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>>tehe e e timeenof t parti a cact to gas spified inhat ntract. and when someone fails to perform either part or all of the dues under the contract, that person is said to be in breech of the contract. breach of a contract is the ilure perform what a person is under an absolute obligation to perfo. for example, if a painter contracts to paint someone's living room and completes only two of the four walls,

that painter would be in breachf the contract despite having completed half the job. his absolute duty was to paint the entire living room as agreed to in the contract. when someone fails to perform or performs inadequately, the injured party, the non-breaching person, can choose to ignore the breach, or can choose to pursue one or more remedies. a judicial remedy is a method of enfoing contract rights. it's inteed to provi relief to thenjured party, to either enforce a right or to redress an injury. here's an example of such a situation. >> when weought the house we always thought the backyard would be perfect foa pool. especially one of those natural looking ones wi treesrowing around it, plus it uld sure be a relief in e summer. >> we'put it offor qui a while because of theost. than we realized that my -laws'

50th anniversary party was going to be at our house since we live closest to them. i guess that's what got us thinking about a pool again. but like i said, it's something we'd wanted to do for a long time. so anyway, we finally decided the time was right to go ahead and take the plunge. >> we'd heard that windsor pools was a really good company-- but even wittheir help we just couldn't seem find a design that was right for our yard. so it was really a relie when the salesman to us that his company stomized pools are laidut. waeird was going work for us it would have to be custom designed. >> windsor pools created a 40 by 20 foot pool with depth ranging from four to six feet, that wouldold approximaty 20,000 gallons owate the johnson's plans also called for additional cool *creek decking at a cost of $5,000.

the pool and deck were designed to conform to t natural landscape of the yard, which meant that the trees were not to be disturbed. satisfied that all seemed in order, the hnsonsigne a contract atncludethe following, a standard rock clause attipulated additional charges in the event the contractor hit rock and a total ice of $24,000 wi payments based the following construction steps. twenty-five percent on excavation of the pool, 25 percent on completion of plumbing, steel, and electrical work, 25 percent on pouring the gunite, and the final 25 percent on completion of the decking, tile work, plastering, and cleanup. the contract specified that the pool would be completed 45 days fromhe date of the contract, and included an additional provision that there would be liquidated damages of $100 per day the work was not completed within the specified time period, unless the delay was due to badeather.

during the first two stages of work, a number of routine problems occurred, the yard was torn up, a concrete sidewalk was cracked, and the roots of a tree were severed. the coractor told the johnsons thathey could dis the problems after the job was finished. as cstruction proceeded the couple checked each stage in the work process and didn't notice anything out of order til work reached the third phase. aftethe corete w poed themi was put up for the decking. at this point it quickly became apparent that the plans and the actual placement of the decking didn't match. in fact, the edge of the deck was a foot shorter than the plans called for. >> i could tell that something was wrong by t way the contractor looked whehe came up with the plans. so i asked him to stop working until we could measure the dimensions of the pool. boy was that a shock. it turns out the pool was two feet narrower than the original drawings said it should be.

if we'd wanted a pool as small as that we could have rented an inflatable one for a lot less money. >> well, the johnsons weren't too happy when they called, but it wasn't as if i hadn't checked with them every step of the way. i mean, the pool wasn't quite as wide as the plans called for but things like that happen all the time in this business. it's not worth stopping the work over. i told them that the important thing was to get the work done and we could please settle the differences later. [narrator] >> the problem between the johnsons and the pool company is an illustration of a breach of contract, a substantial breach in which the johnsons appear to have been legally wronged. the question here is: what legal options can they pursue in this situation? one alternative is to give up their right to receive the performance set out in their contract. this is called a waiver of breach. if the johnsons choose this alternative the waiver would eliminate the breach and the rest of the construction under the contract would continue as if the breach

had never happened. in addition to a waiver of breach there are two categories of remedies available to the johnsons. first, there are legal remedies, those remedies that result from the court's exercise of its power at law, and second there are equitable remedies, those arising from a court's use of its powers of equity. let's examine legal remedies first. legal remedies a the damages or t amount of money, which would compensate e n-eaching pay, e hnsonsn this case from the loss of the breach. when someone loses the benefit of a bargain or contract the breaching party must make up the loss to the non-breaching party. often the court says that the injured party must be placed in the same position he or she would have been in had the other party performed. in any event, damages are the most common legal remedy, and in fact there are several types of damages available for breach of contract. they include liquidated damages, consequential damages,

