General Damages for Breach of Contract→ Expectancy Measure Flashcards
Expectancy Measure
Purpose
Purpose is to put the non-breaching party in the position they would have been in had the contract been performed.
- This is the preferred method because it generally yields the most money for the non-breaching party. (What was promised-What was received).
- Rule: _If you breach the contract, you cannot use the Expectancy Measure to recover damages. _
Expectancy Measure
Formula
Formula –> LOV + OL – CA – LA
- Loss of Value (VE – VR) + Consequential damages – Cost avoided – Loss avoided
Common Law Formula FOR SERVICES. Goods controlled by UCC
Expectancy Measure
LOV
Loss of Value: Value Expected – Value Received
Value Expected
- Evaluation of returned performance
- Includes expected profit and costs
- Find in contract
Value Received
- Amount of value actually received at the time of breach
Expectancy Measure:
Other Losses
Other Losses:
- Loss caused by breach, beyond the loss of performance value
- Losses in addition to the costs from the contract that occur as a result of the breach;
- Loss caused by the breach beyond the loss of performance value
NOTES:
- Only recover for damages that the breaching party had reason to foresee as a probable cause of the breaching of the contract.
- This does not include pre-contract expenses…any expenses made in anticipation of a contract are not compensable
Use Value: Determined by the rental value
Expectancy Measure:
Other Losses
Requirements
-
Foreseeability: Damages from other losses are not recoverable for loss the party did not have reason to foresee as a probable result of the breach.
- Causation: Must be caused by the breach.
- But for the ∆’s failure?
-
Presumed – naturally follow a breach of that kind of k
Notice - special damages
- Certainty: Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty
- Avoidability: Once contract is breached, non-breaching party has duty to not make damages worse
Expectancy Measure
2 Categories of Foreseeable Damages
- General Damages: those that “arise naturally” from the breach
- Special Damages: Damages that are beyond the ordinary course of events
Expectancy Measure
2 Kinds of Other Losses
- Consequential: any loss caused by breach
- Incidental: expenses incurred because of breach
Expectancy Measure:
Forseeability
Does it matter whether the breach was foreseeable?
No. The Expectancy Measure deals with the foreseeability of the harm; not foreseeability of the cause of breach
- So as long as the harm was foreseeable, it doesn’t matter how it happened
Expectancy Measure
Forseeability
General Damages
- General Damages: Naturally arising damages that are likely to flow from the ordinary course of the breach. These must be reasonably foreseeable at the time of the breach.
- Reasonable test: must have been reasonably foreseeable
- Use Value: Capital goods/machinery have value alone, which may be equal to the rental valueà deprivation of a machine’s use due to delay of delivery is foreseeable
- Hadley: Lost profits from delay in shipping part to factory do not arise naturally…Within the contemplation of the parties. Knowledge of the circumstances.
Expectancy Measure: Other Losses
Forseeability: General Damages
Tacit Agreement:
Tacit Agreement: [Minority Rule –> Only in Arkansas]:
The plaintiff must prove more than mere knowledge that a breach of contract will result in damages. They must also show that the defendant at least tacitly agreed to assume responsibility.
Expectancy Measure
Forseeability
Special Damages
Special Damages: Damages that are beyond the ordinary course of events.
- Rule: Party in breach must have had actual notice of the possibility of damage, such that they would be in the contemplation of a reasonable person.
- Most times, lost profits are going to go in this category
- But sometimes lost profits will arise naturally from the breach –> if we have a contract where I promise to give you rights to sell t-shirts and I breach, you have lost the profits you would get from selling the shirts…that arises naturally
- Have to look at the nature of the contract
Expectancy Measure
Costs Avoided
Costs Avoided: Costs that non-breaching party avoided because of the breach
Rule: When a contract is breached, then the non-breaching party has a duty to not make damages worse by continuing performance.
If non-breaching party was going to have $100K worth of expenses, and he had only spent $30K when breach occurred, CA= $70K
Expectancy Measure
Other Losses
Certainty
Rule: Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty
- Lost profits that are purely speculative are not awardable
-
Doesn’t need to be exact
- in case of boxing match, with no prior history, anticipated profit would be entirely speculative
- If anticipated profit is based on figures from similar situations, that can be certain enough for the court to award
NOTE: often times when profits are uncertain so as to not allow use of expectancy damages, injured party will use reliance measure
Expectancy Measure
Other Losses
Avoidability
Avoidability
- Rule: Once contract is breached, non-breaching party has duty to not make damages worse
- Duty exists as long as loss could have been avoided without undue:
- Risk
- Burden
- Humiliation
- Injured party is not precluded from damages in the event he has made reasonable but unsuccessful efforts to avoid loss
Expectancy Measure
Other Losses
Avoidability
Exployment Contracts
Employment Contracts
Formula for calculating damages in employment contract: Contract compensation - Actual Earnings – What Employee might have earned from reasonable effort to get another job
- Exception: Rejection/failure to seek employment of different or inferior kind may not be used to mitigate damages. Employment must be comparable or substantially similar
- Defendant has burden to prove availability of substantially similar employment
