Part One: Remedies for Breach of Contract Flashcards
What is a contract?
a contract is a legally enforceable promise
What are the sources of law?
Statutory:
The UCC for “sale of goods”
Common law:
Case law, precedents, “judge-made” law for “sale of services”
treatise < restatement < code
What limitations do rules have?
over-determinate
under-determinate
indeterminate
(definitionally or inferentially)
Contract doctrines to effectuate policy goals
- To verify the intention to make a binding promise
- To protect detrimental reliance on promise warranted
- To ensure fairness outcomes
- To improve efficiency of transactions
What question does remedies attempt to answer?
Consequences when one/both parties don’t perform?
What is the three column approach?
Position Before Contracting
Promised Condition
Upon Breach
What is Expectation damages?
Damages that seek to make the aggrieved party in the position he or she would have been in had the contract been performed as promised by both parties
Column 3 v. 2 plaintiff
Benefit of the baragin
Loss of profits
What is Reliance damages?
Seeks to put the aggrieved party upon the breach and before contracting
Plaintiff 3 v. 1
Key word: “Out of Pocket expenses”
What is restitution damages?
You want to remove the benefit that the aggrieved party directly conferred on the breach party and return it to the aggrieved party
Defendant 3 v 1
How do you calculate expectation damages?
[loss in value from breach] + [other incidental or consequential losses from breach] §347
Loss Value: [vaue promised] - [value actually received]
Incid. Loss: Losses from search for a new partner
Conseq. Loss: Any extra (“domino”) injury from breach
Cost Avoid: Expend. saved by not having to finish perf.
Loss Avoided: Amount saved by “Salvaging”
§347 Restatement of Contracts
Measures of Damages in General
the injured party has a right to damages based on his expectation interest as measured by
a) the loss in the value to him of the other party’s performance caused by its failure or deficiency, plus
b) any other loss, including incidental or consequential loss, caused by the breach, less
c) any cost or other loss that he has avoided by not having to perform
Why does contract law seem to favor expectation damages?
Wants to deter breach of contract
uphold contracts so they retain power over time
legal constructs set behavioral incentives
Want to make the aggrieved party whole again
Why does expectation damages tend to provide the highest reward?
This is only the case when rational actors enter contracts that make him better of than where he started
Why do people get into contracts?
because it makes them better off so long as they are rational actors
Why do people go to court over contracts?
Someone wants to enforce a promise.
Someone wants to get out of an obligation to perform.
Why do we look at both the aggrieved party and the breaching party’s position?
To see which damages calculation will result in the best damages for the aggrieved party.
U.C.C. § 1-106
Remedies to be Liberally Administered
* (1) The remedies provided by this Act shall be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party has fully performed but neither consequential or special nor penal damages may be had except as specifically provided in this Act or by other rule of law.
* This rule shows that the UCC has a general preference for expectation damages
Hawkins v. McGee
RoL: Damages is intended compensation for a breach to put the plaintiff in as good a position as he would have been in had the defendant kept his contract
H: The presumptive remedy for a breach of contract action should be expectation damages, which put the aggrieved party in the position she expected to be had the contract been performed. Since the court here took into account the pain and suffering that the Plaintiff agreed to endure as part of the contract the lower courts damages were excessive.
Nurse v. Barns
The main takeaway is that the jury may find damages and are not bound to give only the amount in consideration but also all of the special damages as well.
Sullivan v. O’Connor
Sullivan emphasizes the boundaries btwn the different in expectation and reliance jury instuctions towards damages and how we cannot double dip.
RoL: Damages for pain, suffering and emotional distress are recoverable under reither the expectancy or reliance measure if they naturally arise from the breach.
