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?
Put aggrieved party in the position they were in before entering the contract.
Plaintiff 3 v. 1
Key word: “Out of Pocket expenses”
What is restitution damages?
Breaching party must return benefits conferred from non-breaching 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
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
Nose Job
Sullivan emphasizes the boundaries btwn the different in expectation and reliance jury instuctions towards damages and how we cannot double dip.
RoL: Pain and suffering and emotional distress that flow naturally from a breach are compensable contract damages under either an expectation or reliance measure.
Issue: The problem here was that the judge gave instructions for both reliance and expectation when can only use one
Hooker & Sons v. Robertson
Cabinet Case
Takeaway: Since the plaintiffs are suing for lost profits they are looking for expectation theory monetary damages. 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
● Center of Gravity
● Designation by parties
● Nature of Contract
● Dispute Centered
KGM Harvesting v. Fresh
Overall: a seller who breaches a contract is liable to the buyer for the difference between the contract price and the buyer’s cost to cover, even if that amount exceeds the buyer’s actual 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.
Courts try to honor allocation of risk agreed upon by both parties to the contract.
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.
● Majority: Cost of Completion (Default)
● Dissent: Economic Waste (Default)
Peevyhouse v. Garland
Majority Holding:
* Distinguishes between incidental provisions vs. main purpose of the contract.
* Restoration of land was incidental, so damages were limited to diminution in value rather than cost of performance.
* Economic waste doctrine is effectively immutable.
Facts:
* Peevyhouses contracted with Garland to restore their land after coal mining.
* Restoration cost = $29,000, but they only sued for $25,000 in damages.
* Court awarded only the diminution in value from the breach, signaling skepticism that they would actually restore the land.
Dissent:
* Agreed that economic waste should be considered, but argued it should be a default rule, not immutable.
* Would have awarded cost of performance if the contract provision was significant to the parties.
Takeaway: Courts favor diminution in value over cost of performance when performance would result in economic waste, making this an immutable rule in the majority’s view.
§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)
only limits Expectation Damages; includes special damages and general damages, probable standard
Hadley v. Baxendale
Rule: Expectation damages limited to those that arise naturally or are within contemplation of both parties
Nickname: Mill Shaft Case
● See and use Restatement §351 – more plaintiff friendly.
● Default Rule – put party on notice to contract around.
● These rules function as risk shifting and information forcing devises.
● The parties would have to contract for the shipping company to be liable
● Special circumstances were never divulged therefore it was not foreseeable that such a delay in shipping would result in 300$ of damages
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 machine’s use will cause loss of value
Nickname:Dragline
Morrow v. National Bank
Minority rule
Tacit Agreement Rule
1. Knowledge of special circumstances
2. Consent to be bound to more than ordinary damages
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)
limits Expectation Damages and rarely limits Reliance Damages; often comes into play with profits (when constrained by certainty doctrine, switch to reliance)
CCC v. Dempsey
● Certainty requires that damages be incurred and measurable
● Pre-contractual damages are not recoverable
(but reliance damages; must be incurred in furtherance of the general scheme)
● Proved damages were uncertain when they filed suit for injunction (specific performance) in Indiana
Anglia TV v. Reed
- Outlier from CCC’s rules;
- P can choose between lost
profits (expectation interest) and wasted expenditure (reliance interest)
Minority Rule: Can recover pre-contractual reliance damages if costs were reasonably in contemplation by the time of the contract
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.
Rule: A wrongfully discharged employee’s damages = agreed salary – actual or potential earnings from comparable employment (proven by employer).
* Employer bears the burden of proving that alternative employment was available and not different or inferior to the original job.
* Employee is not required to accept or seek a job that is of a different or inferior kind to mitigate damages.
* Actress in a specific role was wrongfully terminated.
* Studio offered a different role, but it was not comparable (different script, conditions).
* Holding: Employee was not obligated to accept non-comparable employment to mitigate damages.
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 an 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?
What is the Loss Volume Seller Doctrine?
Under UCC § 2-708(2), if a buyer repudiates a contract with a lost-volume seller, the seller is entitled to lost profits, plus reasonable incidental damages associated with resale
Lost volume seller doctrine requires there to be a nearly inexhaustible supply and a limited number of buyers
However, in UCC cases, most courts presume that is applies absent evidence to the contrary for the other party
Neri v. Retail Marine Corp.
