EXPECTATION DAMAGES/Consequential Damages Flashcards
EXPECTATION DAMAGES
The default measure of damages in cases of breach of contract. We try to restore the aggrieved party to the position he would have been in if the contract had been fully performed (give the injured party the benefit of his bargain)
Tanker Problem
B) Don’t consider subsequent events in calculating damages
Tanker lease for 5 years with option to terminate if US or UK go to war. Party breaches contract 2 years in and war breaks out in third year. Is breaching party liable for 3 years or only for 1 year? Academics say don’t consider events after the breach because it would create a windfall to the breaching party.
EXPECTATION DAMAGES Formula
1) [Loss of value of the breaching party’s performance] + [Incidental damages—expenses charged to the injured party due to the breach] – [Any payments received from the breaching party] – [ Any expenses saved as a result of the breach]
Limitations on Expectation Damages—aggrieved party may not recover the full amount of expectation damages if:
1) The cost of performance greatly exceeds the market value of the contract
a) Peevyhouse
2) Expectation damages cannot be calculated with reasonable certainty
3) Where damages are unforeseeable
a) Hadley
4) Where the damages can be mitigated
Peevyhouse
Landowners want coal mining company to fix their land after they are done (included as term in the contract). Coal mining company breaches. Cost of performance = $29k; Market value = $300. The court limited damages to $300
b) We should consider subjective value, though. There is no deadweight/economic waste here because the Peevyhouses valued the aesthetic component of their land at $29k (presumably)
Hadley v. Baxendale
Miller needs new crankshaft and shipper tells him he’ll get it in two days and then takes much long. Is he entitled to lost profits from the days his mill was closed?
(i) Rule: a breaching party will be liable for foreseeable damages but not consequential damages (unforeseeable)
(ii) This is a default rule that the parties can opt out of in contract
b) Modern Rule: the breaching party is responsible for consequential damages if, at the time of contracting, the breaching party knew or had reason to know that the consequential damages would result from the breach
New Valley
Contract with NASA to launch a satellite, but NASA issues anticipatory repudiation. Launch contract goes down in value and P sues
a) Party can rely on anticipatory repudiation and seek damages upon notice of it (UCC §2-610)
b) The agreement was to launch a satellite for $10m, that is all that should be considered (not the value of the satellite, etc.)—the loss in value of the launch contract are direct damages to New Valley
Consequential Damages
Not proximately caused by the breach (as incidental damages are). They must be foreseeable at the time the contract was entered into in order to be recoverable–>
See Hadley
a) Rule: you must expressly communicate expected losses
(i) Penalty default rule: Disclose information regarding damages
1) Can be limited through contractual provisions (New Valley contract limited consequential damages)
2) Calculated at the time of the breach, any later appreciation or depreciation in the contracted items is disregarded
Foreseeability doctrine (Hadley)
damages are not recoverable for loss that was not known to or reasonably foreseeable by the party in breach at the time of contracting. (It is an implicit duty to “pre-mitigate”)
Herrera
Fired teacher–>
We won’t generally allow recovery for lost reputation
Example of Consequential damages
Roof isn’t repaired before rainy season as promised—structural damages caused are consequential damages that are foreseeable and thus builder is liable.
Liquidated damages
An amount of damages expressly provided for by contract that is intended to represent the parties’ reasonable estimation of damages in the event of a breach.