Issue: The problem here was that the judge gave instructions for both reliance and expectation when can only use one
Hooker & Sons v. Robertson
Takeaway: Since the plaintiffs are suing for lost profits they are looking for expectation theory monetary damages. You cannot have the lost profits and turn back time to be in a position prior to the contract being made. You cannot have reliance and expectation in one set of recovery
The courts focused on the difference between goods and service portion of the contracts
KGM Harvesting v. Fresh
Overall: If two parties have contract and one fails to perform that party is liable for ALL damages that accrue from that moment forward.
Castellini could sue fresh for the costs they were forced to take on for the “windfall” damages
Applying UCC 2-712 to see an example of cover
The full cost of cover even though Fresh only had shoulder’d 70K of the cover, they had majority of the money from the cost-plus deal with Castellini.
U.C.C. § 2-711 (abridged) Buyers’s option to cover
- (1) Where the Seller [breaches], the B may either
- (a) “cover” and have damages as to all the goods affected (2-712) OR
- (b) reciover damages for non-delivery (2-713)
U.C.C. § 2-712.
“Cover”; Buyer’s Procurement of Substitute Goods.
- (1) After S’s breach, B may “cover” by making in good faith and without unreasonable delay
- any reasonable purchase of or contract to purchase goods in substitution for those due from S.
- (2) B’s recovery from S:
- [cost of cover] - [K price] + [incidental/consequential damages] - [costs/losses avoided]
- (3) Failure of the buyer to effect cover within this section does not bar him from any other remedy.
What are default rules?
They are mutable rules that the parties could displace with epxress provisions.
What are immutable rules?
They are rules that the are either impossible or costly to displace through contract
Groves v. John Wunder
RoL: When a construction contract is willfully breached, damages are measured by the cost of completing the unfinished work, even if there has been substantial performance.
The opinion states they don’t think the damages should be based on dimunition
They had an option to choose how to apply the rule and in this case they said you cannot recover dimunition because
The rule favored “cost of completion” and it is a default rule
Peevyhouse v. Garland
Default Rule: Damages are typically measured by the reasonable cost to perform the work.
Restatement 348 is the rule favored
Exception:
* If the breached provision is incidental to the main purpose of the contract specific to this case
Holding: In application of the rule the court found that the Peevyhouse’s were only entitled to the dimunition caused by Garland’s nonperformance
The rule favored valuing “economic waste” and it was an immutable rule.
The dissent leaned economic waste but part ways in application (Default)
§348 Alternatives to Loss in Value of Performance
- If a breach results in defective or unfinished construction and the loss in value to the injured party is not proved with sufficient certainty, he 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.
How does §348 compare to the rule compare to the rule laid out in Peevyhouse?
We no longer care about the “merely incidental” portion
Now we consider the probable loss of value to the plaintiff, not objectively defined
Characterly applied to construction cases
Reminder this is not a UCC
What are the three doctrines for limitations on expectation damages?
Foreseeability
Certainty
Avoidability
What are the Foreseeability cases?
Hadley v. Baxendale (Mill shaft case)
Hector Martinez v. Southern Pacific Trans. Co (Dragline Case)
Morrow v. First National (The Safe Deposit Case)
Hadley v. Baxendale
Rule: Expectation damages limited to those that arise naturally or are within contemplation of both parties
Nickname: Mill Shaft Case
Hector Martinez v. Southern Pacific
Capital goods have a foreseeable use value;
deprivation of machine’s use will cause loss in value
It is foreseeable “capital goods” such as machinery can have a use value and it is foreseeable that deprivation of the mcahine’s use will cause loss of value
Nickname:Dragling
Morrow v. National Bank
Tacit Agreement test
A breaching party is only liable for consequential damages if they implicitly agreed to be responsible for them.
this is a stricter requirement than in Hadley, there must be a mutual understanding
Emphasizes a clearly accepted risk
Nickname: Safe Deposit Case
What are the certainty cases?
Chicago Coliseum Club v.
