If there was excusable non-performance, what are non-breaching party's remedies? Flashcards
four potentially available remedies
• In the event of a breach, the non-breaching party may choose to pursue various remedies, including:
– A. Expectation Damages
– B. Reliance Damages
– C. Equitable Remedies (Specific Performance)
– D. Restitution
expectation damages - definition and calculation
• 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.
• To determine the amount of “expectation” damages, ask:
– What would the plaintiff have received if the contract had been fully performed? ___________
– What did the plaintiff receive? ___________
– What’s the difference? ___________
• 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)
»> **need not be foreseeable
– plus foreseeable consequential damages
»> 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)
expectation damages - special cases (defective/unfinished construction contracts - homeowner breaches vs contractor breaches)
– Homeowner Breach: if the owner breaches the contract after the builder has already begun his performance, the builder will be entitled to:
> > > any PROFIT he would have derived from the contract, PLUS
> > > any COSTS he has incurred to date
> > > this formula contains an expectation component (the profit the builder would have made) and a reliance component (the cost incurred prior to the breach)
– Contractor Breach: if a contractor’s breach results in defective or unfinished construction, the plaintiff (e.g., the buyer or homeowner) may recover damages based on
> > > (a) the diminution in the market price of the property caused by the breach, OR
> > > (b) the reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him.
expectation damages - special cases (employment contracts)
– 2. Employment Contracts.
- if an EMPLOYEE breaches an employment contract, the employer is entitled to recover the difference between the wages paid to the replacement employee and the breaching employee’s contract.
- If an EMPLOYER breaches an employment contract, the employee is entitled to recover the full contract price (plus incidental damages), MINUS:
> > > the salary the employee would have received if the employee had made reasonable efforts to obtain a position (1) of the same rank; (2) in the same type of work; and (3) in the same locale; AND
> > > the actual salary the employee received from any job.
expectation damages - special cases (contracts for the sale of land)
– 3. Contracts for the Sale of Land. 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.
expectation damages - UCC Buyer’s Damages - seller breaches and has the goods (rule, 4 scenarios, what to do with nonconforming goods, damages/specific performance)
Seller Breaches – Seller Does Not Tender Goods or Tenders Non-Conforming Goods – Seller Has Goods. 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).
• Breach Occurs When:
»> a. Seller Repudiates (fails to deliver)
»> b. Buyer Rightfully Rejects Goods
»> c. Buyer Rightfully Revokes Acceptance of Goods
»> d. Goods Destroyed Before Risk of Loss Shifts to Buyer
• 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.
• Damages:
»> a. Cover (Reasonable Substitute)—difference between cover price and contract price or
»> b. Difference Between Market Value (at time buyer learns of breach and at the place of tender or the place of arrival for rejection/revocation of acceptance) and Contract Price, PLUS
»> c. Incidental Damages and
»> d. Consequential Damages (if foreseeable by seller) minus
»> e. Expenses Saved by Breach
• Equitable Relief
»> a. Specific Performance (for very unique goods or for “OTHER PROPER CIRCUMSTANCES”—i.e., buyer is unable to cover or is unable to secure a comparable long-term contract)
»> **note: you cannot get SP if the goods have been sold to a bona fide purchaser
expectation damages - UCC Buyer’s Damages - seller breaches but buyer has the goods (when breach occurs, damages, special rule)
• Breach Occurs When:
»> a. Buyer Accepts Non-Conforming Goods (breach of warranty) or Non-Conforming Tender
• Damages:
»> a. Non-Conforming Goods: Difference Between Value of Goods as Accepted and Value as Promised
»> **i.e. buyer can keep the nonconforming goods and still get damages!!
• a. Non-Conforming Tender: Losses resulting from the ordinary course of events (e.g., damages caused by seller’s failure to make timely delivery), PLUS
»> b. Incidental Damages and
»> c. Consequential Damages (if foreseeable by seller)
»»> Consequential damages may be limited or excluded in the contract, unless the limitation or exclusion is unconscionable. Limiting consequential damages for personal injuries in the case of consumer goods is prima facie unconscionable.
• special rule - notice requirement: buyer must give the seller NOTICE of defects within a reasonable time after they are or should have been discovered
expectation damages - UCC Seller’s Damages - buyer breaches and seller has the goods (3 scenarios when breach occurs, damages/exceptions)
• Buyer Breaches (buyer wrongfully rejects or wrongfully revokes acceptance or repudiates) – Seller Has Goods.
• Breach Occurs When:
»> a. Buyer Repudiates Before Delivery
»> b. Buyer Wrongfully Rejects (and returns goods)
»> c. Buyer Wrongfully Revokes Acceptance (and returns goods)
• Damages (General Rule)
»> a. Difference Between Good Faith Resale Price or Market Value (time/place of tender) and Contract Price plus
»> b. Incidental Damages minus
»> c. Expenses Saved by Breach
»> **note, no consequential damages!
»> **note: seller has no duty to resell to someone else!
• Damages (Exceptions)
»> a. Lost Volume Seller (seller has unendingly replenishable goods - LIKE A CAR DEALERSHIP OR WALMART): Profit
»> b. Goods the seller is unable to resell or the circumstances reasonably indicate that an effort to resell the goods will be unavailing: Contract Price
expectation damages - UCC Seller’s Damages - buyer breaches and has the goods (2 scenarios where breach occurs, damages)
• Buyer Breaches (buyer doesn’t pay) – Buyer Has Goods (or goods were destroyed after the risk of loss shifted to buyer).
• Breach Occurs When:
»> a. Buyer Accepts Goods But Doesn’t Pay
»> b. Goods Destroyed After Risk of Loss Shifts to Buyer
• Damages >>> a. Contract Price plus >>> b. Incidental Damages minus >>> c. Expenses Saved by Breach >>> **note, no consequential damages!
expectation damages - liquidated damages, punitive damages, emotional distress damages
– 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:
»> 10% of purchase price for real estate contracts
»> Per diem (e.g., $100 per day for delays in building contract) damages
»> **general rule – liquidated damages must be proportionate to the harm suffered or they will be thrown out (and you’ll instead look to expectation 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).
reliance damages - definition and two rules
• 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.
equitable remedies - general rule for availability
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).
»> so specific performance SHOULD NOT be your first choice!
equitable remedies - reformation
- 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.
- **we are looking for a situation where the parties are not arguing over the existence of an oral agreement – but are saying there was a writing, but they don’t have it anymore/there was a clerical error
restitution - purpose and “quasi-contract”/”implied-in-law contract”
• The purpose of restitution is to prevent unjust enrichment.
– No Enforceable Contract (Quasi-Contract or Implied-in-Law Contract). 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.
restitution - breach of contract (non-breaching plaintiff vs breaching plaintiff; KEY NOTE on what it really means to be “unjustly enriched”)
- Restitution Quasi-contract damages are measured by either the detriment suffered by the plaintiff or the benefit experienced by the defendant. However:
- 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 - i.e. UNJUST ENRICHMENT (and not the value of the efforts undertaken by the plaintiff).
• **important note on unjust enrichment & restitution: if the non-breaching party has to pay someone else to finish the job, and in the end ends up spending MORE than they had originally planned to, they will never be “unjustly enriched” – EVEN IF the breaching party was not fully paid for their work!
»> the non-breaching party will only have been unjustly enriched if they were able to get the job completed with another party for a total price LESS than he had originally planned
