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Business Law Chapter 19 Homework Another Way Phrase This Concept Say That

Page Count
9 pages
Word Count
5067 words
Book Title
Business Law: Text and Cases 14th Edition
Authors
Frank B. Cross, Kenneth W. Clarkson, Roger LeRoy Miller
4. A contracts to work full time for B as a bookkeeper. In breach of this contract, A uses portions of the time
5. A, a social worker, promises B to render personal services to C in return for B’s promise to educate A’s
children. B repudiates the contract after A has rendered part of the services. A can get restitution from B for
the services, even though they were not rendered to B, because they conferred a benefit on B.
ADDITIONAL BACKGROUND
Rescission Statutes
The Federal Trade Commission and many states have rules or statutes allowing consumers to
unilaterally rescind contracts made at home with door-to-door salespersons. Rescission is allowed within
three days for any reason or for no reason at all under such statutes as those beginning with California Civil
Code Section 1689.5. Illustrating these statutes, the following is the text of Cal. Civ. Code § 1689.6, with
notes and references.
CIVIL CODE
DIVISION 3. OBLIGATIONS
PART 2. CONTRACT
TITLE 5. EXTINCTION OF CONTRACTS
CHAPTER 2. RESCISSION
§ 1689.6. Right to cancel home solicitation contract or offer
(a) In addition to any other right to revoke an offer, the buyer has the right to cancel a home solicitation
contract or offer until midnight of the third “business day” after the day on which the buyer signs an agreement
or offer to purchase which complies with Section 1689.7.
(b) Cancellation occurs when the buyer gives written notice of cancellation to the seller at the address
specified in the agreement or offer.
1985 Main Volume Credit(s)
(Added by Stats.1971, c. 375, p. 740, § 2. Amended by Stats.1973, c. 554, p. 1077, § 2.)
HISTORICAL NOTES
HISTORICAL AND STATUTORY NOTES
CHAPTER 19: BREACH OF CONTRACT AND REMEDIES 13
1985 Main Volume Historical and Statutory Notes
The 1973 amendment substituted business day’ for “calendar day (excluding Sunday)” in subd. (a); and
inserted the words “as provided with the contract or offer to purchase” in subd. (d).
REFERENCES
WEST’S CALIFORNIA CODE FORMS
1985 Main Volume West’s California Code Forms
See West’s California Code Forms, Civil.
CROSS REFERENCES
1985 Main Volume Cross References
Buyer, see Commercial Code § 2103.
Discount buying services, see § 1812.100 et seq.
Emergency repairs or services exempt from this section, see § 1689.13.
Fixtures exempt from this section after sale or encumbrance of realty, see § 1689.9.
LAW REVIEW COMMENTARIES
1991 Pocket Part Law Review Commentaries
Small Claims Court: How to coach your client to success. Douglas M. Carnahan and Maxine J. Calatrello, 13
L.A.Law. 27 (May 1990).
1985 Main Volume Law Review Commentaries
Consumer protection; home solicitation contracts or offers. (1974) 5 Pacific L.J. 303.
Right to cancel a home solicitation contract. (1972) 3 Pacific L.J. 633.
LIBRARY REFERENCES
1985 Main Volume Library References
Trade Regulation K862.1.
C.J.S. Trade-Marks, Trade-Names, and Unfair Competition § 237.
ANNOTATIONS
NOTES OF DECISIONS
In general 1
Limitation of actions 3
14 UNIT THREE: CONTRACTS AND E-CONTRACTS
Purpose 2
Signing of contract 4
1. In general
Mere fact that seller appeared at buyers’ home in response to phone call from buyers was insufficient to
remove contract from ambit of § 1689.7 requiring that home solicitation contracts contain notice of buyers’
2. Purpose
Legislative purpose in enacting § 1689.5 et seq. which requires that home solicitation contracts contain notice
3. Limitation of actions
One-year statute of limitations was applicable only to filing of cause of action and, while it might have merit as
4. Signing of contract
Under home solicitation statute, buyers had right to cancel contract for replacement of main sewer line to
vacant house owned by buyers, where contract was signed at that house and not at plumber’s appropriate
trade premises. Louis Luskin & Sons, Inc. v. Samovitz (App. 2 Dist.1985) 212 Cal.Rptr. 612, 166 C.A.3d 533.