Dempsey (CCC v. Dempsey)
Anglia TV v. Reed (Brady Bunch Dad)
CCC v. Dempsey
- Damages must be reasonably certain;
- speculative damages are not recoverable;
- pre-K expenses not recoverable
(but reliance damages; must be incurred in furtherance of the general scheme)
Anglia TV v. Reed
- Outlier from CCC’s rules;
- P can choose between lost
profits (expectation interest) and wasted expenditure (reliance interest) and if he elects wasted expenditure, then he is entitled to expenditures incurred before the K, provided that they would be reasonably contemplated by the parties as being wasted if the K was broken.
Nickname: Brady Bunch Dad
What are the avoidability cases?
Rockingham County v. Luten Bridge Co. (Bridge Case)
Parker v. 20th C. Fil Corp. (Bloomer Girl Case)
Rockingham County v. Luten
Bridge Co.
Rule: P cannot recover damages that she could have avoided with reasonable efforts and without undue cost
they cannot recover for damages incurred after notice of defendants repudiation, must cease performance from upon repudiation
Nickname: Bridge Case
Parker v. 20th C. Fil Corp.
In the employment context, the alternative employment may neither be different or inferior
the employer must established that the alternative employment was availble and neither different or inferior.
(Bloomer Girl Case)
What is the general Foreseeability Doctrine?
General Rule: a court will limit recoverable damages to those that are
i. Considered as arising in the natural course of things, or
ii. Were in the contemplation of both parties, at the time they made the K,
as the probable cause of a breach.
NOTE: Foreseeability is judged at the time of the formation of the K.
What is the Narrow Sub-Rule for the Foreseeeability Doctrine?
Narrow Sub-Rule: “capital goods” such as machinery can have a use value, and
it is foreseeable that deprivation of the machine’s use will cause a loss of value.
(Hector Martinez and Co. v. Southern Pacific Transportation Co.
i. One way to measure the value of a capital good is by looking at its
obvious value
What is the minority rule for the Foreseeability Doctrine?
plaintiff must show a tacit agreement, which includes not only defendant’s mere knowledge that a breach of contract will lead to special damages, but also that the defendant tacitly agreed to assume responsibility.
(Morrow v. First National Bank of Hot Springs)
What is the general rule for the Certainty Doctrine?
General Rule: In order to recover for a loss, P must be able to establish that loss “with reasonable certainty” (R2d § 352, Chicago Coliseum Club v. Dempsey)
i. Note: the certainty doctrine most often (though not necessarily) comes up
when P claims losses due to lost profits.
ii. Note on the Consequences: Reliance measure is the “fallback” in cases
where P cannot overcome the certainty doctrine.
What is the general rule for the Avoidability Doctrine?
General Rule: plaintiff cannot recover damages that plaintiff could have avoided with reasonable efforts and without undue cost. (“risk, burden, or
humiliation”) to himself. ( Rockingham County v. Luten Bridge Co.; R2d §
350).
Restatment §351 Unforeseeability and Related Limitations on Damages
- Damages are not recoverable for loss that the breaching party in breach did not have reason to foresee as a probable result of the breach when the contract was made.
- Loss may be foreseeable as a probable result of a breach because it follows from the breach
in the ordinary course of events, or
as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know. - A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid “disproportionate compensation”.
Notes: It objectifies and objective standard, foreseeable doctrine turns expectation damages into reliance damages
Restatement §346 Availability of Damages
- The injured party has a right to damages for any breach by a party against whom the contract is enforceable unless the claim for damages has been suspended or discharged.
- If the breach caused no loss or if the amount of the loss is not proved under the rules stated in this Chapter, a small sum fixed without regard to the amount of loss will be awarded as nominal damages.
Restatement §349 Damages Based on Reliance Interest
As an alternative to the measure of damages stated in [R2C § 347], the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed.
Restatement §352 Uncertainty as a Limitation on Damages
Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty.
Restatement §350 Avoidability as a Limitation on Damages
- 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.
- 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.
All we ask is did you run up the tab on the breaching party and were you allowed to do that?
