Damages & Remedies

Question 1

Definition: Expectation Damages (ie, benefit-of-the-bargain)

Answer 1

Losses arising naturally & obviously from breach

*Standard measure of money damages

Question 2

Purpose: Expectation (ie, benefit-of-the-bargain) damages

Answer 2

Place nonbreaching party in same position as if contract had been performed (I.e., breach never occurred)

*Note - when in doubt, look for the answer that most closely gives damaged party what she would have received absent the breach.

Question 3

Expectation damages: Formula

Answer 3

Expectation damages must be calculated with reasonable certainty. If expectation damages are too speculative, the plaintiff may instead seek reliance damages.

Expectation Damages = loss in value + other loss – cost avoided – loss avoided

“Loss in value” is the difference between the performance that the nonbreaching party should have received under the contract and what was actually received, if anything. These are also referred to as a party’s direct damages.

“Other loss” includes consequential and incidental damages, if any.

This formula can also be used to properly calculate compensatory damages because it accounts for consequential and incidental damages. If this formula is used to calculate expectation damages, to prevent double recovery, the plaintiff should not recover separately calculated consequential and incidental damages.

“Cost avoided” is the additional cost that the nonbreaching party can avoid by rightfully discontinuing performance under the contract as a result of the other party’s breach.

“Loss avoided” is the beneficial e!ect of the breach due to the nonbreaching party’s ability to salvage or reallocate resources that otherwise would have been devoted to performing under the contract. Loss avoided is subtracted only if the savings results from the injured party not having to perform rather than from some unrelated event.

Example: B breaches a contract with A to fix A’s car for $500. A finds another mechanic, C, to fix A’s car for $700, which is the market value of
performance. A can recover $200 from B.

General rule – difference between contract price & market price (or cost of purchasing substitute performance)

Construction contracts – difference between contract price & cost of construction by another builder

Question 4

Restitutionary Damages - definition

Answer 4

Damages awarded to restore to claimant the value of whatever benefit was conferred upon recipient

Restitutionary damages are awarded to restore to a contracting party the value of any benefit conferred on the other party. Under the UCC, where the seller fails to deliver the promised goods or the buyer rightfully rejects the goods, the buyer is entitled to the return of any payment made on the goods as restitution.

Question 5

Purpose of Compensatory Damages

Primary (Expectation Measure)

Answer 5

Place nonbreaching party in same position as if contract had been performed

Expectation measure includes:

• Expectation damages
• Incidental damages
• Consequential damages

Question 6

Purpose of Compensatory Damages

Fallback (Reliance Measure)

Answer 6

Compensatory damages are meant to compensate the nonbreaching party for actual economic losses. The goal of compensatory damages is to put the nonbreaching party in as good a position as performance would have done (i.e., expectation damages), plus consequential and incidental damages, if any, less possible mitigation of damages.

Reliance measure includes:

• Reliance damages
• Liquidated damages
• Restitution

Question 7

What must an employee do following an employer’s breach of an employment contract?

Answer 7

Following an employer’s breach of an employment contract, the employee is expected to make reasonable efforts to mitigate losses by securing comparable employment. Failure to do so results in a reduced recovery from the employer (ie, unpaid salary minus loss that could have been avoided by accepting comparable employment).

Question 8

What must a party prove to recover damages?

Answer 8

To recover damages, a party must prove the dollar amount of the damages with reasonable certainty.

Question 9

Where it would be difficult to establish actual damages, what kind of damages may the parties agree to?

Answer 9

Liquidated damages.

Question 10

Liquidated Damages

Answer 10

A fixed measure of damages for breach set forth in the contract.

Question 11

When is a liquidated damages clause unenforceable?

Answer 11

A liquidated-damages clause is unenforceable as a penalty if the amount is so unreasonably large in relation to actual or anticipated damages that it punishes the breaching party (as opposed to merely compensating the nonbreaching party).

Question 12

Are parties free to set their own terms and agree to limit or exclude the recovery of consequential damages?

Answer 12

Yes. Contracting parties are free to set their own terms and can therefore agree to limit or exclude the recovery of consequential damages (unless the limitation or exclusion is unconscionable).

