class 14 & 15 Flashcards
goal of contract damages
place the P in the same position as if the K had been fully formed or as if the K never existed
damages cannot exceed what would have been provided if the k was fully performed by both parties
damages limitation is to encourage k formation.
damages foundation
for damages to be awarded they must be: caused y D conduct (breach), certain in fact and amount, foreseeable and not subject to mitigation
measuring k damages
expectation damages, reliance damages, restitution
expectation damages
what you would have expected if the K wasn’t breached- benefit of the bargain damages
damages are calculated based on what the P (non-breaching party) expected to get
reliance damages
calculated based on your conduct done in reliance on a particular promise or belief that the contract was going to be performed.
a P may elect to measure damages by reliance or expectation damages
selling a parcel of land for 100k and spends 500k on equipment
can get either expectation of purchase 100k or expectation 500k
promissory estoppel
engage in some type of promise between the parties, maybe no official contract has been written but promise has binding effect and is breached, get reliance damages.
promissory estoppel
P must prove
1 clear and definite promise,
2, made **
statute of frauds
certain contracts need to be written to prevent fraud
land sales, K that can’t be completed within 1 year,
Karen believes a parcel of land for sale in west Texas has oil under the surface that will be worth several millions. she enters into a K to purchase the land for 200k with escrow scheduled to close in a month. she then spends 500k on equipment that she need to drill for oil. the seller breaches the K and sells the land to someone else. as it turns out, there is no oil on the property
if she paid the 200k purchase price, she can get it back under expectation damages
spending the 500k on equipment was not caused by the breach of contract and was not a reasonable reliance on the oil on the property. will not get the 500k back because if the K had gone through, she would be eating this cost anyway
restitution
prevents a D from unjustly benefit where the harm inflicted creates an economic benefit for the D. will remove the benefit and maybe able reliance damages but NOT expectation damages
compensatory damages generally
substitutionary damages, give money as a substitute for the thing they contracted to receive
1. caused/certain
2. foreseeable/within the contemplation of the parties
3. unavoidable
caused/certain
fact of damages= caused (usually proved by the breach)
amount of damages = reasonable certainty (the quantity)
new business rule
non-breaching party to a contract is trying to show consequential damages- like lost profits (helps fill the hole with certainty of profits for a new business)
if the non-breaching party is a new business, then they will not be able to prove the amount of lost profits with certainty
Modern rule is expert testimony along with profits of similar business
foreseeable or contemplated
non-breaching party must have know or should have known that the damages could result from a breach.
the damages must be within the contemplation of the parties
if they knew or should have known, would they have entered into this contract?
ASK: what liability have the parties assumed consciously, or reasonably should have known, when the contract was made? what could the parties at the time of the K anticipate as damages in the case of a breach?
unavoidable
mitigation/cover: the buyer buys a substitute product/ obtain a substitute service or the seller tries to sell it to someone else
must be done: in good faith, with no unreasonable delay, as a reasonable purchase
non-breaching party should do this is they have the ability to do so
general damages
benefit of the bargain damages or damages that are a natural result of the breach
base damages = damages that are a direct result of the breach
incidental damages = cost of dealing with things after the breach
general damages are within the contemplation of the parties because they are a natural consequence of a breach = the damages that are sufficiently predictable
these are measured objectively, not subjectively
these are expectation and reliance damages.
special damages
damages which are caused by the breach but not objectively the natural and probable consequences of it.
they are secondary or derivative to general damages
certainty and foreseeable
a woman contracts a charter jet company to fly her to an interview for a job. she tells the company that its imperative that I arrive on time. a mechanical problem that grounds the jet forcing the woman to find a commercial flight that arrives 3 hours late and she does not get the job. she sues for breach of contract and seeks damages for the salary she would have received
what was in the contemplation of the parties? is her salary within the contemplation of the parties? no- just saying its important to arrive on time is not enough
problem with certainty and problem with foreseeability
Peter is in the ice cream business. he produces it and delivers it to local grocery stores. he contracts with a freezer manufacturer to install a new freezer on one of his trucks. the manufacturer to install a new freezer incorrectly, causing it to abruptly shut off during a delivery run. the ice cream melts, and Peter is unable to fill that months orders. 2 of his biggest customers are upset and refuse to do business with Peter any longer. as a result, Peter loses 100k in profits that year. can P recover his lost profits
general damages: a new freezer, product that was spoiled as a result- is it standard to store a months worth of ice cream, did he cover?
special damages: was it within the contemplation of the parties? probably not losing customers completely is probably too far. maybe different if the mobile freezer industry is privy to this
lewis Jorge construction management v. pomona unified school district
company 4 months delayed building something for school district. school district fired company. insurance company dropped building company and can no longer get contracts with public entities. business went under. company sued school district
not within the contemplation of the parties that the company would lose their ability to get bonds and cause their business to go under
liquidated damages
parties to the K predetermined the damages that can be recovered if a breach occurs
question only if it goes too far and is unfair- unenforceable penalty. consider: amount of damage is uncertain/difficult to anticipate at the time of the contract formulation plus amount of liquidated damages to be paid are reasonable compared to the harm incurred because of the breach.
modern: are they reasonable?
