BAR FLASHCARDS - C8 Remedies (1)
Remedies
Breach = Expectation Damages
Promissory-Estoppel = Reliance Damages
Restitution
NONMONETARY REMEDIES
There are two broad branches of remedies available in breach of contract situations: nonmonetary and monetary.
The primary nonmonetary remedy for exam purposes is specific performance, but Article 2 has a number of other specific nonmonetary remedies for certain situations involving contracts for the sale of goods.
Specific Performance
If the legal remedy (that is, money damages) is inadequate, the nonbreaching party may seek specific performance, which is an order from the court to the breaching party to perform or face contempt of court charges.
RARE, bc only if legal remedy is INADEQUATE!
Only if:
- Money damages inadequate
- Feasible to enforce decree
Specific Performance - Available for what?
Available for Land and Rare or Unique Goods:
- Specific performance is always available for land sale contracts, because all land is unique. SP available in ALL land sales!
- It is also available for goods that are rare or unique at the time performance is due (for example, rare paintings, gasoline in short supply because of oil embargoes, etc.).
- It is NOT available for breach of a contract to provide services, even if the services are rare or unique. This is because of problems of enforcement (it would be difficult for the court to supervise the performance) and because the courts feel it is tantamount to involuntary servitude, which is prohibited by the Constitution.
Specific Perofrmance in Sale of goods:
SP available for breach of sales of goods Ks if :
- goods are unique, OR
- buyer unable to cover (artework, antiques, custom-made goods)
Employment: Injunction as Alternate Remedy
NEVER specific performance.
In contrast, a court may enjoin a breaching employee from working for a competitor throughout the duration of the contract if the services contracted for are rare or unique.
Covenant Not to Compete
Most courts will grant an order of specific performance to enforce a contract not to compete if:
(1) the services to be performed are unique (thus rendering money damages inadequate); and
(2) the covenant is reasonable. To be reasonable:
- The covenant must be reasonably necessary to protect a legitimate interest of the person benefited by the covenant (that is, an employer or the purchaser of the covenantor’s business);
- The covenant must be reasonable as to its geographic scope and duration (meaning, it cannot be broader than the benefited person’s customer base and typically cannot be longer than one or two years); and
- The covenant must not harm the public.
Reclamation: Unpaid sellers right to reclaim her goods
Unpaid Seller’s Right to Reclaim Goods (article 2)
general rule: not available under article 2
- note: S may have rights under bankruptcy law
Exception:
(1)
(i) if buyer was insolvent when it received the goods AND
(ii) seller makes a demand within 10 days after buyer received them
**Note: if the goods are gone, i.e. b resales to third party at the time Seller claims right, so is
S’s reclamation right.
For reclamation to work, buyer must have goods at time of demand
(2) S can reclaim goods at any time (no 10 day limit) if:
- B misrepresented its solvency to S
- in writing
- within three months before delivery
Equitable Defenses Available
In addition to standard contract defenses, an action for specific performance is subject to the equitable defenses of:
- Laches—a claim that the plaintiff has delayed bringing the action and that the delay has prejudiced the defendant;
- Unclean hands—a claim that the party seeking specific performance is guilty of wrongdoing in the transaction being sued upon; and
- Sale to a bona fide purchaser—a claim that the subject matter has been sold to a person who purchased for value and in good faith.
Nonmonetary Remedies Under Article 2
a. Buyer’s Nonmonetary Remedies
- Cancellation
- Buyer’s Right to Replevy Identified Goods
- Buyer’s Right to Specific Performance
b. Seller’s Nonmonetary Remedies
- Seller’s Right to Withhold Goods
- Seller’s Right to Recover Goods
c. Right to Demand Assurances
Nonmonetary Remedies Under Article 2 - BUYER’s Nonmonetary Remedies
a. Buyer’s Nonmonetary Remedies
- Cancellation: If a buyer rightfully rejects goods because they do not conform to the contract, one of her options is simply to cancel the contract.
- Buyer’s Right to Replevy Identified Goods:
— On Buyer’s Prepayment: If a buyer has made at least part payment of the purchase price of goods that have been identified under a contract and the seller has not delivered the goods, the buyer may replevy the goods from the seller in two circumstances:
(i) The seller becomes insolvent within 10 days after receiving the buyer’s first payment; or
(ii) The goods were purchased for personal, family, or house- hold purposes.
In either case, the buyer must tender any unpaid portion of the purchase price to the seller.
— On Buyer’s Inability to Cover: In addition, the buyer may replevy undelivered, identified goods from the seller if the buyer, after reasonable effort, is unable to secure adequate substitute goods (that is, cover).
- Buyer’s Right to Specific Performance: A right closely related to the buyer’s right to replevy is the right to specific performance “where the goods are unique or in other proper circumstances.” The court may order specific perfor- mance even where the goods have not yet been identified to the contract by the seller.
