8. Remedies Flashcards
What are Expectation Damages?
The amount that restores the aggrieved party to the position had the contract been fully performed
What is the formula for Expectation Damages?
Loss of value of the breaching party’s performance
(the difference between the performance the nonbreaching party should have received under the contract and what was actually received)
+
Other loss(incidental and consequential costs, if any)
Cost avoided(the additional costs the nonbreaching party can avoid by rightfully discontinuing performance under the contract as the result of the other party’s breach)
-Loss avoided(the beneficial effects of the breach due to the nonbreaching party’s ability to salvage or reallocate resources that would otherwise would have been devoted to performing under the contract)
= Expectation Damages
What are the limitations on recovery for Expectation Damages?
- Cost of performance exceeds market value
- Cannot calculate expectation damages with reasonable certainty
- Damages are unforeseeable
- Damages can be mitigated
When a contract is willfully breached and the performance is central to the agreement, damages can be based on
the cost of completion, even if it greatly exceeds the performance’s value.
What does it mean if the cost of performance greatly exceeds the market value?
It indicates that expectation damages may not be fully recoverable
Courts often prefer the cost of performance over market value to determine expectation damages.
What is the Hadley rule regarding unforeseeable damages?
A breaching party is liable for general damages but not for special or consequential damages(most common lost profits) unless they were foreseeable at the time of contracting
This rule limits recovery for damages that were not anticipated by the parties.
Consequential Damages
Consequential damages are available to plaintiffs for losses that are particular to that plaintiff, not just any
potential plaintiff.
However, they are limited by what the defendant knew or had reason to know about the plaintiff’s
specific circumstances.
If it is not foreseeable by the defendant, then the plaintiff cannot collect consequential damages.
A non-breaching party is entitled to recover damages that the party in breach “had reason to foresee as a probable result of the breach” when the parties entered into the contract.
Reason to foresee can arise from circumstances that result
in the breaching party having had actual or constructive knowledge of the loss that might result from the breach.
What is the duty to mitigate damages?
The aggrieved party must not recover for losses that could have been avoided without unreasonable risk, burden, or humiliation.
The duty is limited to taking reasonable efforts to mitigate.
What are Expectation Damages for wrongfully discharged employees?
Amount of salary agreed upon - amount employee could have earned from other similar employment
Employees must accept comparable employment offers to mitigate damages.
What is required for an employee to recover lost wages?
The employee must make reasonable efforts to secure a position that is reasonably equivalent to the job lost
This does not include accepting work in different fields or significantly lower pay.
What are Expectation Damages in construction contracts when a contractor is injured due to an owner’s breach of a construction contract?
Expected profit on the contract + any labor and material expenses incurred before learning of the breach
The contractor cannot recover damages that could have been mitigated.
What does an owner recover when a builder breaches a construction contract?
Cost of fixing the defect/completing the project + reasonable compensation for any delay in the performance
What are Reliance Damages?
Damages that restore the aggrieved party to the position prior to the contract based on expenditures made in preparation or performance
Reliance damages are used when expectation damages are uncertain or speculative.
What are Restitutionary Damages?
Value of benefits conferred on the breaching party during the course of the contract
Available when there is no enforceable contract or when expectation damages are hard to prove.
The aggrieved party’s restitution interest will be measured by either:
i.) the reasonable value of the benefit conferred upon the breaching party; or
ii.) the extent to which the breaching party’s property has increased in value based upon the aggrieved party’s performance.
An aggrieved party is likely to make this election of restitution if:
i.) the restitution recovery would exceed the amount recoverable based on her expectation interest; and
ii.) that situation is most likely to arise in the context of a “losing contract” (i.e., where the expectation interest would be less than zero because the aggrieved party would have actually lost money had the other party not breached).
In order to secure restitution damages, the party seeking the remedy must have conferred some benefit on the other party through either:
i.) part performance; or
ii.) reliance.
There are NO Restitution damages and won’t be able to recover for extra benefits conferred when:
i.) the aggrieved party has fully performed under the contract. The aggrieved party is limited to expectation damages.
ii.) Exceed the contract price agreed-upon for those services when all of the work giving rise to the claim has been done and the only remaining obligation is the payment of the price
iii.) breach was intentional by the breaching party; or
iv.) breaching unjustifiably refused to perform.
When can parties include a liquidated damages provision in their contract?
Parties are free to include it as long as it is not deemed a penalty
The provision must be reasonable in relation to anticipated harm and actual harm.
What is the test for a valid liquidated damages clause?
- Intent of the clause
- Reasonable at the time of contracting
- Reasonable in relation to actual harm
What happens if a liquidated damages clause is deemed a penalty?
The clause is stricken from the contract, but the aggrieved party can still recover legal or equitable relief
The burden of proof lies with the party claiming the clause is a penalty.
What are the seller’s remedies under the UCC upon buyer’s breach?
- Cancel the contract
- Withhold delivery of goods
- Recover money damages
What are the conditions under which a seller can collect the contract price?
- Buyer accepted the goods
- Goods lost/damaged post-risk of loss
- Buyer returned/rejected goods and seller unable to resell
Damages for Nonacceptance or Repudiation
If some or all of the goods have not been delivered-either because the buyer has rejected them, or in the context of anticipatory repudiation
-the seller can recover damages with respect to them.
The measure of recovery will depend on whether the seller resells the goods to a third party.
What can a seller recover if they resell goods?
