Substantial performance constitutes a minor breach of the contract

CH16

Men keep their agreements when it is an advantage to both parties not to break them.

Solon

(ca. 600 bce)

breach of contract

A situation that occurs if one or both of the parties do not perform their duties as specified in the contract.

Introduction to Breach of Contract and Remedies

There are three levels of performance of a contract: complete, substantial, and inferior. Complete (or strict) performance by a party discharges that party’s du-ties under the contract. Substantial performance constitutes a minor breach of the contract. Inferior performance constitutes a material breach that impairs or destroys the essence of the contract. Various remedies may be obtained by a non-breaching party if a breach of contract occurs—that is, if a contracting party fails to perform an absolute duty owed under a contract.1

The most common remedy for a breach of contract is an award of monetary damages, often called the “law remedy.” Monetary damages include compensa-tory, consequential, liquidated, and nominal damages. If a monetary award does not provide adequate relief, however, the court may order any one of several eq-uitable remedies, including specific performance, reformation, and injunction. Equitable remedies are based on the concept of fairness.

This chapter discusses breach of contract and the remedies available to the nonbreaching party.

complete performance (strict performance)

A situation in which a party to a contract renders performance ex-actly as required by the contract. Complete performance discharges that party’s obligations under the contract.

tender of performance (tender)

An unconditional and absolute offer by a contracting party to perform his or her obligations under a contract.

substantial performance

Performance by a contracting party that deviates only slightly from com-plete performance.

minor breach

Performance and Breach

If a contractual duty has not been discharged (i.e., terminated) or excused (i.e., re-lieved of legal liability), the contracting party owes an absolute duty (i.e., covenant) to perform the duty. As mentioned in the chapter introduction, there are three types of performance of a contract: (1) complete performance, (2) substantial per-formance (or minor breach), and (3) inferior performance (or material breach). A breach of contract occurs if one or the parties do not perform their duties as specified in the contract. These concepts are discussed in the following paragraphs.

Complete Performance

Most contracts are discharged by the complete performance, or strict perfor-mance, of the contracting parties. Complete performance occurs when a party to a contract renders performance exactly as required by the contract. A fully performed contract is called an executed contract.

Tender of performance, or tender, also discharges a party’s contractual obli-gations. Tender is an unconditional and absolute offer by a contracting party to perform his or her obligations under the contract.

Example Ashley, who owns a women’s retail store, contracts to purchase a lot of high-fashion blue jeans from a manufacturer for $75,000. At the time of perfor-mance, Ashley tenders the $75,000. Ashley has performed her obligation under the contract once she tenders the $75,000 to the manufacturer. The manufac-turer tenders the jeans to Ashley when required to do so and Ashley accepts the jeans. There is a complete performance of the contract.

Substantial Performance: Minor Breach

A breach that occurs when a party renders substantial performance of his or her contractual duties.

Substantial performance occurs when there has been a minor breach of contract. In other words, it occurs when a party to a contract renders performance that

CHAPTER 16 Breach of Contract and Remedies 279

deviates slightly from complete performance. The nonbreaching party may try to convince the breaching party to elevate his or her performance to complete per-formance. If the breaching party does not correct the breach, the nonbreaching party can sue to recover damages by (1) deducting the cost to repair the defect from the contract price and remitting the balance to the breaching party or (2) suing the breaching party to recover the cost to repair the defect if the breaching party has already been paid (see Exhibit 16.1).

Contracting

Contract

Contracting

Party A breaches the contract

Party A

Party B

(Breaching

(Substantial performance)

(Nonbreac hing

Party)

Party)

Party B may

1. Recover damages

Examples Donald Trump contracts with Big Apple Construction Co. to have Big Apple construct an office building for $100 million. The architectural plans call for installation of three-ply windows in the building. Big Apple constructs the building exactly to plan except that it installs two-ply windows. There has been substantial performance. It would cost $5 million to install the correct windows. If Big Apple agrees to replace the windows and does so, its performance is elevated to complete performance, and Trump must pay the entire contract price. How-ever, if Trump has to hire someone else to replace the windows, he may deduct this cost of repair of $5 million from the contract price of $100 million and remit the difference of $95 million to Big Apple. If Trump had already paid the $100 million and Big Apple refuses to install the proper windows, Trump can sue and recover the $5 million.