punitive damages, nominal damages, and compensatory damages. >> compensatory damages can also be viewed as direct damages. they are intended to compensate the person who suffered due to the breach of contract. we're talking here about direct out of pocket expenses, direct losses that were foreseeable, or should have been foreseeable, that were reasonable. it's damages to compensate the victim, to put him in the position he would have been in had the contract been performed, to give him money to make up for his losses. >> and the best illustration of compensatory damages comes in the form of sales contracts. if you were under a contract to buy a car for $5,000 and the seller sold it to somebody else and it cost you $5,500 to buy the car

om another dealer,ou' entied to $5 dames compensatory damages. it's the difference between what it would have cost you and what it did cost you. [narrator] >> the second type of damages available to a party in a breach of contract situation are consequential damages. >> consequential damages are indirect damages. they're outgrowth damages. i think the best way to view consequential damages is to think in terms of--for example, you've got a retailer and the retailer orders merchandise from aholesale maybhe oers seonal mercndise, kehristmas decoratio. when t wholesaler does not send the decoratio, obviously there are some losses there. ifou'd d e corations you coulhave sold them. you figuheetail price mis the wholesale price. those give you compensatory damages. but if you had had the christmas ornaments--

the christmas decorations, you would have been able to entice people into the store and in walking past the other items that are on display to get to the christmas decorations they might have bought other items, christmas shoppinglong with decoration shopping. the sales you did not make because you did not have the christmas ornaments would be consequential damages. [narto >> the third kind of damages availae in areach of contract case are nitive damages. >> punitive damages are--r ck of betteray to put it, almost a fine for breach of contract. e breachingourt decid party for the bad faith, the blatant, the intentional breach, and to give a message to other people in similar situations not to do the same thing.

>> punitive damages are not frequently awaed in contracts but are certainly appropriate in some types of contracts. for example, if the reason there is nonperformance of the contract is because of fraud or gross misrepresentation, or some type of undue influence or illegality, the court may award punitie damaes. an example of the--a fraud would be in selling a ca a person haseliberately said tt the ca is in a1ondition wn actually iis not it has transmission problems. then there could be recovery, possib, for nitive damages seon the fact that there was a willful and deliberate malicious type fraud involved with that. >> because theurpose of punitive damages is to punish the breacher over and above compensating the innocent party who was harmed by the breach. they're computed by wt the cour feels isppropria orto get this message

ofunisent acss, and they vy seom will reach the level that the suing party asks for. >>eterminingunitive damages is a fairly complex matter. and it's handled by the judge or the jury. and it's an arbitrary amount that's decid upony that jury and ias punishmenty the for the wrongful act, r the frauthat might veeen committed in entering into the particular contract. >> nominal damages are another form of contract damages and are often awarded in cases where the party is correct. there has been a breach but they can't really show that they have any significant form of damage. for example, if you made an assignment of a contract that you had--you assigned a mortgage or a loan, technically you should not have done that and it was a breach of the contract. but if the assignee performs and performs

without any difficulties and does not cost the promisor to the contract any money, there really aren't any damages. you did something that was wrong and it may have created some tension for the other party to the contract, so the courts will award a nominal fee, sometimes a dollar is the typical figure. >> an example of determining the nominal damages woulbe a case involving ralph nader where he tried to geonto anirane some 15 years ago where he had a confirmed reservation, and they refused him entry onto the plane. so he sued them because they had failed to give him information regarding the fact that they were overbooking. so what he did is he brought suits for money damages and for punive damages-- for compensatory damages and for punitiveamages. e court awardehim some puti damages

out of thabecause ofhe fraud, but they gavm one-llar in nominal damages because they were not ab to determine the exact amou that had lost there. >> a finalorm of damages is liquited damages, and these are damages that the parties agree to up front. they set an amount in the contract and say this is what will be paid in the event the contract is breached. >> and you put a clause into the agreement to cover, for example, in a construction contract, the house is supsed be finished by such and such aate. if it's not finished what are the damages to the person who is having the house built? well he may have to pay more rent or he may have to go live in a hotel until the house is finished. there may be a number of different things that come into play. rather than try to figure all of those things out, it might be easier to just say for each day you're late there will be damages, liquidated damages, in the amount of $100.

