chapter 14 sections 1-2

Business Law IBusiness Law I

Chapter 14

Sections 1-2

Mr. Whisel

Hot Debate

Victoria needed her van repaired. The dealership estimated that the repairs to her transmission would take three days to complete. Because Victoria had a relative flying into town in four days, she asked the service manager if he was sure the work would be done within the three days. He replies, “Yes, for sure.” Victoria left the van and went home. On the third day the dealership said it would take an additional two days. Victoria took tow hours to arrange for a rental car to drive her relative around. She was angry and felt she’d been cheated out of the two hours and the cost of the rental car.

1. Why should Victoria be able to recover the cost of the rental car from the dealership?

2. What are the reasons in the dealership’s favor for not reimbursing Victoria the cost of the rental car?

Section 14-1 Goals

Distinguish between minor and major breach Describe when the remedies of rescission and specific

performance are available Define four types of damages and tell when they will be

awarded by courts STANDARDS PCCG OUTCOME: 14 PCCG STANDARDS: C: 1.1c, 1.1d, 1.1e, 1.1d, 1.2a,

1.3a, 1.4d, 1.6a, 1.6c, 1.6d, 1.6e, 1.7c, 1.8b, 1.8c, 2.2b, 5.1a, 5.1j, 5.1l, 5.2a, 5.3a, 5.3g, 5.4a,, 13.1e, 13.2b, 13.3b

What's Your Verdict?

Eve planned to open a sportswear shop in a small store space in a mall scheduled to open November 30. In a contract, Designs Inc. assured her that all work would be completed by November 10 and acknowledged that timely completion was essential. On October 15 the manager of Designs Inc. told Eve that her crews were working double shifts on the “anchor” shorts in the mall. “sorry, but we cant get you in before December 30. Eve immediately hired another firm to do the job. It finished on November 12, but charged 25 percent more.

Does Eve have an enforceable claim against Designs Inc.?

Types of Breaches and Remedies

Two Different Breaches– Major (Material)– Minor

Breaches are decided by a judge or jury as to major or minor. Goes back to what a reasonable person would think.– Two guidelines that classify

• Primary guideline is to determine the significance of the breach in relation to the entire contract.

Remedy– The action or procedure followed to enforce a right or to get

damages for an injury to a right

Basic Remedies for Material/Major Breach

Rescission and Restitution– Cancelling the contract and returning whatever has

been received under it

Money Damages– The payment of money to compensate for injury

Specific Performance– A court order commanding the breaching party to

perform what was promised in the contract

How Does Minor Breach Affect the Victim’s Duties?

Generally, a minor breach still requires you to perform the contract.

Remedy is generally money damages Offset

– Deducting the cost of completing or fixing a minor breach from payment of the contract price to the breaching party.

How Does Major Breach Affect The Victims Duties?

During a major breach the injured party need not continue to perform the duties defined in the contract

Victim in Major Breach can choose rescission, restitution, compensatory money damages, liquidated money damages, and specific performance.

Rescission and Restitution

Designed to put both parties in the same legal position they were in prior to the breach of contract.

Rescission Restitution

– Permits the injured party to recover money or property (or the value thereof) given to the defaulting party.

Types of Money Damages

Compensatory– Seeks to place injured parties in the same

financial position they would have been in if there had been no breach.

– “Benefit for Bargain”

Consequential– Same as compensatory but also includes

unforeseen injury caused by the breach.

Types of Money Damages

Liquidated– Damages agreed upon before a possible breach of

contract. Punitive

– When an intentional tort happens within the breach of contract

– Money a court requires a defendant to pay in order to punish and make an example of the defendant.

Nominal– Token amount awarded when rights have been violated

but there is no actual injury.


Kelly contracted to buy 160 acres of land from McCall. She planned to build an amusement park on the land. When McCall learned of her plan he refused to transfer the title.

Did Kelly have any recourse?

Specific Performance

When money damages are no an adequate remedy for breach courts will give specific performance.

Specific Performance– The court orders the defendant to do exactly what was

promised in the contract. Money Damages Inadequate

– Generally Money is used to buy/deal with something else that could have been bought/dealt somewhere else. In an event where money damages do not apply specific performance is granted.


Normally specific performance is available when the subject matter is unique. (meaning you could not get the same thing anywhere else).

Examples– Land– Automobiles– Antiques


Courts will monitor the specific performance so that it is carried out to its full extent.

Courts will not enforce contracts in which terms are vague or ambiguous

Clean Hands– Party to whom is blameless and has acted reasonably

and fairly throughout the transaction.