Exhibit 16.1 SUBSTANTIAL PERFORMANCE: MINOR BREACH

No cause of action arises from a bare promise.

Legal maxim

Inferior Performance: Material Breach

A material breach of a contract occurs when a party renders inferior performance of his or her contractual obligations that impairs or destroys the essence of the contract. There is no clear line between a minor breach and a material breach. A determination is made on a case-by-case basis.

Where there has been a material breach of contract, the nonbreaching party may rescind the contract and seek restitution of any compensation paid under the contract to the breaching party. The nonbreaching party is discharged from any further performance under the contract.2 Alternatively, the nonbreaching party may treat the contract as being in effect and sue the breaching party to recover damages (see Exhibit 16.2).

Contracting

Contract

Contracting

Party A breaches the contract

Party A

Party B

(Breaching

(Inferior performance)

(Nonbreaching

Party)

Party)

Party B may

1. Recover damages

or

2. Rescind the contract

Example A university contracts with a general contractor to build a new three-story classroom building with classroom space for 1,000 students. The contract price is $100 million. However, the completed building cannot support more than 500 students because the contractor used inferior materials. The defect can-not be repaired without rebuilding the entire structure. Because this is a mate-rial breach, the university may rescind the contract, recover any money that it has paid to the contractor, and require the contractor to remove the building.

material breach

A breach that occurs when a party renders inferior performance of his or her contractual duties.

inferior performance

A situation in which a party fails to perform express or implied con-tractual obligations and impairs or destroys the essence of a contract.

Exhibit 16.2 INFERIOR PERFORMANCE: MATERIAL BREACH

PART III Contracts and E-Commerce

The university is discharged of any obligations under the contract and is free to employ another contractor to rebuild the building. However, the building does meet building codes so that it can be used as an administration building of the university. Thus, as an alternative remedy, the university could accept the build-ing as an administration building, which has a value of $20 million. The university would owe this amount—$20 million—to the contractor.

CONCEPT SUMMARY

TYPES OF PERFORMANCE

Type of Performance

Legal Consequence

Complete performance

The contract is discharged.

Substantial performance (minor breach)

The nonbreaching party may recover damages caused by the breach.

Inferior performance (material breach)

The nonbreaching party may either (1) rescind the contract and re-

cover restitution or (2) affirm the contract and recover damages.

In the following case, the court found a breach of contract.

CASE 16.1 STATE COURT CASE Breach of Contract

Turner Broadcasting System, Inc. v. McDavid

693 S.E.2d 873, 2010 Ga. App. Lexis 317 (2010)

Court of Appeals of Georgia

“It is undisputed that the parties intended to sign written documents that memorialized the terms of their oral agreement.”

—Bernes, Judge

Facts

Among other assets, Turner Broadcasting System, Inc., owned the Atlanta Hawks professional basket-ball team, the Atlanta Thrashers professional hockey team, and the Philips Arena located in Atlanta, Georgia (collectively “assets”). Turner Broadcast-ing publicly announced its intent to sell the assets. David McDavid expressed an interest in purchasing the assets and entered into negotiations with Turner Broadcasting.

On April 30, the parties entered into a “Letter of Intent” outlining the proposed sale terms. The par-ties held meetings and engaged in telephone confer-ence calls to resolve any outstanding issues. During a conference call on July 30 with McDavid, Turner Broadcasting’s chief executive officer (CEO) Phil Kent announced, “We have a deal.” On or about August 16, as the drafting process of a final written agreement continued, Turner Broadcasting’s execu-tive and principal negotiator, James McCaffrey, told McDavid that the “deal was done” and that “they were ready to close the deal.” On August 19, the

directors of Time Warner, Inc., Turner Broadcasting’s parent company, approved the sale of the assets to McDavid based on the agreed-on terms.

On or about September 12, during a conference call, Turner Broadcasting and McDavid verbally reached a final agreement for the written agreement, and Turner Broadcasting’s principal negotiator an-nounced, “The deal is done. Let’s get documents we can sign, and we’ll meet in Atlanta for a press confer-ence and a closing early next week.”

However, Ted Turner, a member of Time Warner’s board of directors, opposed the deal. Ted Turner’s son-in-law, Rutherford Seydel, approached Turner Broadcasting about purchasing the assets on behalf his company, Atlanta Spirit, LLC. Turner Broad-casting began negotiations with Atlanta Spirit. Turner Broadcasting’s principal negotiator signed an agreement to sell the assets to Atlanta Spirit on substantially the same terms agreed on by Turner Broadcasting and McDavid.