>> the determination of liquidated damages is simply the total result of negotiation between the paies. because they have to decide howuch is aeasonable amount that sulbe pai undethe ciumstances, because you can easi see at the will lo of problems with regartoiquidated damages,ecause in e event thathe a no acal damages suffered, gardless, anhe coct is gog to have y at10a day. [narrato >> the johons decided to contact an attorney after the contractor refused to correct theool probm. in examining the construction contract their lawyer noted tt the liquidated damage clause for non-completion of the conact would not apply in this situation, and that there was no mention of any oer clause for liquidated damages. their attorney also pointed out that punitive damages did not apply in their case, because there wasn't any evidence of bad condt or ttuous bevior, and the urts rarelaward

putive damages for each of contract. their lawyer did, however, focus on the development of a suit for compensatory damages. those sumsf money that would place the johnsons, the injured party, in the same economic posionad tontrac en perrmed correctly the johnsons liked the idea of compensatory damages e ey wanted some mpsation for the loss ofwiinfoagas long, as it derstood that they wanted the pool completed as well. in order to determine the dollar value ofheir swimming footage , eyade the following calculations. he value of the pool they coracted for was $24,000. the pool's total square footage was 800 square feet. so they divided the pool's value by the total square footage to determine the cost of the pool per square foot, and arrived at the figure of $2,400 for compensatory damages. the johnsons then met with the contractor to present their claim for compensatory damages.

he refused their offer, but made a counter offer based on his construction costs which he calculated to be $11 per square foot or $880 in compensatory damages. the johnsons weren't pleased but they wanted to get on with the construction so that the pool would be ready in time for the anniversary party. after their attorney had been apprised of tir sentiments, the johnsons were advised to include equitable remedies in their lawsuit. equitable medies are fairness oriented bases of relief rather than momentarily based as damages are. equitable remedies deal with the actual contract itself, and may result when damages are unavailable, undetermined, or inadequate. in other words, equitable remedies are granted when money will not satisfy the plaintiff. when circumstances warrant equitable medies there are several types available. they include reformation in which the courreforms or rewrites the contract to reflect the original intent

of the parties and in turn to prevent the unjust enrichment of one party. another equitable remedy is the quasi contract, sometimes calledn implied in law contract, in which t court treats both parties as though a coract ests. the court eshis to prevent e unjustnrichment of onearty at t other's expee, and ere are court ordered writs ornjunctionsn whh the court directs a peon do or refrainrom doing some specified act. e estionere is whether anyf these equitable remedies is applicable to the johnsons case. we know the johnsons already have a contract, thus making a quasi contract unnecessary. second, there has'been a mistake in t contract so no reformation is needed. d finally, an injunction would be inapproprte since there's no need to have one of the parties, such as the contractor, refrain from doing anything, at least not at this point. although none of these equitable remedies

would be appropriate for the johnsons, there are two other remedies available, specific performance, and rescission and restitution. >> rescission is a restoration of the parties to their pre-contract position. it's a return of whatever you have from the original exchange of value, or it's a return of the original consideration that the parties gave. >> there was an excellent case to illustrate this in the context of misrepresentation and fraud. in this particular case some buyers from colorado purchased some farmland in kansas with the idea-- indeed the property was advertised-- as irrigated farmland, and they sold their property in colorado. they sold their business. they sold their home, and they picked up and moved to kansas. and it took them about three months before they figured out that although when they purchased it it was irrigated farmland that there was clearly no water left

after they had watered one season of crops, and it would be more expensive than the cost of the property to try and tap into any sort of other water source. they were talking about five-mile pipelines to get any more water. the court rescinded the contract. but in addition to rescinding the contract they wanted to restore the property--the parties, provide stitution for what had gone into it. so what they did was give back the buyers all the money that they had put into it and in addition had some other damages that they were entitled to because of all the costs that had gone into moving. >> restitution is a payment for services rendered, or it's a payment for that portion of the consideration that you're not able to return, and you've driven that car 200 miles, you would pay for the mileage at some agreeable or industry standard mileage rate. that would be restitution.

[narrator] >> the third and final type of remedy available when a contract has en breached is called specific performance. scic rformance as a equitae medy occurshen an individual has eached a contract, and the otheparty to t coract says i want performae ofhe exact tes of that agreement. >> youand that onehing because it was unique. nothing else will do the job for you. you ask the court to order the other party to perform. traditionally, specific performance began with land, because every parcel of land is unique. its ot itsown longitude and latitude. no other parcel lies is at that same juncture. today it's also applied to artwork, to antiques, or to any other unique item. so long as the item is not generally available, you can sue for specific performance and receive the contract rather than suing for damages.