Boat Resale
● Breaching party (Neri) suing to recover deposit – right to restitution (Britton v. Turner, UCC § 2-718)
o P argues – D’s loss was recouped be resale
● Retail (dealer and lost volume seller) counterclaims seeking lost profits, incidental damages, attorney’s fees
o D argues – but for P’s breach, would have sold 2 boats
UCC § 2-708. Seller’s Damages for Non-Acceptance or Repudiation
(1) Standard Measure of Damages:
* Market price at time & place of tender – unpaid contract price
* + Incidental damages (§ 2-710)
* − Expenses saved due to buyer’s breach
(2) Lost Profits Alternative:
* If the standard measure is inadequate to fully compensate the seller, damages =
Lost profits (including overhead) + incidental damages (§ 2-710) − costs incurred + resale proceeds
* Often applies to lost volume sellers who could have made multiple sales.
UCC § 2-710. Seller’s Incidental Damages
● Incidental damages include any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation, care and custody of goods after the buyer’s breach, in connection with or resale of the goods or otherwise resulting from the breach
UCC § 2-718(2) & (3). Liquidation or Limitation of Damages; Deposits
(2) Buyer’s Right to Restitution:
* If the seller justifiably withholds delivery due to buyer’s breach, the buyer can recover any excess payment beyond:
* (a) Liquidated damages agreed in the contract (§ 2-718(1)), or
* (b) If no liquidated damages clause, the smaller of 20% of total contract value or $500.
(3) Seller’s Right to Offset:
* Buyer’s restitution is reduced by:
* (a) Seller’s actual damages under UCC (other than liquidated damages).
* (b) Value of any benefits the buyer received from the contract.
What cases use Restitution as an alternative form of relief?
Bush v. Canfield (Remedy)
Britton v. Turner (Credit)
Cotnam v. Wisdom (Separate Cause of Action)
Bush v. Canfield
Flour Failure
- Majority: Restitution is appropriate when a partial advance payment is made, even in a losing contract. Restitution should be awarded independently of risk allocation (unless total amount or 0 is paid in advance). the court ensures the buyer against the risk of lower prices
- Dissent: Breaching party should be compensated for injuries it suffers as a result of breach, which is capped at expectation. If restitution is allowed here, the purpose of contract law, assigning risks to one another, is defeated.
- Reliance damages would be capped at expectation
- This case teaches us that courts view restitution as the “second cousin” to reliance and expectation that is why restitution is not capped
§371 Measure of Restitution Interest
If a sum of money is awarded to protect a party’s restitution interest, it may be measured by justice requires using:
a) Reasonable value to the other party based on what it would have cost them to obtain the benefit from someone in the claimant’s position.
Fair market value—how much it would cost the other party to get the same benefit elsewhere.
b) The extent to which the other party’s property has increased in value or their other interests have been advanced.
Benefit received—how much the other party’s property or interests have increased in value.
Why do courts frequently allow restitutionary theories of recovery to exceed expectation damages?
“alternative theory of relief”
legal fiction: NOT formally a remedy for breach of contract; rather a consequence of voiding a contract
When is the restitution doctrine possible?
Only possible when claiming party entitled to void a contract:
o Requires material breach
o Performance by plaintiff still (partially) “executory”
o Open to aggrieved & breaching party
o Asymmetry between buyers and sellers
Restitution ≠ “disgorgement”
Restatement § 373
Restitution When Other Party is in Breach
Restitution When Other Party is in Breach
(1) Subject to the rule stated in Subsection (2), on a breach by non-performance that gives rise to a claim for damages for total breach or on a repudiation, the injured party is entitled to restitution for any benefit that he has conferred on the other party by way of part performance or reliance.
(2) The injured party has no right to restitution if he has performed all of his duties under the contract and no performance by the other party remains due other than payment of a definite sum of money for that performance.
Britton v. Turner
Quantum Meruit provides a basis outside the contract for the employee to recover the value of the services provided.
This is a default rule for benefits conferred, accepted, and not compensated for.
Elements of Restitution (Quantum Meruit):
● Benefits conferred cannot be gratuitous
● Benefits conferred cannot be officious
● Benefits must be measurable
What are the policy concerns for Britton v. Turner?
They don’t want employers to now mistreat employees because of this ruling
Turners start contracting around the work
Cotnam v. Wisdom
Good Samaritan Surgeon
Quasi-Contract, limited to medical professionals
it creates a duty to pay for the reasonable value of a service rendered even when no actual contract existed.
Recap on Restitution
Restitution Recap:
1. Remedy for breach
a. Must be “total” breach
b. Claiming party’s performance must be partially executory
2. By party in breach
a. Not an action “on the contract”
b. 3 (maybe 4) elements of restitution claim
i. K is evidence of acceptance
c. Can contract around (“liquidated damages”)
3. Quasi-Contract & Incapacitation
a. Non-Officious requirement relaxed
b. Others still significant present:
i. Non-gratuitous
ii. Measurable benefit
iii. Effectively limits recovery to medical professionals
UCC § 2-719. Contractual Modification or Limitation of Remedy
1(a) Parties can agree to extra or different remedies, like limiting the buyer to a refund, repair, or replacement.