factors to consider: relationship to the amount anticipated to the actual harm
difficulties in proving loss because of the breach
inconveniences or non feasibility of other remedies
is this unreasonable; “late fee: rent is due on the first day of every month during the lease term. if the full amount of rent is not received by the first day of the month, liquidated damages of 25% of the monthly rent shall be added to the payment owed”
unreasonable without more information
maybe if the bank penalized the leasing company
damages not available
generally no emotional or punitive damages
emotional distress damages
exceptions: D commits an independent intentional tort
D commits negligence that results in physical injury
D breach causes physical injury
the express object of the K is the mental and emotional wellbeing of one of the contracting parties (funeral services)
punitive damages
not allowed in California unless there is an independent intentional tort
efficient breach
intentional breach but not done in bad faith
one party finds it more efficient to breach a contract and pay a penalty than to carry out its contractual obligation. breach is only considered efficient if there is no harm done to the other party and the breaching party is better off.
punitive damages are not allowed
efficient breach example
me paying my break lease penalty
opportunistic breach
intentional breach done in bad faith
the breaching party breaches to harm the other party or increase their benefit without making the party whole.
some jx’s (not CA) will award punitive damages here
an engaged couple hires a caterer for their wedding. the K price for the caterer’s services is 5k which the couple pays up front. 3 days before the wedding, the caterer gets an offer to cater another wedding on the same day, for 10k. the caterer accepts that offer, notifies the original couple he will be unable to cater their wedding, and returns their 5k
the couple will not be made whole- not able to find a caterer in that time and from a public policy point- want to encourage people to follow thru with their contracts.
liquidated damages clause for 500 in the contract when expectancy is 100 and reliance of 20
considerations: could the damages otherwise be calculated- maybe judge would not uphold.
rescission
equitable relief to put both parties in the position as if the contract never existed.
both parties need to be willing and able to return whatever they got.
A party whose consent to certain terms of the contract was obtained through mistake or fraud must rescind the entire contract, it cannot retain terms favorable to it and disregard the rest.
does not require inadequate remedy at law- but dont get both
rescission
- grounds
- prompt notice / no prejudice
- offer and ability to restore the benefit
grounds for rescission
void or voidable
void: a contract that is not recognized by law
voidable: the circumstances undermine the legitimacy of the bargain that has been reached. usually because of fraud or mistake
fraud and mutual mistake (grounds for rescission)
fraud- show an untrue assertion made or knew of false information and didn’t do anything about and actually and justifiably relied.
mutual mistake- both parties didn’t know (mistake to a material term)
prompt notice / no prejudice
P must notify D promptly of the intent to rescind.
D is not prejudiced by the delay (like the laches defense)
judge considers fairness (equitable remedy)
Goldiluxe LLC v. Abbott
no rescission because P waited 1 year before bringing the case even tho the D was fraudulent
L wants to buy a teacup poodle from D. L cannot have a dog larger than 10lbs fully grown. L agrees to buy the puppy for 2.5k. after a few months L finds out it’s a full sized poodle which will be 85lbs. D says its a mistake
mutual mistake.
was notice prompt: she didn’t realize until a few months and once she realized, she reached out. maybe the dog exceeded 10lbs in the first month
torts fraud elements
- untrue assertion of fact/assertion made with knowledge of falsity
- actual reliance
- justifiable reliance
- there does not have to be a contract for torts
torts fraud damages
out of pocket damages = K price - FMV of item delivered OR benefit of the bargain = FMV promised - FMV of item delivered (majority rule)
+ punitive damages
+ tort of fraud does NOT require a return of the item (unlike restitution)
when their is contract fraud
rescission, tort fraud and expectation damages. pick based on larger money amount and whether they want the thing or not.
offer to restore/ ability to restore the benefits
damages or rescission
a P has a choice-
1. affirm the K and sue for damages or
2. disaffirm the K and sue for rescission + restitution
however, the P cannot recover both (they may plead both but may not recover for both.)
when doing rescission always think about restitution
ex; fair market rental value for a house lived in
fraud remedial options
contract damages: expectation and reliance damages
K equitable remedies: rescission and restitution
tort damages and contract remains: benefit of the bargain, consequential damages, emotional distress, punitive
A retirement community entered into a K to sell one unit to the H’s. The retirement community rep told the H’s that the walls were excellent quality, and got no noise complaints. the opposite was true. the last owner moved out because of the noise. the H’s paid 200k for the unit. the H’s had emotional distress because of the noise and incurred 10k in medical bills. what remedies are available?
fraud in K or fraud in tort. if fraud in tort- get recovery on the emotional distress claim. to recover K emotional distress, the emotional distress needs to be part of the K.
reformation
equitable remedy where the court changes the terms of a K.
appropriate where the terms of the written instrument are mistaken- they do not show the true intent of the agreement between the parties and the mistake is material enough to matter but not so significant that the modification will fundamentally change the agreement.
Courts do not like writing contracts
grounds for reformation
mutual mistake or
ignorance or mistake by one party coupled with the other party knew about the mistake and did not disclose it.
elements of reformation
a valid K exists
valid grounds to rewrite the K
generally, a K will not be reformed if doing so will cause future harm to either party, lead to an illegal or one-sided K, or harm a 3rd party
AEP v. Affiliated
insurance policy was written to cover losses due to employee theft or misconduct. parties fought over what a corporation meant. court said the terms are not ambiguous and no parole evidence was not allowed. Problem was that company did not know they were going to be on the hook for covering corporations. not going to re-write it because it would harm a 3rd party and they should’nt suffer for the parties misunderstanding of an unambiguous word
S is a business exec hired by a large corporation to be its COO. before she accepted the offer, S received several other employment offers; she ultimately chose this one, however because it included a grant of stock options at the end of each year and the others did not. S and the company sign an employment k that provides for a 5 year term and specifies her companies
reformation