Nonmonetary Remedies Under Article 2 - SELLER’S Nonmonetary Remedies
- Seller’s Right to Withhold Goods
If the buyer fails to make a payment due on or before delivery, the seller may withhold delivery of the goods. The seller may also withhold goods when the goods are sold on credit and, before the goods are delivered, the seller discovers that the buyer is insolvent. However, in such a case, the seller must deliver the goods if the buyer tenders cash for their payment. - Seller’s Right to Recover Goods
— Right to Recover from Buyer on Buyer’s Insolvency: If a seller learns that a buyer has received delivery of goods on credit while insolvent, the seller may reclaim the goods upon demand made within 10 days after the buyer’s receipt of the goods. However, the 10-day limitation does not apply if a misrepresentation of solvency has been made in writing to the particular seller within 3 months before delivery.
— Right to Recover Shipped or Stored Goods from Bailee:
On Buyer’s Insolvency: The seller may stop delivery of goods in the possession of a carrier or other bailee if they discover that the buyer is insolvent. Of course, the seller must deliver the goods if the buyer tenders cash for their payment.
On Buyer’s Breach: The seller may stop delivery of carload, truckload, planeload, or larger shipments of goods if the buyer breaches the contract or the seller has a right to withhold performance pending receipt of assur- ances. (See c., infra, on the right to demand assurances.)
Seller’s Ability to Force Goods on Buyer Limited
The seller’s ability to force goods on a buyer is limited to an action for price when the seller is unable to resell the goods to others at a reasonable price
Right to Demand Assurances
Actions or circumstances that increase the risk of nonperformance by a party to a contract but don’t clearly indicate that performance will not be forthcoming may not be treated immediately as an anticipa- tory repudiation (see 8.2.2.b. below). Instead, if there are reasonable grounds for insecurity with respect to a party’s performance, the other party may demand in writing assurances that the performance will be forthcoming at the proper time. Until they receive adequate assurances, the party may suspend their own performance. If the proper assurances are not given within a reasonable time (that is, within 30 days after a justified demand for assurances), they may then treat the contract as repudiated. What constitutes an adequate assurance depends on the facts of the case.
Difference btwn circumstances giving rise to a right to demand assurances and those constituting anticipatory repudiation.
The right to demand assurances arises when there are reasonable grounds for insecurity—something makes a party nervous that the other will not perform.
Anticipatory repudiation requires much more than nervousness; there must be a clear indication that the other party is unwilling or unable to perform.
Thus, for example, “I’m not going to perform” is an anticipatory repudiation, but “I’m not sure if I can perform” most likely is only a reason to demand assurances.
MONETARY REMEDY—DAMAGES
Damages can be recovered only to the extent they can be proved with reasonable certainty and could not be avoided with reasonable effort.
Types of Damages
a. Compensatory Damages
- Expectation damages
- Reliance damages
- Incidental damages
- Consequential damages
b. Punitive damages
c. Nominal Damages
d. Liquidated damages
Types of Damages - Compensatory Damages
- Expectation damages
- Reliance damages
- Incidental damages
- Consequential damages
The usual goal of damages for breach of contract is to put the nonbreaching party in the position they would have been in had the promise been performed, so far as money can do this.
Expectation Damages
- “Standard Measure” of Damages—Expectation Damages: In most cases, the plaintiff’s standard measure of damages will be based on an “expectation” measure, that is, sufficient damages for them to buy a substitute performance. This is also known as “benefit of the bargain” damages.
Reliance Damages
- Reliance Damage Measure: If the plaintiff’s expectation damages are too speculative to measure (for example, the plaintiff cannot show with sufficient certainty the profits they would’ve made if the defendant had performed the contract), the plaintiff may elect to recover those damages they have suffered based on their reasonable reliance on the contract. Reliance damages award the plaintiff the cost of their performance; that is, they are designed to put the plaintiff in the position that would have been in had the contract never been formed.
Incidental Damages:
- Incidental Damages: Costs incident to breach.
Cost to the injured buyer or seller of transporting/caring for goods after a breach and of arranging a substitute transaction = ALWAYS recoverable (always add them in)
Costs incurred in dealing with the breach.
favorite wrong answers: incidental damages coupled with foreseeability
Compensatory damages may also include incidental damages. Incidental damages are most commonly associated with contracts for the sale of goods and typically include expenses reasonably incurred by a buyer in inspection, receipt, transpor- tation, care, and custody of goods rightfully rejected and other expenses reasonably incident to the seller’s breach, and by the seller in storing, shipping, returning, and reselling the goods as a result of the buyer’s breach.
Consequential Damages:
Consequential Damages = Indirect Results from breach
Consequential damages MUST be reasonably foreseeable at the time the contract is formed - note consequential damages are not available to a seller under Article 2
“B chatty rule” –> b chatty upfront about the situation you are in in order to make foreseeable
Recoverable if foreseeale at time of formation. Tell the other party that you’re going to lose money. Shipping company always liable for generally foreseeable damages.
