Contracts Week 11 Day 1 PDF

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Contracts Week 11 Day 1 PUNITIVE DAMAGES 

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For breach of contract, punitive damages are only available if the conduct constituting the breach is also a tort for which punitive damages are recoverable (or in other rare exceptions) o Tortious performance of contract, for example, requires unreasonable conduct (eg malpractice) o Another exception would be when an insurance provider refuses to award an insurance settlement to a policy-holder even though it’s in the latter’s best interest Generally, there are no punitive damages for even intentional breaches of contract Breach is considered morally neutral and therefore we don’t condemn the breaching party, though we use damages to compensate the non-breaching party so that the non-breaching party is indifferent as to whether he’s awarded damages or the breacher performs A party should/can breach if it is economically efficient to do so (eg, when someone will compensate you for the damages you will need to pay for breaching) Cases where punitive damages are appropriate for breach of contract bc it’s also a tort: o Coercing a contracting party to give up rights with tortious means o Denying insurance liability o Medical malpractice is both breach of contract and tort o Cases where breach is particularly injurious (wrongful eviction or termination) o Bad faith denial that there is a contract White v. Benkowski (1967)

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P purchased house that did not have its own water supply; instead, it connected to D’s well and D had control over the water supply. They agreed that P would pay $3/month and ½ of all repair costs for P’s use of the well; P also paid $400 for installation of a pump. D intermittently and purposefully shut off the water do P could not use it. Jury returned verdict and assessed compensatory damages at $10 and punitive damages at $2k; on motions after verdict court reduced compensatory damages to $1 and voided punitive dam. Reduction of compensatory damages o Compensatory damages should be limited to the amount that non-breaching party actually sustained. Includes: pecuniary loss and inconvenience  lower court could not compute any pecuniary damages, so it reduced the $10 damages to a nominal amount ($1). This court disagrees because there was inconvenience, so it reverses lower court’s lowering of damages o Voiding of punitive damages  There is no exception applicable here, so punitive damages are not available Reinstated original jury verdict of $10 compensatory damages, but affirmed voiding of punitive damages Delzer v. United Bank of Bismarck (1997)

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P and D (bank) had two loan agreements – each totaling $150k. P signed promissory note and D fronts $150k but fails to loan the remaining $150k. P is therefore unable to repay its debts and their mortgage was foreclosed and lost all other assets (which were collateral for D’s loan) o P relied on D’s loan promise and used all their assets as collateral for a second loan

Contracts Week 11 Day 1 Jury verdict says  (1) D breached contract to lend $150k  (2) D willfully deceived P and had no intention of lending the money  Jury awarded no damages for breach, awarded $538k for deceit, and awarded punitive damages of $3m  D moves for judgment as matter of law or new trial; court dismisses Court says D committed fraud by inducing P to enter contract with no intention of performing o And that fraud warrants punitive damages bc it is tortious independent of breach Lower court erred granting D judgment as a matter of law on P’s punitive damages award o

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Freeman & Mills, Inc. v. Belcher Oil Co. (1995)  

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D retains Morgan law firm to defend in a suit; D was to pay for costs incurred, including fees for accountants; P is the accounting firm Accounting firm bills law firm, but they don’t pay, so accounting firm then bills D; law firm eventually tells accounting firm that D refuses to pay bill o Accounting firm sues D for breach of contract & bad faith denial of contract  Jury assessed $25k in compensatory damages for breach and $477k punitive According to this own court’s previous decision (the Seaman’s decision): “A party to a contract may incur tort remedies when, in addition to breaching the contract, it seeks to shield itself from liability by denying, in bad faith and without probably cause, that the contract exists.” o Court now says it should be overruled in favor of a general rule precluding tort recovery for noninsurance contract breach, at least in the absence of violation of an independent duty arising from principles of tort law o Court says it doesn’t make sense to characterize as “tortious” the bad faith denial of the existence of a contract while treating as “contractual” the bad faith denial of liability or responsibility under an acknowledged contract  This would potentially convert every breach into tort bc breach entails the denial of the contract’s existence Affirms COA’s reversal of trial court’s judgment in P’s favor; affirms COA’s judgment for D on P’s bad faith denial of contract Dissent by Mosk o Concur in judgment, disagrees that Seaman’s was wrongly decided o Conduct which merely is a breach of contract is not a tort, but the contract may establish a relationship demanding the exercise of proper care and acts and omissions in performance may give rise to tort liability...