Question 13

Reliance Damages

Answer 13

Alternative measure used when expectation damages are too speculative

*Designed to compensate P based on value of her performance

Question 14

Consequential Damages

Answer 14

Foreseeable losses indirectly resulting from a breach (e.g., lost profits)

Recoverable if:

1) Damages are a foreseeable result of the breach, AND
2) When K was formed, D has reason to know P would suffer special, unpreventable, or unexpected damages in the even of a breach

*UCC Ks - Only buyers can recover consequential damages*

Question 15

Duty to mitigate

Answer 15

A party to a contract must avoid or mitigate damages to the extent possible by taking steps that do not involve undue risk, expense, or inconvenience.

The non-breaching party’s failure to mitigate does not give the breaching party a right to sue the non-breaching party for such failure; it only reduces the non-breaching party’s damages recovery.

P cannot recover reasonably avoidable damages, but can recover for costs of avoiding further damages.

Employment - P’s damages can be reduced if D can show a comparable job in the same locale was available to P

D bears the burden of showing P’s failure to mitigate

Question 16

Non-Monetary Remedies

Answer 16

In the event of a breach, certain non-monetary remedies (I.e., equitable relief) may be available if money damages are unavailable or inadequate

Question 17

Non-Monetary Remedies - Specific Performance

Answer 17

Usually only available for Ks involving real estate or unique goods (e.g., antiques, art)

*for service Ks, injunctions preventing breach may be available (e.g., injunction enforcing non-compete clause)

Question 18

Non-Monetary Remedies - Rescission

Answer 18

Cancellation of a K

a) purpose is to restore parties to their positions before K was made
b) often arises where there is a mistake, misrepresentation, duress, or some other defense to K enforcement or formation

Question 19

Non-Monetary Remedies - Reformation

Answer 19

Remedy whereby a K is changed so that it reflects parties’ original intent

a) can arise where there is a mistake in K formation such that the final K varies from a prior written agreement of parties
b) can also arise where K is inaccurate due to some misrepresentation

Question 20

Non-Monetary Remedies - Reclamation

Answer 20

In UCC Ks, unpaid sellers may stop delivery or reclaim goods from an insolvent buyer

*unpaid seller can never reclaim goods from subsequent buyers*

Question 21

Restitution Damages

Answer 21

a) Arise where a party has been unjustly enriched
b) Awarded based on value of the benefit wrongfully conferred
c) Party cannot recover both expectation damages and restitution damages
d) cannot recover restitution if performance is complete and only waiting for payment.

Question 22

Liquidated Damages

Answer 22

Agreed-upon K provisions that stipulate specified damages upon the occurrence of a breach

Question 23

Liquidated Damages - Requirements

Answer 23

Only valid if:

1) Damages are difficult to project at time of K formation, AND
2) The provision is a reasonable estimate of actual damages

Question 24

Damages for UCC Ks - Breach by Seller & Buyer keeps goods

Answer 24

Depends on if buyer accepts:

a) non-acceptance: damages = FMV of perfectly delivered goods minus FMV of the goods actually delivered
b) Acceptance: damages = FMV

*Note - if S delivers non-conforming but superior goods, buyer is not responsible for increased value of superior goods.

Question 25

Damages for UCC Ks - Breach by Seller & Seller keeps or buyer returns goods

Answer 25

Damages = whichever of the following is higher:

a) FMV of goods at the time of breach minus K price, OR
b) Buyer’s costs of covering / replacing goods minus K price

Question 26

Damages for UCC Ks - Breach by Buyer & Buyer has goods

Answer 26

Damages = K price (arises if goods are: Kept by buyer, destroyed after ROL passes to buyer, or returned and seller is unable to resell)

Question 27

Damages for UCC Ks - Breach by Buyer & Seller has goods

Answer 27

Either:

a) K price minus market price at the time of delivery, OR
b) K price minus resale price plus provable lost profits

Question 28

Damages for UCC Ks - Conversion

Answer 28

FMV of goods at the time of the conversion

Question 29

Damages for UCC Ks - Lost Profits

Answer 29

buyers and sellers can also recover lost profits or damages for losses resulting from a breach/nonperformance

Question 30

Can a Seller recover damages for imperfect tender and is unable to cure?

Answer 30

NO. The UCC requires perfect tender. If the buyer rejects goods for imperfect tender and the seller is unable to cure, then the seller is in breach and cannot recover damages under the contract.