McDavid sued Turner Broadcasting for breach of contract. Turner Broadcasting denied the existence of any binding contract with McDavid, arguing that the parties had not executed a final written agree-ment. Following an eight-week trial, the jury re-turned a verdict in favor of McDavid, finding that Turner Broadcasting had breached its contract with

CHAPTER 16 Breach of Contract and Remedies 281

McDavid, and awarded $281 million in damages to McDavid. Turner Broadcasting appealed.

Issue

Is there an enforceable contract between McDavid and Turner Broadcasting?

Language of the Court

It is undisputed that the parties intended to sign written documents that memorialized the terms of their oral agreement. McDavid and his advisors testified that in accordance with the customary deal-making process, the parties first had to reach an oral agreement upon the material terms, and then the lawyers were expected to prepare the written docu-ments that memorialized the parties’ agreed upon terms. There was evidence from which

the jury could conclude that the parties en-tered into a binding oral agreement with the intent to sign written documents that memori-alized the terms, but failed to do so as a result of Turner Broadcasting’s breach.

Decision

The court of appeals affirmed the trial court’s judg-ment that found that Turner Broadcasting had breached an oral agreement with McDavid and that awarded $281 million in damages against Turner Broadcasting.

Ethics Questions

Should businesspeople be bound to their oral word?

Did Turner Broadcasting act unethically in this case?

Anticipatory Breach

Anticipatory breach (or anticipatory repudiation) of a contract occurs when a contracting party informs the other party in advance that he or she will not per-form his or her contractual duties when due. This type of material breach can be expressly stated or implied from the conduct of the repudiator. Where there is an anticipatory repudiation, the nonbreaching party’s obligations under the contract are discharged immediately. The nonbreaching party also has the right to sue the repudiating party when the anticipatory breach occurs; there is no need to wait until performance is due.3

anticipatory breach (anticipatory repudiation)

A breach that occurs when one con-tracting party informs the other that he or she will not perform his or her contractual duties when due.

Monetary Damages

Where there has been a breach of a contract, the nonbreaching party may re-cover monetary damages from a breaching party. Monetary damages are available whether the breach was minor or material. Monetary damages are sometimes re-ferred to as dollar damages. Several types of monetary damages may be awarded. These include compensatory, consequential, liquidated, and nominal damages. Each is discussed in the following paragraphs.

monetary damages

An award of money.

Compensatory Damages

Compensatory damages are intended to compensate a nonbreaching party for the loss of the bargain. In other words, they place the nonbreaching party in the same position as if the contract had been fully performed by restoring the “benefit of the bargain.”

Examples Lederle Laboratories enters into a written contract to employ Wei as a chief operations officer of the company for three years, at a salary of $20,000 per month. After one year at work, Lederle informs Wei that her employment is terminated. This is a material breach of the contract. If Wei is unable to find a comparable job, Wei can sue Lederle Laboratories and recover $480,000 (24 months × $20,000) as compensatory damages. However, if after six months of being unemployed Wei finds a comparable job that pays $20,000 per month,

compensatory damages

An award of money intended to compensate a nonbreaching party for the loss of the bargain. Compensatory damages place the nonbreaching party in the same position as if the contract had been fully performed by restoring the “benefit of the bargain.”

PART III Contracts and E-Commerce

It is a vain thing to imagine a right without a remedy: for want of right and want of remedy are reciprocal.

Lord Chief Justice Holt

Ashby v. White (1703)

Wei can recover $120,000 from Lederle (6 months × $20,000) as compensatory damages. In these examples, the damages awarded to Wei place her in the same situation as if her contract with Lederle had been performed.

The amount of compensatory damages that will be awarded for breach of con-tract depends on the type of contract involved and which party breached the contract. The award of compensatory damages in some special types of contracts is discussed in the following paragraphs.

Sale of a Good

Compensatory damages for a breach of a sales contract involving goods are gov-erned by the Uniform Commercial Code (UCC). The usual measure of damages for a breach of a sales contract is the difference between the contract price and the market price of the goods at the time and place the goods were to be delivered.4

Example Revlon, Inc., contracts to buy a piece of equipment from Greenway Supply Co. for $80,000. Greenway does not deliver the equipment to Revlon when it is required to do so. Revlon purchases the equipment from another ven-dor but has to pay $100,000 because the current market price for the equipment has risen. Revlon can recover $20,000 from Greenway—the difference between the market price paid ($100,000) and the contract price ($80,000)—in compen-satory damages.

