(6) Contracts: Remedies

Question 1

What Legal Remedies are available for contract breaches?

Answer 1

The following legal remedies are available for contract breaches: (1) expectation/compensatory damages; (2) reliance damages; (3) consequential damages; (4) incidental damages; AND (5) restitution damages. Punitive damages are not allowed in breach of contract actions.

Question 2

Mitigating Damages

Answer 2

A party to a contract must avoid or mitigate damages to the extent possible by taking steps that do not involve undue risk, expense or inconvenience. Any mitigation reduces the damages that can be recovered by a nonbreaching party.

Question 3

Definition/Rule/Calculation

Compensatory/Expectation Damages

Answer 3

Usual Measure for damages.

Definition: Expectation damages intend to put the nonbreaching party in the same position as if the contract had been performed.

Rule: To recover damages must be: (1) caused by the defendant (actual cause); (2) foreseeable (proximate cause); certain (damages cannot be speculative; AND (4) unavoidable (the P must take reasonable steps to mitigate losses).

Calculation: To calculate expectation damages compare the value of performance without the breach with the value of performance with the breach. [Note: Expectation damages must be reasonably certain when calculated if speculative seek reliance damages.]

Question 4

Partial Performance Rule

Compensatory/Expectation Damages

Answer 4

A partially performing party can generally recover for work performed plus expectation damages for work not yet performed.

Question 5

Defective Performance

Compensatory/Expectation Damages

Answer 5

Construction contracts – damages measures by the cost of correcting the defect. Whereas sale of goods contracts – damages measured by the difference in value of goods warranted and nonconforming goods received.

Question 6

Definition / Rule

Reliance Damages

Answer 6

Definition: Reliance damages put the nonbreaching party in the same position as if the contract was never formed.

Rule: reliance damages are available when: (1) a P acted in reliance of the D’s agreement to perform; AND (2) the P’s reliance was foreseeable.

Question 7

Can reliance damages exceed the full contract price?

Answer 7

NO, reliance damages cannot exceed the full contract price.

Question 8

Can a party recover both reliance and expectation damages?

Answer 8

NO, a party cannot recover both reliance and expectation damages.

Question 9

Defition/Rule

Consequential Damages

Answer 9

Definition: Consequential damages include reasonably foreseeable losses incurred by a nonbreaching party that extend beyond expectation damages (i.e., loss of profits).

Rule: Consequential damages are recoverable if they are: (1) reasonably foreseeable at the time of contract formation; (2) arise from the P’s special circumstances that the D knew of or had reason to know of; AND (3) damages are reasonably certain (when too speculative courts will limit to reliance damages – usually loss profits are too speculative).

Question 10

Can consequential damages be limited or excluded?

Answer 10

YES, consequential damages can be limited or excluded from being awarded under a contract unless it would be unconscionable. It is prima facie unconscionable to limit consequential damages for personal injury concerning consumer goods.

Question 11

Defense to Consequential Damages

Answer 11

(1) but for causation – if the losses would have occurred even if D breached;
(2) A contract can exclude consequential damages unless the exclusion is unconscionable.

Question 12

Incidental Damages

Answer 12

Incidental damages are awarded to the nonbreaching party for commercially reasonable expenses incurred as a result of the other party’s breach.

Question 13

Restitution Damages

Answer 13

Restitution damages allows the plaintiff to recover on the value of the benefit conferred to the defendant, but only if there is a total breach of contract (not a partial breach).

Question 14

Nominal Damages

Answer 14

If no damages are alleged or proven, the plaintiff is still entitled to a judgement for nominal damages.

Question 15

Definition & Rule:

Liquidated Damages

Answer 15

Definition: Liquidated damages are damages to be recovered without proof of actual loss in the event the other party breaches the contract.

Rule: For liquidated damages to be enforceable the following must be met at the time of contracting: (1) the amount of liquidated damages was reasonable; AND (2) actual damages were uncertain in amount and would be difficult to prove. If the liquidated damages are unenforceable then recovery is limited to actual damages a party can prove.

Question 16

When will court refuse to enforce liquidated damages?

Answer 16

Many jurisdictions including the UCC will refuse to enforce if the liquidated damages are disproportionate to the actual damages incurred by a party.

Some states refuse to enforce if the party does not suffer any damages as a consequence to the breach.

Question 17

Damages in Contracts for the Sale of Land:

Buyer Recovery Rule

Answer 17

The buyer may recover for a breach of contract concerning the sale of land: (1) any amount paid; (2) the difference between the fair market value of the land at the time of the breach and the contract price; (3) expenses incurred in investigating title and preparing necessary paperwork; (4) expenses incurred in preparing to occupy the land; (5) possible consequential damages; AND (6) interest.

Question 18

Damages in Contracts for the Sale of Land:

Seller Recovery Rule

Answer 18

A seller may recover the “earnest money” deposit as liquidated damages for breach of land sale contract.

Question 19

UCC Buyers Remedies & Damages

Answer 19

Under the UCC, a buyer who (a) never received goods; (b) rightfully rejected nonconforming goods; or (c) justifiably revoked acceptance of goods may:
* (1) Cancel the contract
* (2) Receive a refund for any amount paid
* (3) Recover Cover Damages or Market Damages
Cover damages: Cover damages are the difference between the contract price and the price of substitute goods.