Question 31

Recovery for substantial performance vs. material breach.

Answer 31

A party who substantially performs contractual obligations can generally recover the contract price minus any cost that the nonbreaching party incurred to receive full performance.

In contrast, a party who commits a material breach can recover only for any benefit conferred on the nonbreaching party minus damages for the breach.

Question 32

What is the primary goal of contract damages?

Answer 32

The primary goal of contract damages is to place the nonbreaching party in the same position as if the contract had been performed (i.e., to give that party the “benefit of the bargain”).

This typically means that the nonbreaching party can recover compensatory damages, which includes:

expectation damages – the value of performance without the breach (what was promised) minus the value of the performance with the breach (what was received)

incidental damages – compensation for commercially reasonable expenses incurred as a result of the other party’s breach

consequential damages – compensation for losses that do not flow directly and immediately from the other party’s breach, including lost profits, so long as the losses are not too speculative

Question 33

Does failure to include a liquidated damages clause prevent the recovery of damages?

Answer 33

NO. A liquidated damages clause is used to designate the amount of damages that are recoverable if the contract is breached.

However, failure to include such a clause does not prevent the recovery of contract damages. The court will simply use a different method to calculate damages.

Question 34

Consequential Damages

Answer 34

Damages for losses stemming from nonbreaching party’s special circumstances if breaching party:

a) knew of those special circumstances
OR
b) could have reasonably foreseen harm caused by breach.

Consequential damages—i.e., losses arising from the parties’ special circumstances—are recoverable only if they were reasonably foreseeable to the breaching party when the contract was entered.

Question 35

Recovery under a quasi-contract theory

Answer 35

A plaintiff can recover under a quasi-contract theory—despite having no contractual relationship with the defendant—if the plaintiff conferred a non-gratuitous benefit on the defendant that resulted in unjust enrichment.

Question 36

Restitutionary Damages

Answer 36

Definition: Damages awarded to restore to claimant the value of whatever benefit was conferred upon recipient

Purpose: Prevent unjust enrichment

Measure: Reasonable value of work performed or services rendered (ie, cost of recipient obtaining comparable performance)

If applicable, extent to which recipient’s property has increased in value or recipient’s other interests have been advanced

Question 37

For service Ks, the breaching party who has partially performed is entitled to recover restitutionary damages for:

Answer 37

A party who breaches a contract can recover restitutionary damages for the reasonable value of the work performed before the breach, less any damages suffered by the nonbreaching party due to the breach.

Question 38

Can the nonbreaching party recover both expectation damages and reliance damages?

Answer 38

NO. Although the nonbreaching party can pursue reliance damages in lieu of expectation damages, the nonbreaching party cannot recover both for the same breach.

Nonbreaching parties to a contract may choose between several types of damages, including:

• expectation damages – damages that arise naturally and obviously from the breach
• reliance damages – foreseeable expenses that the nonbreaching party incurred in reasonable reliance on the promise that the other party would perform

Question 39

Calculating Expectation Damages (visual)

Answer 39

Question 40

In construction contracts, the general measure of damages for a contractor’s failure is the…

Answer 40

• In construction contracts, the general measure of damages for a contractor’s failure is the* difference between the contract price and the cost of construction by another builder, plus any progress payments made to the breaching builder and compensation for delay in completion of the construction.
• (K price - Cost of Construction by another builder + any progress payments made to breaching builder and comp for delay)

When a breach results in a defective or unfinished construction, if the award of damages based on the cost to fix or complete the construction would result in economic waste, then a court may instead award damages equal to the diminution in the market price caused by the breach.

Question 41

When does economic waste occur in construction contracts?

Answer 41

Economic waste occurs when the cost to fix or complete the construction is clearly disproportional to any economic benefit or utility gained as a result.

Question 42

What type of damages is someone entitled to who agreed to an illegal agreement but withdraws from the transaction before the illegal purpose was accomplished? (i.e., scheme to fraudulently conduct prize drawing)

Answer 42

Restitution Damages.

For example, the question about the raffel to win the car if friend paid $1,000. Friend renounced the scheme, and demanded his $1,000 back. He is entitled to restution damages = $1000 back.

Question 43

When is reformation of a writing for mistake available?