[narrator] >> the lawyer advised the johnsons that rescission and restitution woulnot be appropriate in their case, because once construction has begun it's very difficult to put the parties back in their original positions. since the johnsons had already paid the contractor a large sum of money rescission wouldot return them or the contractor to their originalositions. it would only leave the johnsons sho of the cash they had already paid to the contractor. >> i told our attorney that we didn't want to toss out our original contract. we'd already paid the contractor a bundle, and we didn't want to be left with nothing to show for it but a hole in our backyard. all we really wanted was for him to folw the terms of the agreement. r specificerfoance. the trickyt was that even though the laereement. tolds we could file for compensatory damages and specific performance, we could only collect for one. [narrator] >> the johnson's attorney took steps

to ensure that his cents received remedies for their contractual dilemma, and at t same time, tried to leave the contracr some pblem solving options that were constent with the johnson's needs. he advised the johnsons to file for both damages and specific performance, an equitable remedy. this action did not mean, however, that the johnsons could receive both kinds of remedies. on the contrary, the johnsons were told that they must eventually select either a legal remedy or an equitable one to eliminate the possibility of double recovery. this concept is known as the election of remedies doctrine. the law will not allow more than one remedy for the same legal problem in a contract remedy situation. at the johnsons really want is compensation for the loss of swimming area. if the contractor refuses to compensate them, then they want t pool to built according to the original design specifications regardlessf what that costs the contractor.

the johnsons discussed the situation with the contractor and offered him two alternatives, compensatory damages their way or specific performance. he refused both and they concluded they had no other choice but to pursue a lawsuit. the johnsons filed a suit for compensatory damages and specific performance, although they informed their attorney that they would efer to collect for compensatory damages. >> if i were representing the johnsons in this matter, i would emphasis that they bargained for a pool that was 40 feet by 20 feet and are being asked to accept one that is only 40 feet by 18 feet. the contractor has admitted the breach and has offered to compensate the johnsons with damages. but the johnsons feel they are entitled to specific performance. that is, to get the pool of the size they bargained for. money damages simply are not adequate. the johnsons can swim in water. they can't swim in money. >> representing the contractor i agree that the contract has been breached

and that some money damages are owed. but this is clearly not a case for specific performance. the subject matter of the contract is not unique like a unique parcel of real estate or the mona lisa, where a money value is very difficult to assign. there are hundreds of residential swimming pools of all different dimensions, and we are used to assigning money values to them. money damages are clearly adequate in this case. >> well, this pool was specifically designed for the johnson's backyard, and they feel that they are entitled to specific performance and will urge that unless the contractor agrees to fair compensation. now in this case the johnsons have lost 80 square feet of swimming pool. and at 30 dollars per square foot they are entitled to be compensated $2,400. >> but the contractor saved only eleven dollars a square foot by not completing the pool, for a total of $880. if the johnsons receive essentially the swimming pool they contracted for, plus a cash payment of $2,400,

they will really be getting windfall. >> but the johnsons did not receive the swimming pool they bargained for. the measure of damages is the loss to the johnsons not the savings to the contractor. the johnsons lost $2,400 worth of swimming pool, and they're entitled to be compensated in that amount. >> when a breach of contract occurs there are two categories of remedies available to the injured paty, equitable and legal, or at law remedies. money damages are the most common type of legal remedy. equitable remedies are only appropriate when a dollar amount is an inadequate compensation for a loss occasioned by a breach. as a general rule, the non-breaching party will have to elect either a legal remedy or an equitable one, as the johnsons discovered. the johnson's case may have turned out differently if they had failed to take affirmative steps

to prevent the escalation of the losses brought about by the contractor, such as waiting until the pool's completion to check its width against the actual plans. in determining whether to award damages and how to measure them, the court requires that the injured parties mitigates or minimizes the damages if possible. as the johnson's did by halting the construction when they did. in their case, the contractor not only had to pay them $2,400 in compensatory damages but had to complete the pool in a reasonable amount of time, hopefully before mrs. johnson's parents start on their next 50 years of matrimony. ♪ [music playing]

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