8. Remedies

Question 1

What are Expectation Damages?

Answer 1

The amount that restores the aggrieved party to the position had the contract been fully performed

Question 2

What is the formula for Expectation Damages?

Answer 2

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

Question 3

What are the limitations on recovery for Expectation Damages?

Answer 3

1. Cost of performance exceeds market value
2. Cannot calculate expectation damages with reasonable certainty
3. Damages are unforeseeable
4. Damages can be mitigated

Question 4

When a contract is willfully breached and the performance is central to the agreement, damages can be based on

Answer 4

the cost of completion, even if it greatly exceeds the performance’s value.

Question 5

What does it mean if the cost of performance greatly exceeds the market value?

Answer 5

It indicates that expectation damages may not be fully recoverable

Courts often prefer the cost of performance over market value to determine expectation damages.

Question 6

What is the Hadley rule regarding unforeseeable damages?

Answer 6

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.

Question 7

Consequential Damages

Answer 7

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.

Question 8

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

Answer 8

in the breaching party having had actual or constructive knowledge of the loss that might result from the breach.

Question 9

What is the duty to mitigate damages?

Answer 9

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.

Question 10

What are Expectation Damages for wrongfully discharged employees?

Answer 10

Amount of salary agreed upon - amount employee could have earned from other similar employment

Employees must accept comparable employment offers to mitigate damages.

Question 11

What is required for an employee to recover lost wages?

Answer 11

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.

Question 12

What are Expectation Damages in construction contracts when a contractor is injured due to an owner’s breach of a construction contract?

Answer 12

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.

Question 13

What does an owner recover when a builder breaches a construction contract?

Answer 13

Cost of fixing the defect/completing the project + reasonable compensation for any delay in the performance

Question 14

What are Reliance Damages?

Answer 14

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.

Question 15

What are Restitutionary Damages?

Answer 15

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.

Question 16

The aggrieved party’s restitution interest will be measured by either:

Answer 16

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.

Question 17

An aggrieved party is likely to make this election of restitution if:

Answer 17

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).

Question 18

In order to secure restitution damages, the party seeking the remedy must have conferred some benefit on the other party through either:

Answer 18

i.) part performance; or
ii.) reliance.

Question 19

There are NO Restitution damages and won’t be able to recover for extra benefits conferred when:

Answer 19

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.

Question 20

When can parties include a liquidated damages provision in their contract?

Answer 20

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.

Question 21

What is the test for a valid liquidated damages clause?

Answer 21

1. Intent of the clause
2. Reasonable at the time of contracting
3. Reasonable in relation to actual harm

Question 22

What happens if a liquidated damages clause is deemed a penalty?

Answer 22

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.

Question 23

What are the seller’s remedies under the UCC upon buyer’s breach?

Answer 23

1. Cancel the contract
2. Withhold delivery of goods
3. Recover money damages

Question 24

What are the conditions under which a seller can collect the contract price?

Answer 24

1. Buyer accepted the goods
2. Goods lost/damaged post-risk of loss
3. Buyer returned/rejected goods and seller unable to resell

Question 25

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

Answer 25

-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.

Question 26

What can a seller recover if they resell goods?

Answer 26

The difference between the contract price and the resale price

Question 27

What can a seller recover if he resells the goods after a buyer's breach?

Answer 27

The contract-resale differential

Question 28

What must a seller do to recover damages when reselling goods?

Answer 28

The resale must be made in good faith and in a commercially reasonable manner.

Question 29

What can a seller recover if he does not resell the goods?

Answer 29

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.

Question 30

What are incidental damages in the context of a seller's recovery?

Answer 30

Costs associated with getting stuck with goods and the costs of resale.

Question 31

What is the maximum percentage of a deposit a seller can keep without showing actual damages?

Answer 31

20% of the original contract price or $500, whichever is less.

Question 32

What must a lost volume seller demonstrate to recover lost profits?

Answer 32

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.

Question 33

Lost Profits for Lost Volume Sellers

Answer 33

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.

Question 34

What happens to title to goods when a buyer rejects them?

Answer 34

Title revests in the seller by operation of law.

Question 35

Buyer's Remedies What can a buyer do upon a seller's breach of contract?

Answer 35

i) Recover damages; ii) Seek specific performance.

Question 36

What is the measure of damages if a buyer covers?

Answer 36

The contract-cover differential The difference between what the buyer would have paid under the contract and what they actually paid to secure cover.

Question 37

What is the buyer entitled to if they do not cover after a breach?

Answer 37

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

Question 38

Whether or not the buyer covers, she is also free to seek:

Answer 38

i.) incidental damages-the costs associated with securing cover; and ii.) consequential damages.

Question 39

Difference in Value Damages

Answer 39

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.

Question 40

Deduction of Damages from Price Still Due

Answer 40

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.

Question 41

Buyer's Damages for Breach in Regard to Accepted Goods

Answer 41

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.

Question 42

What type of damages is available for nonconforming goods?

Answer 42

Difference in value damages Calculated as the value of goods contracted for minus the value of goods received.

Question 43

What must a buyer do to deduct damages from the price still due under a contract?

Answer 43

Give notice to the seller of the intention to withhold all or part of the price.

Question 44

what are the three equitable remedies?

Answer 44

1. specific performance (which requires the breaching party to take some particular action) 2. negative injunctions (which prohibit the breaching party from a particular action), and 3. rescission (which amounts to a cancellation of the contract).

Question 45

What is specific performance?

Answer 45

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.

Question 46

Under what conditions is specific performance granted?

Answer 46

1. Valid contract, 2. inadequate remedy at law, 3. feasible enforcement, and 4.no defenses apply.

Question 47

When is specific performance generally available?

Answer 47

When purchasing unique objects or real property.

Question 48

A legal remedy is normally inadequate if the damages are:

Answer 48

1. unique; 2. difficult to calculate; 3. impossible to collect; or 4. the breaching party is insolvent.

Question 49

Specific performance may be denied where:

Answer 49

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.

Question 50

Specific Performance is NOT available for:

Answer 50

i.) Contracts for Personal Services; and ii.) Contracts Requiring Ongoing Cooperation between Parties.

Question 51

Specific Performance for Sale of Goods Contracts under the UCC Specific performance may be permitted if:

Answer 51

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.

Question 52

What are negative injunctions?

Answer 52

Orders prohibiting the breaching party from taking a particular action.

Question 53

What is rescission?

Answer 53

An equitable remedy that cancels the contract and returns parties to their pre-contract positions.

Question 54

Rescission of a contract is available:

Answer 54

(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.

Question 55

What is promissory estoppel?

Answer 55

A legal principle preventing a party from withdrawing a promise when the other party has relied on that promise.

Question 56

What is restitution?

Answer 56

The recovery of the value of benefits conferred on another party.

Question 57

What are agreed-to remedies in a contract?

Answer 57

Remedies specified by the parties in the contract, such as liquidated damages provisions.

Question 58

Under what conditions can parties limit or exclude damages in a contract?

Answer 58

They can limit their remedial rights to those provided in the contract or exclude rights otherwise available under law.

Question 59

What is the rule regarding the enforceability of exclusive remedies provisions?

Answer 59

They are enforceable unless they are unconscionable.