Answer 43

Reformation of a writing for mistake is available if:

1) there was a prior agreement (either oral or written) between the parties,
2) there was an agreement by the parties to put that prior agreement into writing, and as a result of a mistake,
3) there is a difference between the prior agreement and the writing.

Question 44

When are damages considered foreseeable?

Answer 44

Damages are foreseeable if they were a natural and probable consequence of breach, if they were “in the contemplation of the parties at the time the contract was made,” or if they were otherwise foreseeable.

Question 45

What type of damages are “lost profits”?

Answer 45

Consequential damages do not concern the value of the lost performance due to breach, but there must be a causal link between the breach and the consequential damages for them to be recoverable.

Example from Ks Essay Q: In order for the movie theatre owner to recover its lost profits from the cancellation of the film festival, the lost profits must have been reasonably foreseeable to the contractor.

And the plaintiff must prove the dollar amount of consequential damages with reasonable certainty not speculatively.

Question 46

What standard of conduct is a non-breaching party held to when mitigating their loss?

Answer 46

A non-breaching party is held to a standard of reasonable conduct in preventing loss.

Question 47

Consequential damages (eg, lost profits) are recoverable only if ___________?

Answer 47

Consequential damages (eg, lost profits) are recoverable only if the nonbreaching party proves the dollar amount with reasonable certainty.

Question 48

Compensatory Damages

Answer 48

Compensatory damages are meant to compensate the nonbreaching party for actual economic losses.

The goal of compensatory damages is to put the nonbreaching party in as good a position as performance would have done (i.e., expectation damages), plus consequential and incidental damages, if any, less possible mitigation of damages.

Alternatively, the plainti! might recover liquidated damages, reliance damages, or restitutionary relief.

Question 49

All types of Damages

Answer 49

1) Expectation
2) Consequential
3) Incidental
4) Liquidated
5) Punititve
6) Nominal
7) Attorney’s Fees
8) Mitigating
9) Restitutionary Recovery
10) Reliance

Question 50

Expectation Damages - Partial Performance

Answer 50

A partially performing party can generally recover for work performed, plus expectation damages for the work not yet performed.

Example 1: B agrees to paint A’s house for $500, which covers $400 in supplies and labor and $100 in profit. After B paints half of the house and incurs $200 in costs, A breaches. B can recover the $200 for costs already incurred and the $100 of profit, but not the remaining $200 for costs not yet incurred.

Question 51

Expectation Damages: Defective Performance

1) Construction Ks
2) Sale-of-Goods Ks

Answer 51

1) Construction contracts
* In construction contracts, damages for defective construction are generally measured by the cost of correcting the defect.
2) Sale-of-goods contracts
* By contrast, in contracts for the sale of goods, damages for nonconformity with the contract generally are measured by the di!erence between the value of the goods as warranted and the actual value of the tendered nonconforming goods.

The purpose of both measures is to place the plaintiff in as good a position as if the defendant had performed the contract according to its specifications.

Question 52

Expectation Damages: Economic Waste

Answer 52

In a construction contract, when a breach results in a defective or unfinished construction, if the award of damages based on the cost to fix or complete the construction would result in economic waste, then a court may instead, at its discretion, award damages equal to the diminution in the market price of the property caused by the breach.

Economic waste occurs when the cost to fix or complete the construction is clearly disproportional to any economic benefit or utility gained as a result.

Example: Landowner grants Mining Company a five-year license to remove coal from his property. In return for the license, Mining Company agrees to restore the property to its original state at the end of the five-year period. After five years, Mining Company refuses to restore the land. The restoration work would cost $29,000, but, if completed, it would result in only a $300 increase in the property’s value. The court may elect to award only $300 in damages, instead of $29,000. Peevyhouse v. Garland Coal and Mining Co., 382 P.2d 109 (Okla. 1962).

If the breach is willful, and only completion of the contract will give the nonbreaching party the benefit of its bargain, then a court may award damages based on the cost to fix or complete the construction even if that award would result in economic waste.

Question 53

Expectation Damages: UCC—Breach of warranty damages

Answer 53

UCC—Breach of warranty damages

The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount. UCC § 2-714(2).

Repair costs often are used to determine this difference in value, but when repairs fail to restore the goods to their value as warranted, a further adjustment is required.