Every unjust decision is a reproach to the law or the judge who administers it. If the law should be in danger of doing injustice, then equity should be called in to remedy it. Equity was introduced to mitigate the rigor of the law.

Lord Denning,

Master of the Rolls

Re: Vandervell’s Trusts (1974)

Construction Contract

A construction contract arises when the owner of real property contracts to have a contractor build a structure or do other construction work. The compensatory damages recoverable for a breach of a construction contract vary with the stage of completion of the project when the breach occurs.

A contractor may recover the profits he or she would have made on the con-tract if the owner breaches the construction contract before construction begins.

Example RXZ Corporation contracts to have Ace Construction Company build a factory building for $1,200,000. It will cost Ace $800,000 in materials and labor to build the factory for RXZ. If RXZ Corporation breaches the contract before construction begins, Ace can recover $400,000 in “lost profits” from RXZ as com-pensatory damages.

Example Entel Corporation contracts to have the Beta Construction Company build a factory building for Entel for $1,200,000. It will cost Beta Construction Company $800,000 to construct the building. Thus, Beta Corporation will make $400,000 profit on the contract. Beta begins construction and has spent $300,000 on mate-rials and labor before Entel breaches the contract by terminating Beta. Here, Beta can recover $700,000, which is comprised of $400,000 lost profits ($1,200,000 − $800,000) plus $300,000 expended on materials and labor. The $700,000 of com-pensatory damages will make Beta Construction Company “whole.”

If the builder breaches a construction contract either before or during con-struction, the owner can recover the increased cost above the contract price that he or she has to pay to have the work completed by another contractor.

Example Ethenol Corporation contracts to have the Sherry Construction Company build a factory building for Ethenol for $1,200,000. Just before Sherry Construc-tion Company is to begin work, it breaches the contract by withdrawing from the project. Ethenol seeks new bids, and the lowest bid to construct the building is $1,700,000. Here, Ethenol can recover $500,000 in compensatory damages from Sherry Construction Company ($1,700,000 [new contract price] − $1,200,000 [Sherry Construction’s original price]).

CHAPTER 16 Breach of Contract and Remedies 283

Employment Contract

An employee whose employer breaches an employment contract can recover lost wages or salary as compensatory damages. If the employee breaches the contract, the employer can recover the costs to hire a new employee plus any increase in salary paid to the replacement.

Example EBM Corporation enters into a written contract to employ Mohammad as a chief financial officer of the company for three years at a salary of $30,000 per month. Before Mohammad starts work, EBM informs Mohammad that his employ-ment is terminated. This is a material breach of the contract. If Mohammad is un-able to find a comparable job, Mohammad can recover $1,080,000 (36 months × $30,000) as compensatory damages.

Consequential Damages

A nonbreaching party can sometimes recover consequential damages, or special damages, from the breaching party. Consequential damages are foreseeable dam-ages that arise from circumstances outside a contract. To be liable for consequen-tial damages, the breaching party must know or have reason to know that the breach will cause special damages to the other party.

Example W-Mart, a major retailer, contracts with Maytell, a major manufacturer of toys, to purchase one million of the new “G.I. Barby Dolls” produced by Maytell at $20 per doll. W-Mart plans to sell these dolls in its stores nationwide at $50 per doll, and Maytell is aware that W-Mart intends to resell the dolls. The popularity of Barby Dolls guarantees that all the dolls purchased by W-Mart will be sold. If Maytell breaches this contract and fails to deliver the dolls to W-Mart, W-Mart cannot purchase the dolls elsewhere because Maytell holds the copyright and trademark on the doll. Therefore, W-Mart can recover the lost profits on each lost sale as consequential damages from Maytell—that is, the difference between the would-be sales price of the dolls ($50) and the purchase price of each doll ($20), or $30 lost profit per doll. In total, W-Mart can recover $30 million in consequen-tial damages from Maytell ($50 − $20 = $30 × 1,000,000).

Disclaimer of Consequential Damages

Consequential damages are often disclaimed in a sales or license agreement. This means that the breaching party is not responsible to pay consequential damages. Disclaimer of consequential damages is lawful in most instances.