Market damages: Market damages are the difference between the market price at the time the buyer learned of the breach and the contract price. Market price is determined by the place of tender or place of arrival (in cases of rejection).
* (4) Recover Incidental and Consequential damages and
* (5) Receive Loss-in-value-damages if they keep non-conforming goods
Loss-in-Value-Damages: Loss in value damages are measured by the difference between the value as promised and the value of the non-confirming goods.

Question 20

Cover Damages

UCC Buyer’s Remedies and Damages

Answer 20

Cover damages are the difference between the contract price and the price of substitute goods.

Question 21

Market Damages

UCC Buyer’s Remedies and Damages

Answer 21

Market damages are the difference between the market price at the time the buyer learned of the breach and the contract price. Market price is determined by the place of tender or place of arrival (in cases of rejection).

Question 22

Loss-In-Value-Damages

UCC Buyer’s Remedies and Damages

Answer 22

Loss in value damages are measured by the difference between the value as promised and the value of the non-confirming goods.

Question 23

UCC Seller’s Remedies & Damages

Answer 23

Rule: Under Article 2 of the UCC when a buyer breaches a contract for the sale of goods, a seller has the following remedies:
a. Withhold Delivery of the goods
b. Cancel
c. Recover Cover Damages (if made in good faith and in a commercially reasonable manner)
Cover damages: cover damages are the difference between the contract price and resale price of the goods.
d. Recover Market Damages
Market Damages: market damages are the difference between the market price at the time and place for tender.
e. Recover Lost Profits if the seller is a lost volume seller.
A lost volume seller is one who regularly engages in the sale of the goods at issue and has unlimited inventory.
f. Stop delivery of goods when buyer breaches
g. Replevy of Identified Goods
Rule: The seller may stop delivery of goods if they discover the buyer is insolvent before delivery.

Rule: under Article 2 of the UCC a seller may repossess the goods sent to a buyer when (1) the buyer was insolvent when it received the goods; AND (2) the seller makes a demand within 10 days of the buyer receiving the goods
*If a misrepresentation of solvency is made to the seller in writing within 3-months of delivery the 10-day limitation no longer applies.

Question 24

Cover Damages

UCC Seller’s Remedies & Damages

Answer 24

cover damages are the difference between the contract price and resale price of the goods.

Question 25

Market Damages

UCC Seller’s Remedies & Damages

Answer 25

market damages are the difference between the market price at the time and place for tender.

Question 26

Recover Lost Profits if the seller is a lost volume seller

UCC Seller’s Remedies & Damages

Answer 26

A lost volume seller is one who regularly engages in the sale of the goods at issue and has unlimited inventory.

Question 27

Common Law & UCC Rule:

Replevy of Identified Goods

UCC Seller’s Remedies & Damages

Answer 27

Rule: The seller may stop delivery of goods if they discover the buyer is insolvent before delivery.

Rule: under Article 2 of the UCC a seller may repossess the goods sent to a buyer when (1) the buyer was insolvent when it received the goods; AND (2) the seller makes a demand within 10 days of the buyer receiving the goods
*If a misrepresentation of solvency is made to the seller in writing within 3-months of delivery the 10-day limitation no longer applies.

Question 28

Incidental Damages

Answer 28

Incidental Damages include any commercially reasonable costs incurred resulting from the breach.

Question 29

Definition & Rule:

Reformation

Answer 29

Definition: Reformation allows the change of the contract to the parties original intent.

Rule: Reformation is allowed if: (1) a valid contract exists but there was (a) misrepresentation; OR (b) mutual mistake of a material fact (a unilateral mistake is sufficient if the non-mistaken party had reason to know of the mistake).
*Parole evidence is admissible to prove the mistake or misrepresentation.

Question 30

Definition & Rule:

Recession

Answer 30

Definition: Rescission is the unmaking of a contract.

Rule: Rescission treats the original contract as cancelled. It is available if there was a problem with the formation of the contract.

***A contract will NOT be rescinded if (a) a valid equitable defense applies; OR (b) the plaintiff sued for damages under the contract in a prior action.

Question 31

Can you sue for recession and damages at the same time?

Answer 31

A P may sue for damages and rescission at the same time but rescission is barred if damages are sought first.

Question 32

Common Law difference:

Specific Performance

Answer 32

Specific performance is an available remedy when: (1) a valid contract exists with clear and definite terms; (2) the P has performed or is ready and able to perform; (3) legal remedies are inadequate (i.e., sale of land, rare or unique sale of goods); (4) enforcement is feasible for the court (personal services are not feasible to enforce); AND (5) no valid equitable or contractual defenses exist. *Common Law: requires the doctrine of mutuality to exists where both parties must be able to request specific performance. However not all jurisdictions meet this requirement if one party can sufficient assure performance.

Question 33

Cancellation

Answer 33

Under the UCC a seller or buyer may negate a contract upon the breach of the other party. This does not impede them from pursing monetary damages.