Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
12 UNIT THREE: CONTRACTS AND E-CONTRACTS
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
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.
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
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
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 qualify—the 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 Contracts—Restatement (Second) of Contracts,
CHAPTER 19: BREACH OF CONTRACT AND REMEDIES 15
Section 359—states 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.
1. Sale of Land
2. Contracts for Personal Services
Normally, specific performance of personal service contracts is refused, because public policy
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.
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
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
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 litigation—which can be costly, time-consuming, and
emotionally draining. Instead, you should consider different options that may reduce the likelihood of litigation.
CONSIDER YOUR OPTIONS
What can you do in this situation? One option is to subcontract the work to another builder and oversee
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
1. Consider a compromise.
2. Subcontract out the work and oversee it.
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.
2. “Equity will not suffer a right to exist without a remedy” (when the remedy at law—damages—is 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
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
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 penalties—designed 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,
20 UNIT THREE: CONTRACTS AND E-CONTRACTS
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.
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
students to choose positions and argue one side or the other. For example, ask students: Did the court apply
correctly or misapply the rule announced in the case? Many argue that it misapplied the rule—notice was given
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
competitively for five years. When patients and other medical providers complained about Emerick’s conduct, he was
terminated. He filed a suit against Cardiac, seeking to have the covenant not to compete declared unenforceable.
From a judgment in Emerick’s favor, Cardiac appealed
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.”
Cardiac provided Emerick with a client base and referral sources. He had access to Cardiac’s business model and
goodwill. Covenants not to compete are “common among professionals because they allow a new professional to step
in to an already established practice while protecting the employer from future competition.”
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
