contracts/sales: if there was an inexcusable non-opreformace, what are the non-breaching parties remedies?

Question 1

In the event of a breach, the non-breaching party may choose to pursue various remedies, including:

Answer 1

A. Expectation Damages

B. Reliance Damages

C. Equitable Remedies

D. Restitution

Question 2

Expectation Damages

Answer 2

Definition: Expectation damages are forward-looking damages; their purpose is to place the non-breaching party in the position it would have been in if the breaching party had fully performed.

In most cases, the non-breaching party is entitled to “expectation damages”

plus incidental damages (e.g., placing a new classified ad to find another buyer or paying a finder’s fee to locate replacement goods)

plus foreseeable consequential damages (Hadley v. Baxendale)

such damages (e.g., lost profits, lost rents) must be foreseeable by both parties at the time of contracting; this usually means the plaintiff told the defendant of her special needs at the time of contracting

minus reasonably avoidable costs and damages (e.g., in a wrongful discharge case, plaintiff must accept a comparable job to avoid damages)

Question 3

Reliance Damages

Answer 3

Definition: Reliance damages are backward-looking damages; their purpose is to put the non-breaching party in the position it would have been in had the contract never been formed.

Reliance damages are generally awarded in cases where the non-breaching party cannot establish expectation damages with reasonable certainty; in those cases, the non-breaching party has a right to damages based on its reliance interest, including reasonable expenditures made in preparation for performance.

Traditional (Minority) View: Lost profits (i.e., expectation damages) are not recoverable by a new business or enterprise; a new business or enterprise is limited to reliance damages.

Restatement (Majority) View: Lost profits are recoverable by a new business or enterprise if proved with reasonable certainty.

Reliance damages are also the traditional remedy in promissory estoppel cases.

Question 4

Equitable Remedies: generally

Answer 4

Equitable remedies are available only if money damages are inadequate (i.e., money damages will not put the non-breaching party in as good a position as performance would have).

Question 5

Restitution: purpose

Answer 5

the purpose of restitution is to prevent unjust enrichment.

Question 6

Expectation Damages : special cases: contracts for the sale of land

Answer 6

The standard measure of damages for breach of a land sale contract is the difference between the contract price and the fair market value of the land.

Question 7

Expectation Damages : UCC buyers damages: General rule

Answer 7

Buyer is entitled to compensatory damages (as set forth in other 2 cards) plus foreseeable consequential damages plus incidental damages minus avoidable damages

Question 8

Expectation Damages : UCC buyers damages: seller has goods

Answer 8

Except for installment contracts, the seller must make “perfect” tender. Any defect permits the buyer to reject the goods in whole or in commercial units (subject, in some cases, to the seller’s right to cure). If the goods are non-conforming, the buyer must

(1) make a timely inspection and rejection;
(2) promptly notify the seller of the rejection and the reasons therefor; and
(3) dispose of the goods in accordance with the seller’s instructions or, if none, in a manner to avoid damages.

As for damages, the buyer may get “cover” damages, which is the difference between the contract price and the price the buyer had to pay for a reasonable replacement or the difference between the contract price and the market price (at the time the buyer discovers the breach). If the buyer covers, the buyer may not sue for market damages.

Question 9

Expectation Damages : UCC buyers damages: buyer has goods

Answer 9

In such cases, buyer’s damages are measured by the difference between the value of what the buyer received and the value of what he would have received if the seller had fully performed (i.e., breach of warranty damages); buyer must give the seller notice of defects within a reasonable time after they are or should have been discovered

Question 10

Expectation Damages : seller damages: general rule

Answer 10

Seller is entitled to compensatory damages (as set forth in the other cards) plus incidental damages (but not consequential damages) minus expenses saved because of the breach.

Question 11

Expectation Damages: liquidated and punitive damages

Answer 11

Liquidated Damages are appropriate only if:

at the time of contracting, the parties knew it would be difficult to determine the amount of damages in the event of a breach, and

the liquidated damages amount is reasonable in light of anticipated or actual damages

Examples of enforceable liquidated damage clauses:
o 10% of purchase price for real estate contracts
o Per diem (e.g., $100 per day for delays in building contract) damages

If the contract permits the plaintiff to elect to recover either liquidated damages or actual damages, the liquidated damages clause is probably unenforceable.

No punitive damages are awarded in contracts cases (unless there is also a tort).

Damages for emotional distress are not available in breach of contract actions, unless the breach caused personal injury (e.g., breach of warranty) or such harm is “particularly likely” to result from a breach (e.g., a mortuary mishandling a corpse or an insurance company guilty of bad faith).

Question 12

Expectation Damages : seller damages: seller has goods

Answer 12

Seller’s damages are either:

(1) the difference between the contract price and the resale price (resale may occur by any commercially reasonable manner – public or private – with notice to the buyer) or
(2) the difference between the contract price and the market price (at the time and place of tender).

If the seller is a lost volume seller (i.e., one with an unlimited supply of goods to sell), seller’s damages are equal to the profit seller would have made on this sale. Notice of resale is not required for lost volume sellers.

Question 13

Expectation Damages : seller damages: buyer has goods

Answer 13

Seller may recover the entire contract price if

(1) the goods are specialized and seller is unable to resell them (i.e., the seller may “force” the buyer to purchase the goods);
(2) the buyer has accepted the goods (but has not paid for them); or
(3) the goods are destroyed after risk of loss has shifted to the buyer.

Question 14

Equitable Remedies: specific performance

Answer 14

Specific Performance is available only for breaches of:

real estate contracts

UCC contracts
• for the sale of unique or rare goods
• for other proper circumstances (i.e., the buyer is unable to cover or is unable to secure a comparable long-term contract)

Specific performance will not be awarded for personal services contracts, but an injunction may be entered to prevent the employee from working for a competitor (but only where the employee has very rare skills—a professional athlete—or the employee possesses trade secrets or the employee is subject to an enforceable “non-compete” agreement).

Question 15

Equitable Remedies: reformation

Answer 15

Where a writing that memorializes an oral agreement fails to accurately express the agreement because of a clerical or transcription error (or fraud), the court may reform the writing to express the agreement, except to the extent that rights of third parties will be unfairly affected.

Clear and convincing evidence is usually required for reformation.

Failure to read the agreement does not preclude a party from obtaining reformation.

The Parol Evidence Rules does not apply to reformation actions

Question 16

Restitution: No Enforceable Contract (Quasi-Contract or Implied-in-Law Contract)

Answer 16

If there is no valid contract but the plaintiff provided a valuable service (or property) to the defendant with a reasonable expectation of payment, the plaintiff may be entitled to quasi-contractual relief. A quasi-contract is not a contract, but rather a form of relief designed to remedy unjust enrichment. Quasi-contract damages are measured by either the detriment suffered by the plaintiff or the benefit experienced by the defendant.

Question 17

Restitution: Breach of contract

Answer 17

Non-Breaching Plaintiff.

If the plaintiff is the non-breaching party (which is typical), the plaintiff may choose restitution over expectation or reliance damages. However, restitution is usually the best remedy only with regard to “losing contracts” (i.e., those in which the plaintiff would have lost money).

Breaching Plaintiff.

If the plaintiff breached the contract, quasi-contract damages will be limited to the enrichment actually received by the defendant (and not the value of the efforts undertaken by the plaintiff).