B. SPECIFIC PERFORMANCE
Specific performance provides the exact bargain promised in a contract (performance of the promised
act). Specific performance is not granted unless the legal remedy (damages) is inadequate. Contracts
for the sale of goods rarely qualifythe legal remedy is ordinarily adequate because substantially
identical goods can be bought or sold in the market. If goods are unique, specific performance will be
ordered.
ADDITIONAL BACKGROUND
Specific Performance
The following excerpt from the Restatement (Second) of ContractsRestatement (Second) of Contracts,
CHAPTER 19: BREACH OF CONTRACT AND REMEDIES 15
Section 359states principles that apply when the remedy sought is specific performance.
§ 359. Effect of Adequacy of Damages
(1) Specific performance or an injunction will not be ordered if damages would be adequate to protect the
expectation interest of the injured party.
(3) Specific performance or an injunction will not be refused merely because there is a remedy for breach
other than damages, but such a remedy may be considered in exercising discretion under the rule stated in §
357.
1. Sale of Land
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.
C. REFORMATION
Reformation allows a contract to be rewritten to reflect the parties’ true intentions.
1. Fraud or Mutual Mistake Is Present
It applies most often when fraud or mutual mistake occurs. Reformation is often sought so that
2. Written Contract Incorrectly States the Parties’ Oral Agreement
Reformation applies when the written draft of an oral contract contains an error.
3. Covenants Not to Compete
Reformation applies when the terms of a covenant not to compete are unreasonable.
ADDITIONAL CASES ADDRESSING THIS ISSUE
Reformation
Cases in which contracts were reformed include the following.
16 UNIT THREE: CONTRACTS AND E-CONTRACTS
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 the mortgagor's property was proper when two mortgages that the mortgagor had on two
different properties contained each other’s legal description, which made both descriptions incorrect, and the
mortgagee had not intentionally mixed up the descriptions).
III. Recovery Based on Quasi Contract
A. WHEN QUASI CONTRACT IS 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.
IV. 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
A waiver extends only to the matter waived and not to the whole contract nor generally to future
breaches.
1. Pattern-of-Conduct Exception
CHAPTER 19: BREACH OF CONTRACT AND REMEDIES 17
A waiver extends to subsequent defective performance, however, when there is a “pattern” of
waivers.
2. Effect on the Contract
In effect, a waiver operates to keep a contract going, but the breaching party remains liable for
damages for the breach.
V. 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 22).
B. ENFORCEABILITY OF LIMITATION-OF-LIABILITY CLAUSES
Unenforceable: clauses that exclude liability for injuries that are inflicted intentionally, that occur as a
result of fraud, or that result from illegal acts. Possibly enforceable: a clause excluding liability for
negligence, if the parties were in roughly equal bargaining positions (large corporations, for instance,
would have equal bargaining power).
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 not the most effective way to avoid litigationwhich 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 can offer to find another qualified builder who will build a house of the same quality at the
same price. Alternatively, you can offer to pay any additional costs if another builder takes the job and is more
expensive. In any event, this additional cost would be the measure of damages that a court would impose on
you if the Andersons prevailed in a suit for breach of contract. Thus, by making the offer, you might be able to
avoid the expense of litigationif the Andersons accept your offer.
18 UNIT THREE: CONTRACTS AND E-CONTRACTS
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
2. Subcontract out the work and oversee it.
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 phrase this concept is to say that damages are awarded to protect the expectation
interest of the injured party.
Discuss the use of express conditions in (1) an automobile purchase contract (“subject to the approval of
my parents”) and (2) a home purchase contract (subject to financing, inspection, sale of present home).
Encourage students to come up with ideas for conditions in each of these contracts that could be used to give
them more control over their contract obligations.
2. “Equity will not suffer a right to exist without a remedy” (when the remedy at lawdamagesis inade-
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, and (3) no defenses to formation, (4) there is an enforceable contract. (5) If the
duties are absolute, there is an immediate duty to perform. (6) If the promises are subject to conditions, the
conditions, must occur or be excused first. (7) If the duties have not been discharged by agreement or by
operation of law, they must be performed. (8) If not, there has been a breach. (9) If so, what remedies are
available?