Consequential Damages: Consequential damages are special damages and reflect losses over and above standard expectation damages. They arise because of the nonbreaching party’s particular circumstances, and most often they consist of lost profits.
These damages may be recovered only if, at the time the contract was made, a reasonable person would have foreseen the damages as a probable result of a breach. Foreseeability is the key issue for consequential damages.
To recover consequential damages, the breaching party must have known or had reason to know of the special circumstances giving rise to the damages.
Note that in contracts for the sale of goods, only a buyer may recover consequential damages. Seller can NEVER get consequential damages in article 2.
Certainty Rule
The plaintiff must prove that the losses suffered were certain in their nature and not speculative. Traditionally, if the breaching party prevented the nonbreaching party from setting up a new business, courts would not award lost profits from the prospec- tive business as damages, because they were too speculative. However, modern courts may allow lost profits as damages if they can be made more certain by observing similar businesses in the area or other businesses previously owned by the same party.
Punitive Damages
Punitive damages are generally not awarded in contract cases. NO pd
Nominal Damages
Nominal (token) damages (for example, $1) may be awarded when a breach is shown but no actual loss is proven.
Liquidated Damages
Liquidated Damages: Liquidated Damages Clauses in K’s are upheld if damages:
(1) were difficult to estimate at the time of the contract and
(2) are a reasonable forecast of probable damages, but
(3) cannot operate as a “penalty” (single lump sums most likely seen as penalties)
** if liquidated damages clause is struck down then still can try and get damages for injured party some other way (actual expectation damages for example)
The parties to a contract may stipulate what damages are to be paid in the event of a breach.
These liquidated damages must be in an amount that is reasonable in view of the actual or anticipated harm caused by the breach.
Requirements for Enforcement: Liquidated damage clauses will be enforceable if the following two requirements are met:
— Damages for contractual breach are difficult to estimate or ascertain at the time the contract is formed; and
— The amount agreed on is a reasonable forecast of compensatory damages in the case of breach.
The test for reasonableness is a comparison between the amount of damages prospectively probable at the time of contract formation and the liquidated damages figure.
If the liquidated damages amount is unreasonable, the courts will construe this as a penalty and will not enforce the provision.
Recoverable Even If No Actual Damages: If the above requirements are met, the plaintiff will receive the liquidated damages amount. Most courts hold this is so even if no actual money or pecuniary damages have been suffered.
Sale of Goods Damages (art 2): BUYERS DAMAGES IF SELLER MESSES UP
Award expectation
Buyer’s damages if Seller breaches: three options
(1) cover damages: cover price minus original contract price if buyer covers in good faith (this is the usual measure);
(2) market damages: market price minus contract price - used if B doesn’t cover in good faith or doesn’t cover at all (ex-buyer buys super fancy replacement goods in bad faith).
(3) loss in value: value as promised minus value as delivered - used if buyer keeps non-conforming goods.
Note, in MC fact pattern if the buyer has yet to pay, give them cover damages, if they buyer HAS paid, give them K price.
Contracts for Sale of Goods - Buyer’s Damages
IF Seller Does Not Deliver or Buyer Rejects/Revokes
If the seller doesn’t deliver, or the buyer properly rejects the goods or revokes acceptance of the goods, the buyer’s basic damages consist of:
the difference between the contract price and either:
(1) the market price or
(2) the cost of buying replacement goods (cover), plus incidental and consequential damages, if any, less expenses saved as a result of the seller’s breach.
Difference Between Contract Price and Cost of Replacement Goods—“Cover”: If the buyer chooses the cover measure (the difference between contract price and cost of buying replacement goods), the buyer must make a reasonable contract for substitute goods in good faith and without unreasonable delay.
Difference Between Contract Price and Market Price: If the buyer measures damages by the difference between contract price and market price, market price usually is determined as of the time the buyer learns of the breach and at the place of tender.
Damages measured when???
buyer’s damages are measured as of the time they learn of the breach, while the seller’s damages are measured as of the time for delivery
Contracts for Sale of Goods - Buyer’s Damages
IF Seller Delivers Nonconforming Goods that Buyer Accepts
IF Seller Delivers Nonconforming Goods that Buyer Accepts:
Warranty Damages: If the buyer accepts goods that breach one of the seller’s warranties, the buyer may recover as damages “loss resulting in the normal course of events from the breach.”
The basic measure of damages in such a case is the difference between
the value of the goods as delivered and
the value they would have had if they had been according to contract,
plus incidental and consequential damages.
Notice Requirement: To recover damages for any defect as to accepted goods, the buyer must, within a reasonable time after they discover or should have discovered the defect, notify the seller of the defect. If they do not notify the seller within a reasonable time, they lose their right to sue. “Reasonable time” is, of course, a flexible standard.
Contracts for Sale of Goods - Buyer’s Damages
IF Seller Anticipatorily Breaches Contract
Seller Anticipatorily Breaches Contract: The measure of damages when the seller anticipatorily breaches the contract is the difference between the market price at the time the buyer learned of the breach and the contract price.