Example A student installs a new software program on his computer that is li-censed from a software company. The license price was $100. The software was installed, but it was defective. The software causes files in the computer, includ-ing the student’s class notes, PhD dissertation, and other valuable information, to be deleted. These were the only copies of the files. The student suffers a loss by having his only copies of these important materials to be deleted because of the newly installed software. These losses are consequential damages. However, the software license contains a disclaimer stating that the licensor is not liable for consequential damages. Therefore, the student cannot recover monetary dam-ages for his consequential damages. The student can recover $100 in compensa-tory damages, however, for the license price he paid for the defective software.

Nominal Damages

A nonbreaching party can sue a breaching party to a contract for nominal dam-ages even if no financial loss resulted from the breach. Nominal damages are

consequential damages (special damages)

Foreseeable damages that arise from circumstances outside a contract. To be liable for these damages, the breaching party must know or have reason to know that the breach will cause special dam-ages to the other party.

nominal damages

Damages awarded when the non-breaching party sues the breaching party even though no financial loss has resulted from the breach. Nominal damages are usually $1 or some other small amount.

PART III Contracts and E-Commerce

usually awarded in a small amount, such as $1. Cases involving nominal damages are usually brought on principle. Most courts disfavor nominal damages lawsuits because they use valuable court time and resources.

Example Mary enters into an employment contract with Microhard Corporation. It is a three-year contract, and Mary is to be paid $100,000 per year. After Mary works for one year, Microhard Corporation fires Mary. The next day, Mary finds a better position at Microsoft Corporation, in the same city, paying $125,000 per year on a two-year contract. Mary has suffered no monetary damages but could bring a civil lawsuit against Microhard Corporation because of its breach and recover nominal damages ($1).

mitigation of damages

A nonbreaching party’s legal duty to avoid or reduce damages caused by a breach of contract.

Critical Legal Thinking

What is mitigation of damages? Why does the law impose a duty on the nonbreaching party to mitigate damages?

Mitigation of Damages

If a contract has been breached, the law places a duty on the innocent nonbreach-ing party to make reasonable efforts to mitigate (i.e., avoid or reduce) the result-ing damages. The extent of mitigation of damages required depends on the type of contract involved.

If an employer breaches an employment contract, the employee owes a duty to mitigate damages by trying to find substitute employment. The employee is only required to accept comparable employment. The courts consider factors such as compensation, rank, status, job description, and geographical location in deter-mining the comparability of jobs.

Example Edith is employed by Software Inc., a software company located in the Silicon Valley of California, as a software manager. Her contract is for three years at $200,000 per year. If Software Inc. terminates Edith after one year, she is un-der a duty to mitigate the damages that would be owed to her by Software Inc. If Edith finds a job as a software manager at another software company located in the Silicon Valley for the same salary, she is required to take the job. However, if Edith finds a job at a similar salary as a sales manager in the Silicon Valley; or if she is offered a job as a software manager at the same salary at a software com-pany in Los Angeles, California; or if she is offered a job as a software manager at a company in the Silicon Valley but at a salary of $120,000 per year, she is not required to accept any of these job offers because they are not comparable jobs.

If an employee who has been dismissed improperly accepts a job that is not comparable, the employee can sue the prior employer for damages.

Examples Andrew is employed as a chief financial officer of Financial Company in New York City for a salary of $200,000 per year on a three-year contract. His employer terminates Andrew with two years left on the contract. Andrew accepts employment as a financial analyst at a new employer that pays $150,000 per year. Andrew can sue his prior employer Financial Company and recover $100,000 ($50,000 difference in salary per year for two years).

liquidated damages

Damages that parties to a contract agree in advance should be paid if the contract is breached.

Liquidated Damages

Under certain circumstances, the parties to a contract may agree in advance to the amount of damages payable on a breach of contract. These damages are called liquidated damages. To be lawful, the actual damages must be difficult or imprac-ticable to determine, and the liquidated amount must be reasonable in the cir-cumstances.5 An enforceable liquidated damages clause is an exclusive remedy even if actual damages are later determined to be different.