The difference between the contract price and the resale price
What can a seller recover if he resells the goods after a buyer’s breach?
The contract-resale differential
What must a seller do to recover damages when reselling goods?
The resale must be made in good faith and in a commercially reasonable manner.
What can a seller recover if he does not resell the goods?
The contract-market differential
This is the difference between the market value of the goods at the time and place of the promised delivery and the contract price.
What are incidental damages in the context of a seller’s recovery?
Costs associated with getting stuck with goods and the costs of resale.
What is the maximum percentage of a deposit a seller can keep without showing actual damages?
20% of the original contract price or $500, whichever is less.
What must a lost volume seller demonstrate to recover lost profits?
i) They could have made the sale to both the breaching buyer and resale buyer;
ii) It would have been profitable to make both sales;
iii) They probably would have made the additional sale even absent the breach.
Lost Profits for Lost Volume Sellers
The UCC accordingly permits lost volume sellers to recover the profit they would have made on the lost sale rather than relegating them to either the contract-market or contract-resale differential.
It can recover the profit it expected to earn on the contract, plus incidental damages.
What happens to title to goods when a buyer rejects them?
Title revests in the seller by operation of law.
Buyer’s Remedies
What can a buyer do upon a seller’s breach of contract?
i) Recover damages;
ii) Seek specific performance.
What is the measure of damages if a buyer covers?
The contract-cover differential
The difference between what the buyer would have paid under the contract and what they actually paid to secure cover.
What is the buyer entitled to if they do not cover after a breach?
The contract-market differential.
i.) the difference between what the buyer would have paid under the contract; and
ii.) the market price of the goods at the time the buyer learned of the breach
Whether or not the buyer covers, she is also free to seek:
i.) incidental damages-the costs associated with securing cover; and
ii.) consequential damages.
Difference in Value Damages
It is available if the buyer receives nonconforming goods from the seller. The buyer is entitled to recover damages for nonconforming goods based on the following:
i) Value of Goods Contracted For; MINUS
ii.) Value of Goods Received.
The difference in value damages does NOT require a showing of foreseeability-only that the goods did not conform to the goods specified in the contract.
Deduction of Damages from Price Still Due
A buyer may deduct all or any part of the damages resulting from the seller’s breach of contract from any part of the price still due under the same contract.
In order to make the deduction, the buyer must give notice to the seller of her intention to withhold all or part of the price.
Buyer’s Damages for Breach in Regard to Accepted Goods
When a buyer accepts goods and notifies the seller of a non-conformity, they may recover damages for losses resulting from the seller’s breach.
Damages for breach of warranty are measured by the difference in value between the goods as accepted and as warranted, unless special circumstances indicate otherwise. Incidental and consequential damages may also be recoverable when appropriate.
What type of damages is available for nonconforming goods?
Difference in value damages
Calculated as the value of goods contracted for minus the value of goods received.
What must a buyer do to deduct damages from the price still due under a contract?
Give notice to the seller of the intention to withhold all or part of the price.
what are the three equitable remedies?
- specific performance (which requires the breaching party to take some particular action)
- negative injunctions (which prohibit the breaching party from a particular action), and
- rescission (which amounts to a cancellation of the contract).
What is specific performance?
Specific performance is an extraordinary remedy that is available to order a breaching party’s performance ONLY where a monetary award would be inadequate to grant relief to the aggrieved party.
Under what conditions is specific performance granted?
- Valid contract,
- inadequate remedy at law,
- feasible enforcement, and
4.no defenses apply.
When is specific performance generally available?
When purchasing unique objects or real property.
A legal remedy is normally inadequate if the damages are:
- unique;
- difficult to calculate;
- impossible to collect; or
- the breaching party is insolvent.
Specific performance may be denied where:
i.) the decree might have anticompetitive results;
ii.) the underlying exchange is unfair even if the unfairness falls short of unconscionability or other doctrines that would excuse contractual performance altogether by the breaching party.
Specific Performance is NOT available for:
i.) Contracts for Personal Services; and
ii.) Contracts Requiring Ongoing Cooperation between Parties.
Specific Performance for Sale of Goods Contracts under the UCC
Specific performance may be permitted if:
i.) the goods are unique(subject matter does NOT have to be unique);
ii.) in “other proper circumstances” where the buyer has adequately searched but is unable to cover the breach;
iii.) where ongoing cooperation would be required between the parties (e.g., in output or requirements contracts) so long as the requisite inability of a party to cover can be established.
What are negative injunctions?
Orders prohibiting the breaching party from taking a particular action.
What is rescission?
An equitable remedy that cancels the contract and returns parties to their pre-contract positions.
Rescission of a contract is available:
(1) by consent of both parties;
(2) for mistake (either unilateral or mutual);
(3) for fraud, misrepresentations, and nondisclosures;
(4) for duress or undue influence;
(5) for illegality; or
(6) for failure of consideration (which would also be a material breach).
A party seeking rescission must be ready to return to the other party all benefits received.
What is promissory estoppel?
A legal principle preventing a party from withdrawing a promise when the other party has relied on that promise.
What is restitution?
The recovery of the value of benefits conferred on another party.
What are agreed-to remedies in a contract?
Remedies specified by the parties in the contract, such as liquidated damages provisions.
Under what conditions can parties limit or exclude damages in a contract?
They can limit their remedial rights to those provided in the contract or exclude rights otherwise available under law.
What is the rule regarding the enforceability of exclusive remedies provisions?
They are enforceable unless they are unconscionable.