Question 54

Direct Damages v. Consequential Damages and Foreseeability

Answer 54

At common law, actual damages can be either direct or consequential.

Direct damages are the necessary and usual result of the defendant’s wrongful act. They are awarded to compensate the plaintiff for the loss, damage, or injury that is conclusively presumed to have been foreseen or contemplated by the breaching party, and are reflected in the difference between the value of the performance that the nonbreaching party should have received under the contract and what was actually received (i.e., “loss of value” calculation for determining expectation damages).

Consequential damages, on the other hand, result naturally from the breach, but need not be the usual result of the breaching party’s conduct. Instead, consequential damages need only be a reasonably foreseeable result of the breach in the parties’ specific circumstances.

Question 55

Consequential Damages: Foreseeability

Answer 55

Consequential damages must be reasonably foreseeable by the breaching party in order to be recoverable.

Unforeseeable consequential damages are not recoverable unless the breaching party had some reason to know about the possibility of these unforeseeable consequential damages.

Damages are considered foreseeable if they were the natural and probable consequences of breach, or if they were “in the contemplation of the parties at the time the contract was made,” or if they were otherwise foreseeable.

For example, with regard to a contract to lend money, because it is assumed that a borrower will be able to obtain a substitute bank loan, the borrower’s lost profit due to the failure of the lender to make the loan is considered unforeseeable.

Question 56

Consequential Damages: Causation

Answer 56

Although consequential damages do not arise directly from the breach itself, there must be a causal link between the breach and the damages for the damages to be recoverable.

The breaching party can defend on the ground that the losses that the nonbreaching party seeks to recover would have occurred even if the contract had not been breached.

Question 57

Consequential Damages: Reasonable certainty

Answer 57

To recover consequential damages, the damages cannot be speculative.

Instead, a plaintiff must prove the dollar amount of the damages with reasonable certainty. Courts are hesitant to award damages for lost profits, as they are diffcult to prove.

When lost profits are considered too speculative, such as with a new venture, courts often limit a party’s recovery to reliance damages (i.e., reasonable expenditures made in connection with the contract).

Although courts are hesitant to award damages for lost profits and lost opportunities, such damages are still recoverable for breach- of-contract claims. Beware of questions that conclude in absolute terms that such damages are not recoverable. Such damages are not likely, but they are still possible.

Question 58

Consequential Damages: UCC

Answer 58

Although UCC remedies must be liberally administered, neither consequential nor special damages can be recovered under the UCC unless specifically provided by a UCC provision or by another rule of law. U.C.C. § 1-305.

Because the UCC neither provides nor forbids consequential damages as a remedy for sellers, if a state statute or state common law recognizes a cause of action that would provide such damages, the UCC would permit that action.

The UCC specifically grants buyers the remedy of collecting consequential damages in certain situations. Generally, consequential damages for breach of warranty may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable, whereas limitation of damages when the loss is commercial is not. UCC § 2- 719(3).

Question 59

Incidental Damages

Answer 59

Incidental damages may be awarded to the nonbreaching party as compensation for commercially reasonable expenses incurred as a result of the other party’s breach.

In the sale of goods, incidental damages resulting from the seller’s breach include:

• expenses reasonably incurred in inspection, receipt, transportation, care, and
• custody of goods rightfully rejected,
• any commercially reasonable charges, expenses, or commissions in connection with effecting cover, and
• any other reasonable expense incident to the delay or other breach. UCC § 2-715(1).

Incidental damages to an aggrieved seller include any commercially reasonable charges, expenses, or commissions incurred in stopping delivery, in the transportation, care, and custody of goods after the buyer’s breach, in connection with return or resale of the goods, or otherwise resulting from the breach. UCC § 2-710.

Question 60

Liquidated Damages and Penalties

Answer 60

Liquidated damages are damages to be recovered by one party without proof of actual loss in the event the other party breaches the contract.

For a liquidated damages clause to be enforceable, the following two-prong test must be met at the time of contracting:

i) Theamount of liquidated damages was reasonable, bearing some relation to the damages that might be sustained; and
ii) Actual damages were uncertain in amount and would be di”cult to prove.