Cyberlaw Link
CHAPTER 19: BREACH OF CONTRACT AND REMEDIES 19
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. What are compensatory damages? What is the standard measure of compensatory damages? On a
breach of contract, compensatory damages compensate the nonbreaching party for the loss of the bargain. These
damages compensate the injured party only for damages actually sustained and proved to have arisen directly from
any loss that the injured party has avoided. The measurement varies by type of contract.
2. What are consequential damages? Consequential damages are foreseeable damages that flow from the
consequences of a breach but that are caused by circumstances beyond the contract (for instance, a loss of profit
3. What are punitive damages? Punitive damages are essentially penaltiesdesigned to punish a wrongdoer
and to deter similar conduct in the future. Generally, punitive damages are not awarded in a breach of contract
that may warrant an award of punitive damages.
4. Does an injured party have a duty to mitigate damages? Generally, an injured party has a duty to miti-
gate (reduce) the damages that he or she suffers. The duty owed depends on the nature of the breached contract.
On breach of a lease, a landlord may be required to take reasonable steps to find a new tenant and thereby mitigate
5. What is the difference between a liquidated damages provision and a penalty provision in a contract?
Liquidated damages provisions are enforceable; penalty provisions are not. If (1) when a contract was made, it was
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,
7. 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
8. Will specific performance be granted on a breach of contract for personal services? Ordinarily, specific
9. When may recovery be based on quasi contract? Recovery may be based on quasi contract when a party
has partially performed under a contract that is unenforceable. To recover under a quasi contract theory, a party must
10. In deciding whether a clause is a liquidated damages clause or a penalty clause, should the courts
ever consider the circumstances that caused the nonperforming party to breach the contract? It is not the
function of the court to consider how a liquidated damages clause might affect the breaching party when determining
whether the clause is enforceable. There are countless reasons why breaching parties do not perform their contracts.
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
EXPLANATIONS OF SELECTED FOOTNOTES IN THE TEXT
Footnote 6: The Hadleys ran a flour mill. The crankshaft attached to the steam engine in the mill broke,
causing the mill to shut down. The shaft had to be sent to a foundry to be fixed. Baxendale was a common carrier who
transported the shaft. The Hadleys claimed that they told Baxendale the mill was stopped and the shaft must be sent
In Hadley v. Baxendale, the Court of Exchequer ordered a new trial. If an injury is outside the usual course of
events, it must be shown that the breaching party had reason to foresee the injury. In this case, it was not clear
whether the Hadleys gave express notice of the circumstances to Baxendale to be awarded consequential damages.
Students should know this case by name. Its significance should be emphasized. It is an excellent case for
Does the court say what kind of notice is required to warrant consequential damages? No. It indicates
only that the notice be sufficient to allow a defendant to “reasonably contemplate” the damages that would ordinarily
flow from a breach.
If a Web merchant loses business due to a computer system’s failure that can be attributed to
malfunctioning software, can the merchant recover the lost profits from the software maker? Explain. The
merchant could normally recover the lost profits from the software maker if the consequential damages were
Footnote 16: Cardiac Study Center is a medical practice group of cardiologists, including Dr. Robert
Emerick. Under the physicians’ employment agreement, a physician who left the group promised not to practice
In Emerick v. Cardiac Study Center, Inc., a state intermediate appellate court held that the covenant not to
compete was reasonable. An employer has a “legitimate interest” in prohibiting an employee from “taking its clients.”
Why is this case important to businesspersons? Many covenants not to compete are considered
22 UNIT THREE: CONTRACTS AND E-CONTRACTS
Should an employer be able to restrict a former employee from engaging in a competing business on
a global level? The legitimacy, effect, and reasonableness of a covenant not to compete depend on the nature of the
Suppose that Emerick had authored a nationally published book, How to Avoid Cardiac Surgery
through Diet and Exercise. Could Cardiac have blocked the book’s distribution in Cardiac’s area based on
the covenant not to compete? No, Cardiac could probably not have blocked distribution of a book by Emerick titled

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