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receive are their salaries, less the income they received (or would have received) in
similar jobs.
C. LIQUIDATED DAMAGES VERSUS PENALTIES
1. Liquidated Damages Provision
Specifies a certain amount to be paid in the event of a breach to the nonbreaching
party for the loss. Such provisions are enforceable.
2. Penalty Provision
Specifies a certain amount to be paid in the event of a breach to penalize the breaching
party. Such provisions are not enforceable.
3. How to Determine If a Provision Will Be Enforced
Ask: (1) When contract was made, was it clear damages would be difficult to
estimate? (2) Was amount set as damages a reasonable estimate? If either answer is
"no," provision will not be enforced.
II. RESCISSION AND RESTITUTION
A. RESCISSION
Rescission is an action to undo, or cancel, a contract-to return nonbreaching parties to
the positions they occupied prior to the transaction. Rescission is available if fraud,
mistake, duress, or failure of consideration is present. The rescinding party must give
prompt notice to the breaching party.
B. RESTITUTION
To rescind a contract, the parties must make restitution by returning to each other
goods, property, or money previously conveyed.
III. SPECIFIC PERFORMANCE
This remedy calls for the performance of the act promised in the contract.
A. WHEN SPECIFIC PERFORMANCE IS AVAILABLE
Damages must be an inadequate remedy. If goods are unique, a court will decree
specific performance. Specific performance is granted to a buyer in a contract for the
sale of land (every parcel of land is unique).
B. WHEN SPECIFIC PERFORMANCE IS NOT AVAILABLE
Contracts for a sale of goods (other than unique goods) rarely qualify, because
substantially identical goods can be bought or sold elsewhere. Courts normally refuse
to grant specific performance of personal service contracts.
IV. REFORMATION
Used when the parties have imperfectly expressed their agreement in writing. Allows
the contract to be rewritten to reflect the parties' true intentions.
A. WHEN REFORMATION IS AVAILABLE
(1) In cases of fraud or mutual mistake; (2) to prove the correct terms of an oral
contract; (3) if a covenant not to compete is for a valid purpose (such as the sale of a
business), but the area or time constraints are unreasonable, some courts will reform
the restraints to make them reasonable.
B. WHEN REFORMATION IS NOT AVAILABLE
If the area or time constraints in a covenant not to compete are unreasonable, some
courts will throw out the entire covenant.
V. RECOVERY BASED ON QUASI CONTRACT
When there is no enforceable contract, quasi contract prevents unjust enrichment. The
law implies a promise to pay the reasonable value for benefits received.
A. WHEN QUASI-CONTRACTUAL RECOVERY IS USEFUL
A party has partially performed under a contract that is unenforceable. The party may
recover the reasonable value (fair market value).
B. ELEMENTS TO RECOVER IN QUASI CONTRACT
The party seeking recovery must show (1) he or she conferred a benefit on the other
party, (2) he or she had the reasonable expectation of being paid, (3) he or she did not
act as a volunteer in conferring the benefit, and (4) the other party would be unjustly
enriched by retaining it without paying.
VI. ELECTION OF REMEDIES
A nonbreaching party must choose which remedy to pursue. The purpose of the
doctrine is to prevent double recovery. The doctrine has been eliminated in contracts
for the sale of goods [UCC 2-703, 2-711].
VII. WAIVER OF BREACH
Occurs when a nonbreaching party accepts defective performance.