Some jurisdictions, as well as the UCC and the Second Restatement, add a third prong to this test, and refuse to enforce a clause under which the liquidated damages are disproportionate to the actual damages incurred by a party. A few jurisdictions, as well as the Second Restatement, refuse to enforce a liquidated damages clause if the party does not suffer any damages as a consequence of the breach.

If the liquidated damages clause is unenforceable, recovery is limited to any actual damages that a party can prove.

The parties’ characterization of a provision as a liquidated damages clause rather than a penalty, while entitled to consideration, is not determinative.

Question 61

Nominal Damages

Answer 61

Damages do not need to be alleged in a cause of action for breach.

If no damages are alleged or no damages are proved, the plainti! is still entitled to a judgment for “nominal” damages (e.g., one dollar).

Question 62

Attorney’s Fees

Answer 62

Attorney’s fees are generally not recoverable by a successful litigant in a contract action unless the parties have agreed otherwise or there is specific law authorizing the recovery of such fees. The UCC does not authorize the recovery of such fees.

Question 63

Mitigating Damages

Answer 63

Mitigating Damages

A party to a contract must avoid or mitigate damages to the extent possible by taking steps that do not involve undue risk, expense, or inconvenience.

The nonbreaching party is held to a standard of reasonable conduct in preventing loss. A party under a contract to provide services is generally not required to accept any type of employment, but instead only employment of the same type as the party was contracted to perform.

Although the standard is often phrased as a “duty to mitigate damages,” a nonbreaching party’s failure to mitigate does not give the breaching party a right to sue the nonbreaching party for such failure; it only reduces the damages that may be recovered by the nonbreaching party.

For example, with regard to a sale of goods, a nonbreaching buyer’s failure to take reasonable steps to mitigate damages by buying substitute goods (i.e., cover) will prevent a claim for consequential damages but will not deprive the buyer of damages measured by the difference between the contract and market prices. Note that reasonable expenses incurred as a result of efforts to mitigate damages can be recovered, even if the mitigation attempt was unsuccessful.

Question 64

Restitution and Reliance Recoveries

Answer 64

Restitution seeks to restore to a party the benefit conferred on the other party.

Reliance damages are based on the out-of-pocket expenses incurred by the nonbreaching party.

• Reliance damages put the party in the same position as if the contract were never formed.

Question 65

Restitutionary Recovery

Answer 65

When a defendant is unjustly enriched by the plaintiff, restitution generally allows the plaintiff to recover on the benefit conferred by the plaintiff upon the defendant (rather than on the harm suffered by the plaintiff).

Generally, this benefit may be measured by either:

i) the reasonable value of the defendant obtaining that benefit from another source OR
ii) the increase in the defendant’s wealth from having received that benefit (e.g., the increase in value of property owned by the defendant).

Question 66

Restitutionary Recovery: Benefit conferred pursuant to a contract

Answer 66

1) Recovery by nonbreaching party

Instead of seeking to enforce a contract, a nonbreaching party may seek restitution for any benefit conferred on the breaching party by way of part performance or reliance.

Restitution is available whether the breach is by nonperformance or by repudiation, but in the case of nonperformance, restitution is available only if the breach gives rise to a claim for damages for total, not partial, breach.

Example 1: The owner of a warehouse agrees to sell it to a retailer for $1,000,000. The retailer pays the owner $50,000 as a down payment. The owner then refuses to transfer the warehouse to the retailer. The retailer can seek restitution of the $50,000 down payment.

Example 2: A homeowner enters into a contract with a contractor to build an addition on his home for $50,000. The homeowner makes an initial payment of $10,000. The contractor inadvertently uses lumber not specified in the contract that gives rise to an immaterial breach. The homeowner cannot seek restitution of the $10,000 payment because the breach did not give rise to a claim for total breach. (Note: The homeowner could seek damages for breach of the contract.)

Restitution can result in a recovery for the nonbreaching party in a losing contract, even if recovery exceeds the contract price.

Example 3: A corporation contracts with a landscaper to design and install the landscaping for its new headquarters at a price of $75,000. When the landscaper’s work is 90 percent complete, the corporation repudiates the contract. If the landscaper can establish that the fair market value of his work for the corporation is $80,000, then he can seek in restitution to recover $80,000.