Example Alaska Oil Company discovers a new rich oil field in the northern-most part of Alaska. Alaska Oil contracts to purchase special oil-drilling equipment that is necessary to drill holes in the hard ground in the Alaska tundra from Tundra

CHAPTER 16 Breach of Contract and Remedies 285

Equipment Corporation. The contract states that the equipment is to be delivered by July 1, 2018. The parties know that Alaska Oil cannot start digging the oil holes until it receives this equipment. It is uncertain how great the oil flow will be from the drilled oil holes. The parties place a liquidated damage clause in their contract that states that Tundra Equipment will pay $20,000 per day in liquidated dam-ages for each day after July 1, 2018, that the equipment is not delivered. This is an enforceable liquidated damages clause because actual damages are difficult to determine and the liquidated amount is reasonable in the circumstances. Thus, if Tundra Equipment does not deliver the equipment until July 1, 2019, it owes Alaska Oil $7,300,000 (365 days × $20,000 per day).

Penalty

A liquidated damages clause is considered a penalty if actual damages are clearly determinable in advance or if the liquidated damages are excessive or unconscio-nable. If a liquidated damages clause is found to be a penalty, it is unenforceable. The nonbreaching party may then recover actual damages.

Example Rent-to-Own Store is a store that rents furniture to individuals who are usually poorer, and these individuals take title to the furniture after having paid the cost of the furniture (which is often overpriced with high interest rates). Mable, an elderly person who is poor, has rented and purchased a living room set, a dining room set, and a bedroom set from Rent-to-Own Store. Mable rents a big-screen HD television from Rent-to-Own Store and signs a contract that states that if Mable falls more than three months behind in her television payments, Rent-to-Own Store can recover all of the furniture she had previously purchased from the store as liquidated damages. This is an example of a liquidated damages clause that is a penalty and that would not be enforced.

The following case demonstrates the enforcement of a liquidated damages clause.

CASE 16.2 FEDERAL COURT CASE Liquidated Damages

SAMS Hotel Group, LLC v. Environs, Inc.

716 F.3d 432, 2013 U.S. App. Lexis 11047 (2013)

United States Court of Appeals for the Seventh Circuit

“The general rule of freedom of contract includes the freedom to make a bad bargain.”

—Hamilton, Circuit Judge

Facts

Environs, Inc. is an architectural firm that de-signs commercial and business buildings. SAMS Hotel Group, LLC signed a contract with Envi-rons whereby Environs would provide architec-tural services for the design of a six-story hotel in Fort Wayne, Indiana, to be built by SAMS. En-virons was paid a fee of $70,000 for its work. The contract between the parties limited Environs’s li-ability for breach of contract to $70,000. The hotel structure was nearly complete when serious struc-tural defects were discovered. The county building

department condemned the building and the hotel was demolished. SAMS sued Environs, alleging that the defendant had breached its contract by provid-ing negligent architectural services, and sought to recover its loss of more than $4.2 million. The U.S. district court found that Environs had been negli-gent and breached the contract, but the court en-forced the liquidated damages clause and awarded SAMS $70,000. SAMS appealed.

Issue

Is the liquidated damages clause enforceable?

Language of the Court

The undisputed facts show that the negotiat-ing parties were two sophisticated business

(case continues)

286

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entities of equal bargaining power who were

Decision

aware of the risks involved in designing and

The U.S. court of appeals affirmed the U.S. district

building a hotel. They were in the best position

court’s enforcement of the liquidated damages clause.

to allocate the relevant risks between them,

and it is undisputed that they signed the con-

Ethics Questions

tract with knowledge and understanding of

Was it ethical for Environs to avoid paying the full

each of its terms. The general rule of freedom

of contract includes the freedom to make a bad

claim? How could SAMS have protected itself from

bargain.

the outcome of this case?

CONCEPT SUMMARY

TYPES OF MONETARY DAMAGES

Type of Damage

Description

Compensatory

Damages that compensate a nonbreaching party for the loss of a bargain. It places the

nonbreaching party in the same position as if the contract had been fully performed.

Consequential

Damages that compensate a nonbreaching party for foreseeable special damages that

arise from circumstances outside a contract. The breaching party must or should have

known that these damages would result from the breach.

Nominal

Damages awarded against the breaching party even though the nonbreaching party has

suffered no financial loss because of the breach. A small amount (e.g., $1) is usually

awarded.

Liquidated

An agreement by the parties in advance that sets the amount of damages recoverable in

case of breach. These damages are lawful if they do not cause a penalty.