you a position that will yield you
two and a half times the amount of net income you could earn as an independent builder. To take the job, you have to
start on June 15. You cannot be in two places at the same time, so to accept the new position, you must breach the
contract with the Andersons.
CONSIDER YOUR OPTIONS
What can you do in this situation? One option is to subcontract the work to another builder and oversee the work
yourself to make sure it conforms to the contract. Another option is to negotiate with the Andersons for a release. You
SETTLEMENT OFFERS
Often, parties are reluctant to propose compromise settlements because they fear that what they say will be used
against them in court if litigation ensues. The general rule, however, is that offers for settlement cannot be used in
court to prove that you are liable for a breach of contract.
CHECKLIST FOR THE CONTRACTOR WHO CANNOT PERFORM
1. Consider a compromise.
2. Subcontract out the work and oversee it.
3. Offer to find an alternative contractor to fulfill your obligation.
4. Make a cash offer to “buy” a release from your contract. If anything other than an insignificant amount of money is
involved, however, work with an attorney in making the offer.
TEACHING SUGGESTIONS
1. A breach of contract entitles a nonbreaching party to an amount of money (damages) that will place the party in
the position he or she would have been in if the contract had been performed. Of course, losses must be foreseeable
and the proximate result of the breach (foreseeable losses may include consequential damages). Another way to
CHAPTER 18: BREACH OF CONTRACTS AND REMEDIES 441
over their contract obligations.
2. “Equity will not suffer a right to exist without a remedy” (when the remedy at law—damages—is inadequate, a
3. As an aid to remembering major points in the unit on contract law, students may find it helpful to keep a brief
analytical model in mind. For example, the material covered in these chapters can be condensed and divided into the
following points to use as a framework for study: (1) if there is an offer and acceptance, (2) supported by consideration,
Cyberlaw Link
What remedies may be obtained for the breach of a contract entered into in cyberspace? Are computations of
damages different in disputes involving contracts agreed to over the Internet?
DISCUSSION QUESTIONS
1. For what do compensatory damages compensate? Compensatory damages compensate a nonbreaching party for the
2. What are consequential damages? Consequential damages are foreseeable damages that flow from the consequences
3. What are punitive damages? Punitive damages are essentially penalties—designed to punish a wrongdoer and to deter
4. Does an injured party have a duty to mitigate damages? Generally, an injured party has a duty to mitigate (reduce) the
5. What is the difference between a liquidated damages provision and a penalty provision in a contract? Liquidated
6. Discuss rescission and restitution. Rescission is an action to cancel a contract, to return the parties to the positions
they were in before the transaction. A contract may be rescinded unilaterally if fraud, mistake, duress, undue influence,
7. Will specific performance be granted on a breach of contract for a sale of land? Specific performance is granted to a
8. Will specific performance be granted on a breach of contract for personal services? Ordinarily, specific performance of
9. When may recovery be based on quasi contract? Recovery may be based on quasi contract when a party has partially
10. What is the purpose of the election of remedies doctrine? The purpose of the election of remedies doctrine (that is,
ACTIVITY AND RESEARCH ASSIGNMENTS
1. Ask students to bring in news articles regarding judgments in recent suits involving breaches of contracts. Have the
class dissect the judgments. What part of each represents compensatory damages? What part consequential damages? Do the
amounts seem fair based on the facts of the case? Were other remedies granted? Does their award seem fair?
2. Obtain a complaint form from the local small claims court. Have students work in small groups of four to five to
prepare a complaint based on a breach of contract case arising from facts that they invent. They will need to name the parties,
state the claims, and request relief. Have each small group share its complaint with the class.
444 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
EXPLANATIONS OF SELECTED FOOTNOTES IN THE TEXT
Footnote 11: In April 2004, Howard Stainbrook agreed to sell to Trent Low forty acres of land in Indiana for $45,000.
Under the agreement, Low was to pay for a survey of the property and other costs, including a tax payment due in November.
Low gave Stainbrook a check for $1,000 to show his intent to fulfill the contract. Low made financial arrangements to meet his
obligations. Three days before the closing, however, Stainbrook died. His son David, the executor of his estate, asked Low to
If the contract in this case had been an installment contract, under which a breach on the part of the buyer would have
required that he pay the full amount of the contract, and Low had failed to timely tender an installment payment, would the
result have been the same? It is likely that the result would have been the same under these circumstances. Because of the
clause requiring payment of the full amount on a breach, however, the court’s order would have been phrased to require “full
performance.”
