CHAPTER

McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved

Equity andQuasi-Contract

FOURTEEN

14-2ObjectivesChapter Objectives:• Use vocabulary regarding equitable

remedies properly• Differentiate among the different types of

equitable remedies and explain the basis for their award

• Evaluate the plaintiff’s chances for success in obtaining the different kinds of injunctive relief

• Identify situations where the court will or will not order specific performance

14-3ObjectivesChapter Objectives:• Discuss the doctrine of promissory

estoppel• Determine if/when a defendant has been

“unjustly enriched”• Explain the difference between a valuation

of equitable damages based on quantum meruit and quantum valebant

• Discuss the doctrine of “unclean hands”

14-4 • This chapter will examine WHAT HAPPENS

when contractual remedies are not available to a plaintiff DUE TO a defect in the formation or substance of the agreement, and

• WHY these kinds of damages are made available

Objectives

14-5 Definitions• Equity

– The doctrine of fairness and justice; the process of making things balance or be equal between parties

• Bright line rules– A legal standard resolves issues in a simple,

formulaic manner that is easy in application although it may not always be equitable

• Black letter law– The strict meaning of the law as it is written

without concern or interpretation of the reasoning behind its creation

14-6 “Action” Damages• When a party’s monetary damages are

inadequate to compensate for the harm incurred, the court has the ability to order alternative equitable remedies in the form of either 1. an injunction or2. specific performance

• These are “action” damages because they effectively force the defendant to act in some way to try to remedy the breach

14-7

It bears repeating that the court must find that monetary remedies are insufficient to compensate the plaintiff.

Only after showing that the money will not fix or prevent harm can the plaintiff obtain an injunction or specific performance.

“Action” Damages

14-8 • Injunction

– A court order that requires a party to refrain from acting in a certain way to prevent harm to the requesting party

“Action” Damages

14-9 • Temporary injunction

– A court order that prohibits a party from acting in a certain way for a limited period of time

• Permanent injunction– A court order that prohibits a party

from acting in a certain way for an indefinite and perpetual period of time

“Action” Damages

14-10 • Preliminary hearing

– An appearance by both parties before the court to assess the circumstances and validity of the restraining application

“Action” Damages

14-11 • Specific Performance

– A court order that requires a party to perform a certain act in order to prevent harm to the requesting party

– To obtain an order for specific performance, the contract must be very clear as to the act to be compelled. The standard of proof for specific performance is greater than that of obtaining damages at law

“Action” Damages

14-12 • Declaratory Judgment

– the court’s determination of the rights and responsibilities of a party with respect to the subject matter of the controversy

• The court’s decree settles the matter in its entirety

“Court-Ordered” Solutions

14-13

It is important to note that declaratory judgment is only appropriate where

another legal remedy is not available. The action for declaratory

judgment is limited to situations where there is genuine controversy as to the

rights and status of the parties involved and a declaration of those

rights as determined by the court will resolve the issue between the parties.

“Court-Ordered” Solutions

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• Rescission and restitution– A decision by the court that renders the

contract null and void and requires the parties to return to the wronged party any benefits received under the agreement

“Court-Ordered” Solutions

14-15

• Reformation– An order of the court that “rewrites”

the agreement to reflect the actual performances of the parties where there has been some deviation from the contractual obligations

“Court-Ordered” Solutions

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• Quasi-contract / pseudo-contract / implied-in-law contract– Where no technical contract exists, the

court can create an obligation in the name of justice to promote fairness and afford a remedy to an innocent party and prevent unearned benefits to be conferred on the other party

Quasi-Contracts

14-17

• Promissory estoppel does not require certainty in all the elements of contract

• This theory of relief only arises where there is no valid contract!

• Where a defect in formation would normally render the contract unenforceable under traditional contract principles, the court can look to the precepts of fairness and rely on the doctrine of promissory estoppel

Quasi-Contracts

14-18

• Promissory reliance– A party’s dependence and actions

taken upon another’s representations that he will carry out his promise

• Substantial detriment– The change in a party’s position in

reliance upon another’s representations that, if unanswered, will work a hardship on that party

Quasi-Contracts

14-19

• Prevention of Unjust Enrichment– the doctrine of unjust enrichment

focuses on the unearned benefit received by the promisor

• The court must find that:1. there was a promise made 2. that the promisor intended to induce

the promisee to act in reliance thereon, and

3. the promisee’s actions conferred a benefit on the promisor

Quasi-Contracts

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• Quantum meruit– A Latin term referring to the

determination of the earned value of services provided by a party

– Quantum meruit is the value of services rendered

Quasi-Contracts

14-21

• Quantum valebant– A Latin term referring to the

determination of the market worth assignable to the benefit conferred

– The court may determine that a more just valuation lies in quantum valebant, which is the value of the benefit received

– This is the value to the benefited promisor. It is the amount of money the promisor has gained in taking advantage of the situation

Quasi-Contracts

14-22Doctrine of “Unclean Hands”

None of these equitable remedies will be available to a party seeking

relief if they come to the court with unclean hands. Where the

plaintiff is also guilty of some misconduct, the notions of justice under equitable principles will not allow a guilty party to complain of

unfairness.

14-23Summary• Equitable principles allow a court to grant

a remedy where justice requires but where contract law does not recognize a legal, monetary remedy

• Where money does not adequately compensate an aggrieved party for the damages caused by a breach, a court may order the breaching party to act or refrain from acting in some way that will make up for the loss

14-24Summary• The court also may fashion a remedy in

the form of1. Declaratory judgments: the court

makes a determination of the rights and respon-sibilities of the parties with respect to the subject matter

2. Rescission and restitution: the court declares the contract null and void and gives the plaintiff damages to make him/her whole again

3. Reformation: the court changes the document to reflect the actual understanding of the parties

14-25Summary• The doctrine of promissory estoppel

where1. A promise is relied upon by the

aggrieved party, and2. The promisor knows the promisee will

reasonably rely upon it, and3. The promisee incurs a substantial

detriment as a result of the reliance

14-26Summary• Courts determine the value of the

promise under either promissory estoppel or unjust enrichment doctrines

• A calculation can be made using either quantum meruit or quantum valebant

• None of these equitable principles applies if the aggrieved party comes to the court with unclean hands