End of Section 14-1

THINK ABOUT LEGAL CONCEPTS THINK CRITICALLY ABOUT

EVIDENCE

Section 14-1 Goals

Distinguish between minor and major breach Describe when the remedies of rescission and specific

performance are available Define four types of damages and tell when they will be

awarded by courts STANDARDS PCCG OUTCOME: 14 PCCG STANDARDS: C: 1.1c, 1.1d, 1.1e, 1.1d, 1.2a,

1.3a, 1.4d, 1.6a, 1.6c, 1.6d, 1.6e, 1.7c, 1.8b, 1.8c, 2.2b, 5.1a, 5.1j, 5.1l, 5.2a, 5.3a, 5.3g, 5.4a,, 13.1e, 13.2b, 13.3b

Section 14-2 Goals

Describe the election of remedies Describe the requirement to mitigate damages Explain how the statue of limitation and

bankruptcy affect remedies STANDARDS PCCG OUTCOME: 14 PCCG STANDARDS: C: 1.1c, 1.1d, 1.1e, 1.1d,

1.2a, 1.3a, 1.4d, 1.6a, 1.6c, 1.6d, 1.6e, 1.7c, 1.8b, 1.8c, 2.2b, 5.1a, 5.1j, 5.1l, 5.2a, 5.3a, 5.3g, 5.4a,, 13.1e, 13.2b, 13.3b


Jim “Fastball” Smoot, an unknown baseball pitcher, signed a five year contract to play for a major league team in Denver for $120,000 a year. After two months, Smoot had won three and lost one in four starts, and how 37 strike outs and earned-run average of 1.75. He then contracted with a competing team in Seattle for $12 million a year, thereby breaching his contract with Denver.

What remedies are available to the Denver Team?

How Can Election of One Remedy Bar Use of Another Remedy?

The injured party must elect or choose a remedy when suing. Specific Performance and damages cannot be recovered for the same breach. Specific Performance cannot be collected when damages are adequate remedy.

What's Your Verdict? In a valid written contract, Allente Associates, an advertising

agency, employed DeChant to be its European representative based in Paris, France, for a three-year period. His salary was set at $12,000 a month, plus a housing allowance, travel expenses, and other fringe benefits. After two years, Allente fired DeChant because it had decided to use local native talent to perform DeChant’s customary duties. DeChant had similar employment opportunities but decided to “make lemonade out of lemons” as he put it. He immediately drove to a resort in Monaco, on the Mediterranean, for 12 months of the three R’s (rest recreation, and recuperation.)

Has DeChant’s failure to seek comparable employment eliminated his ability to recover from Allente?

How Can Failure to Mitigate Damages Eliminate Remedies?

Injured party must usually take reasonable steps to mitigate damages

Mitigate Damages– Means one must act to minimize one’s injury.


When Lister bought her new automobile, she received a customary limited warranty form the manufacturer. It provided protection against defect in material or workmanship on most components of the car for on year or 12,000 miles, whichever came first. One door did not fit properly and a whistling of wind could be heard when Lister drove faster than 50 miles per hour. Also, in heavy rains, water leaked into the trunk. Because Lister drove on in town, at low speeds, in good weather, she never bothered to complain about the defects.

Has her failure to act within one year been a waiver of her right to claim a breach of warranty?

Waiver

Waiver– A party intentionally and explicitly gives up a

contractual right.


Raley sold a used videocassette recorder to his friend and neighbor, Parr, for $495 on credit. Over a six-year period, Parr always had some excuse for not paying when Raley tried to collect. Exasperated, Raley finally filed suit in small claims court.

Will the court consider the claim even though it is six years old?

Statue of Limitations

State Laws setting time limit for bringing a lawsuit– Common time for contracts is 4 years. (UCC)– Common time for torts is 3 years.– More time for written contracts– For minors you are given the time to reach

majority/capacity plus 4 years to file a suit


Greene had overextended himself financially by buying too many items on installment plans. Then he lost his job. His wife required major surgery and was hospitalized for almost tow months. Soon after, Green was found guilty of negligence in an automobile accident and was help liable for $155,000 more than his insurance policy coverage. Greene can see no way of paying his creditor, yet bill collectors are at his door almost daily.

Is there anything he can legally do to get rid of his debts?

Can Bankruptcy Eliminate Remedies?

Bankruptcy– A legal proceeding whereby a debtor’s assets

are distributed among his/her creditor’s to discharge the debts.

End of Section 14.2

THINK ABOUT LEGAL CONCEPTS THINK CRITICALLY ABOUT

EVIDENCE.

Section 14-2 Goals

Describe the election of remedies Describe the requirement to mitigate damages Explain how the statue of limitation and

bankruptcy affect remedies STANDARDS PCCG OUTCOME: 14 PCCG STANDARDS: C: 1.1c, 1.1d, 1.1e, 1.1d,

1.2a, 1.3a, 1.4d, 1.6a, 1.6c, 1.6d, 1.6e, 1.7c, 1.8b, 1.8c, 2.2b, 5.1a, 5.1j, 5.1l, 5.2a, 5.3a, 5.3g, 5.4a,, 13.1e, 13.2b, 13.3b

End of Chapter 14

CHAPTER IN REVIEW