Should a party who seeks specific performance of a contract be required to prove that he or she has performed,
substantially performed, or offered to perform his or her contract obligations? Why or why not? Yes, to obtain specific
performance a party should have performed his or her duties under the contract or have offered to do so. It would not be fair to
otherwise order the other party to perform. Of course, as in the Stainbrook case, a party’s substantial performance of his or her
contractual duties can be sufficient to support an order for specific performance.
Suppose that Stainbrook and Low had been citizens and residents of other countries. Would the location of the land
that was the subject of their contract have been sufficient to support the Indiana state court’s jurisdiction and award in this
case? Discuss. Yes. Contracting parties can choose the forum in which a dispute under their contract will be resolved, and they
Footnote 18: Eric Lucier and Karen Haley contracted to buy a home in Berlin Township, New Jersey. Cambridge
Associates, Limited (CAL), performed a home inspection under a contract that limited its liability for negligence or other causes
to “$500, or 50% of fees actually paid to CAL by Client whichever sum is smaller.” Shortly after moving into the house, Lucier
and Haley noticed leaks, which required roof repairs costing $8,000 to $10,000. They filed a suit in a New Jersey state court
CHAPTER 18: BREACH OF CONTRACTS AND REMEDIES 445
In this case, Lucier and Haley also sued the Williams. How was this dispute resolved? Lucier and Haley agreed with the
Williams’ to submit the dispute between them to binding arbitration. As a result of the arbitration, they agreed that the
Williams would pay $8,000 to Lucier and Haley and would receive an assignment of Lucier and Haley’s claim against CAL. Lucier
and Haley also agreed to cooperate with the Williams in pursuing the claim against the home inspection firm.
ANSWERS TO ESSAY QUESTIONS IN
STUDY GUIDE TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
BY HOLLOWELL & MILLER
1. What are damages designed to do in a breach of contract situation? Damages are designed to compensate a
2. What must parties do to rescind a contract? Rescission is an action to cancel a contract—to return the parties to the
positions they were in before the transaction. If fraud, mistake, duress, undue influence, misrepresentation, or lack of capacity
to contract is present, a contract may be rescinded unilaterally. A failure to perform entitles the nonbreaching party to rescind.
REVIEWING—
BREACH OF CONTRACT AND REMEDIES
Suppose that Kyle Bruno enters a contract with X Entertainment to be a stunt man in a movie that is being
produced. Bruno is widely known as the best motorcycle stunt man in the business, and the movie to be produced,
Xtreme Riders, has numerous scenes involving high-speed freestyle street-bike stunts. Filming is set to begin August 1
and end by December 1 so that the film can be released the following summer. Both parties to the contract have
stipulated that the filming must end on time in order to capture the profits from the summer movie market. The
1. One day, while Bruno is preparing for a difficult maneuver, he gets into an argument with the director and refuses
446 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
to perform any stunts at all. Can X Entertainment seek specific performance of the contract? Why or why not? The
2. Suppose that while performing a high-speed wheelie on a motorcycle, Bruno is injured by the intentionally reckless
act of an X Entertainment employee. Will a court be likely to enforce the limitation-of-liability clause? Why or why not?
3. What factors would a court consider to determine whether the $1-million-dollar liquidated damages clause
constituted valid damages or is a penalty? To determine whether a provision is for liquidated damages or for a penalty,
4. Suppose that the contract had no liquidated damages clause (or the court refused to enforce it) and X
Entertainment breached the contract. The breach caused the release of the film to be delayed until the fall. Could
Bruno seek consequential (special) damages for lost profits from the summer movie market in that situation? Explain.
When consequential damages are awarded, compensation is given only for those injuries that a defendant could
reasonably have foreseen as a probable result of the usual course of events following a breach. If the injury complained
of is outside the usual and foreseeable course of events, the plaintiff must show specifically that the defendant had
reason to know the facts and foresee the injury. In other words, to recover consequential damages, a breaching party
must know (or have reason to know) in advance of the breach that special circumstances will cause the nonbreaching
party to suffer an additional loss. Thus, if X Entertainment breached the contract with Bruno with the knowledge that it
would delay the release of the film and result in lost summer profits, Bruno may collect consequential damages.
DEBATE THIS:
Courts should always uphold limitation-of-liability clauses, no matter what are the respective bargaining powers
of the two parties to the contract. One of the reasons that imitation-of-liability clauses are included in contracts is to
allow sellers to predict the extent of their liabilities should something go wrong. Without such clauses, sellers would
have a difficult time obtaining liability insurance and when such insurance could be obtained, it would be at higher
How can a judge or jury uphold all limitation-of-liability clauses when in so doing they often would be
perpetuating gross injustices? After all, such clauses are usually contained in long contracts when printed out or
presented on a Web site in small type. Most of the time, consumers do not read contracts because they are so long
