DAMAGES - What is the Appropriate Remedy? Flashcards
Direct damages (loss in value of performance - difference between promised performance and performance received) + Incidental damages (extra costs incurred in dealing with the breach or mitigating losses) + Consequential damages (other downstream losses arising as a consequence of the breach, such as lost profits) - Cost or loss avoided (expenses avoided by not having to finish performance or losses avoided by mitigating damages)
Expectation Damages
If the non-breaching party is able to find an equivalent replacement for the promised performance, direct damages would consist of the increased costs (and/or decreased benefits) of the substitute performance (if any).
Substitute Transaction - Direct Damages
If the non-breaching party does not enter into a substitute transaction, direct damages may consist of…
Market Value- the increased costs of a hypothetical price vis-a-vis the contract price
Loss of Income- if a substitute transaction is not available, the income lost from the breach
When substantial performance is rendered, the ordinary measure of damages is the cost of completion, UNLESS this is grossly and unfairly out of proportion to the cost of the good to be attainted. When that is true, the measure is the difference in value.
Jacob & Youngs v Kent
As a general rule, the proper measure of damages in cases involving the breach of a construction contract is the cost of completion. Where however, the breach was (1) Unintentional; (2) constituted substantial performance; (3) was in good faith; and (4) cost of completion would result in unreasonable economic waste, damages should be based on difference in value
Lyon v Belosky Construction
As a general rule, cost of completion is the appropriate measure of expectation damages. However, diminution (difference) in value is the correct measure of damages when: (1) there is substantial performance; (2) the breach was unintentional and in good faith; and (3) cost of completion damages would result in economic waste (grossly and unfairly disproportionate to the benefit to be obtained.
Majority Rule - Jacob & Youngs
To the extent that there are special circumstances surrounding the contract, damages arising from these special circumstances may be recoverable so long as these circumstances were known by both parties at the time of contract formation
Hadley v Baxendale
As a general rule, cost of completion is the appropriate measure of expectation damages. However, n coal mining leases (an other similar type contracts), diminution (reduction) in value is the correct measure of damages when: (1) everything except the remediation has been performed; and (2) cost of completion would be grossly disproportionate to the economic benefit to be attained (which is different than the concept of economic waste)
Peevyhouse
Damages may not be merely speculative, possibly or imaginary, but must be reasonably certain and directly traceable to the breach, not remote or the result of other intervening causes.
Kenford Co II
Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty
RST 2d. § 351
As a per se rule, lost profits for a new venture are too certain to be awarded as damages
New Business Rule - Traditional
Lost profits for a new venture are difficult to establish w/ reasonable certainty as an evidentiary matter, but this may be possible w/ the assistance of testimony, market data, statistical and historical evidence, etc
Modern Rule (RST 2d and Kenford Co.)
(1) Except as stated in Subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation.
(2) The injured party is not precluded from recovery by the rule stated in subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss
RST 2d. § 350
The burden is put on the party in breach to show that a substitute transaction was available
RST 2d. § 350, comment c
Whether an available alternative transaction is a suitable substitute depends on all the circumstances, including the similar of the performance and the time and places that they would be rendered…. if discrepancies between the transactions can be adequately compensated for in damages, the alternative transaction is regarded as a substitute and such damages are awarded
RST 2d. § 350, comment e
Reliance damages are appropriately awarded when the other party has breached, but expectation damages (such as lost profits) are too difficult or speculative to prove with reasonable certainty
Security Stove
The prose is enforceable based on reasonable reliance induced by the promise, and thus principles of justice and fair dealing are implicated
Goodman v Dicker
The employees rejection of or failure to seek other available employment of a different or inferior kind may not be resorted to in order to mitigate damages
Shirley Maclaine Parker v. Twentieth Century Foc
Under the rules stated in §§ 87 and 90, if a promise is enforceable because it has induced action or forbearance, the remedy granted for breach may be limited as justice requires, but damages in these situations will be measured by the extent of the reliance rather than by terms of the promise
RST 2d § 349
Stipulated damages (liquidated damages) must be reasonable and not a penalty
RST 2d § 356
(1) Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages in unenforceable on grounds of public policy.
RST 2d § 356