However, the nonbreaching party cannot seek restitution if he has performed all of his contractual duties and the only performance that remains due from the other party is the payment of a definite sum of money.

Question 67

Restitutionary Recovery: Recovery by breaching party

Answer 67

If a plaintiff has not substantially performed and is in breach of the contract, the plaintiff is not permitted to recover under the contract.

However, if the defendant has benefited from the plaintiff’s performance, the plaintiff can generally recover in restitution for the benefit conferred on the defendant less the defendant’s damages for the breach.

In general, the breaching party’s recovery is limited to a ratable portion of the contract price.

Question 68

Restitutionary Recovery: Recovery by breaching party

EXCEPTIONS

Answer 68

1) Willful breach
* Most courts hold that a plainti! in breach is permitted to recover in restitution only if her breach is not willful. If a party intentionally furnishes services that are materially di!erent from what she promised, then she cannot recover anything in restitution unless the nonbreaching party has accepted or agreed to accept the substitute performance.
2) Liquidated-damages clause
* An exception exists if the contract provides for the nonbreaching party to retain the breaching party’s performance (e.g., a down payment on the purchase price) as liquidated damages; restitution is not allowed if the liquidated damages are reasonable.
3) Sale of goods—payment by the defaulting buyer

• For UCC Ks, a defaulting buyer is entitled to a refund of any payments made on the contract, less either (i) the amount to which the seller is entitled by virtue of an enforceable liquidated-damages provision, or (ii) a penalty of “20 percent of the value of the total performance for which the buyer is obligated under the contract, or $500, whichever is smaller.”
• This amount is subject to an offset for any contract damages that the seller can establish other than those arising under a liquidated damages provision.

Question 69

Restitutionary Recovery: Unenforceable contract

Answer 69

If a contract is unenforceable due to the Statute of Frauds or is voidable due to lack of capacity, mistake, misrepresentation, duress, or undue influence, then a party is entitled to restitution of any benefit conferred on the other party by way of part performance or reliance.

Similarly, a party whose duty is discharged or does not arise as a result of impracticability of performance, frustration of purpose, or the nonoccurrence of a condition is entitled to restitution of any benefit conferred on the other party by way of part performance or reliance.

Question 70

Resitutionary Recovery: Benefit conferred independent of a contract (quasi-contract)

Answer 70

A person who confers a benefit on another in the absence of any contractual relationship, such as a doctor who happens upon an accident and renders emergency medical services to a victim, may be able to recover in restitution to the extent that retention of the benefit would result in unjust enrichment of the recipient.

Question 71

Reliance Damages

Answer 71

Reliance damages may be recovered if a nonbreaching party incurs expenses in reasonable reliance upon the promise that the other party would perform.

Unlike with a restitutionary recovery, with reliance damages, there is no requirement that the defendant benefit from the plaintiff’s expenditures.

The injured party can choose to pursue reliance damages instead of expectation damages, but a party cannot recover both reliance and expectation damages.

Reliance damages are mitigated by any losses that the plaintiff would have sustained if the contract had been performed. In addition, reliance damages generally may not exceed the full contract price.

Question 72

When goods have been identified at the time that the contract is entered into and the buyer subsequently repudiates the contract, what may the seller do?

Answer 72

Generally, where the seller of goods is a merchant, the risk of loss remains with the seller until the goods are delivered to the buyer.

However, when goods have been identified at the time that the contract is entered into and the buyer subsequently repudiates the contract, the seller may treat the risk of loss as resting on the buyer to the extent of any deficiency in the seller’s insurance coverage with respect to the goods for a commercially reasonable time.

Question 73

When a buyer receives goods on credit, and the seller learns that the buyer is insolvent, how many days after the buyer’s receipt of the goods must the seller demand reclaimation of the goods?

Answer 73

10 DAYS

When a buyer receives goods on credit, and the seller learns that the buyer is insolvent, the seller may reclaim the goods, provided a demand is made within 10 days after the buyer’s receipt of the goods.

Question 74

Does a seller’s 10 day limit to reclaim goods from an insolvent buyer apply if the seller receives written assuarances of the buyer’s solvency w/in 3 months before delivery?

Answer 74

NO.

This 10-day limit does not apply if the seller receives assurances of the buyer’s solvency within three months before the delivery of the goods, such assurances must be in writing.