1(b)A remedy is optional unless the contract explicitly makes it exclusive—then it’s the only remedy allowed.
2. If an exclusive remedy fails to fix the problem, other legal remedies are available.
3. Consequential damages (indirect losses) can be limited, unless:
* For personal injury in consumer goods → presumed unfair.
* For business losses → generally allowed.
What are stipulated damages?
any clause included in contract that has stipulations as to availability of remedy; will not become liquidated damages/penalty until assessed by court
o Liquidated Damages: court approves of the clause
o Penalties: court disapproves of the clause
UCC § 2-718(1) . Liquidation or Limitation of Damages; Deposits
- Contracts can include pre-set damages for a breach, but only if the amount is reasonable.
- It must reflect:
1. The expected or actual harm from the breach.
2. The difficulty of proving loss.
3. The challenge of finding another fair remedy. - If the amount is too high and acts as a penalty, it is void and unenforceable.
Wassenaar v. Towne
Early Termination
Factors to determine reasonableness:
(1) Did the parties intend to provide for damages or for a penalty?
(2) Is the injury caused by the breach one that is difficult or incapable of accurate estimation at the time of contract?
(3) Are the stipulated damages a reasonable forecast of the harm caused by the breach?
1st factor is generally disregarded since subjective intent has little bearing on whether the clause is objectively reasonable. Factors 2 and 3 are intertwined and must be considered both at the time of contracting and at the time of breach.
Lake River v. Carborundum
No Fact Case
If damages were easy to determine or if the upper estimate greatly exceeds a reasonable upper estimate of what the damages are likely to be then it is a penalty
Restatement 2d §355
Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable
Restatement § 356. Liquidated Damages and Penalties
(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 is unenforceable on grounds of public policy as a penalty.
What are policy concerns related to penalty doctrine?
Courts want to ensure that the private remedy does not stray too far from the legal principle of allowing compensatory damages
What does a plaintiff need to show to get specific performance?
- No adequate remedy at law ($ damages inadequate)
● Uniqueness is key - Specific Performance Decree would be feasible/practical to carry out
What are the doctrinal presumptions for specific performance?
o Land – uniqueness presumed
o Goods – non-uniqueness presumed
o Personal services – strong presumption against
What is the basic modern test for specific performance?
Specific performance available, but only in cases where the withheld performance is unique, hard to replace, or (for some other reason) one’s remedy at law is inadequate
Loveless v. Diehl
milk farm
“option”
- we are measuring uniqueness
- rebuttable presumption that land is unique
- A court of equity should usually award specific performance as a “matter of course” in breach-of-contract cases involving land; uniqueness need not be asserted because courts presume uniqueness
- the Diehls spent 5K in improvements, to deny SP and give money damages of the contract price which was less than the improved price would be unjust
Is the uniqueness presumption symmetric?
“Uniqueness” logic seems to be symmetric. If the agreement was a flat purchase for $21k and the buyers repudiated the contract, most jurisdictions would allow Loveless to file suit against the Diehls asking for specific performance, forcing them to buy the property.
UCC § 2-716. Buyer’s Right to Specific Performance or Replevin
(1) Specific performance may be ordered where the goods are unique or in other proper circumstances.
(2) The… decree… for specific performance may include such terms and conditions as to payment of the price, damages, or other relief as the court may deem just.
(3) The buyer has a right of replevin for goods identified to the contract if after reasonable effort he is unable to effect cover
Scholl v. Hartzell
Used corvette
In a replevin action under § 2-716, an injured party does not have an “exclusive and immediate right” to property for which he has only paid a deposit because the contract is still executory.
Goods are not generally considered unique
aggrieved party carries burden of proof
Sedmak v. Charlie’s Chevrolet
New Corvette
Specific performance can be awarded for the sale of a limited edition vehicle if the injured party can establish that it is unique.
When can sellers of goods also get Specific Performance?
“action for the price”
o UCC 2-709
o must show the seller can’t re-sell after reasonable effort for a reasonable price, or circumstances suggest that her efforts will be unavailing
o Seller must hold “identified” goods for the buyer to claim
What is the CISG’s take on specific performance?
● CISG Article 46 (Seller in Breach)
o (1) The Buyer may require performance by the seller of his obligations unless the buyer has resorted to a remedy which is inconsistent with this requirement
● CISG Article 62 (Buyer in Breach)
o The seller may require the buyer to pay the price, take delivery or perform his other obligations, unless the seller has resorted to a remedy which is consistent with this requirement
In re Mary Clark, a Woman of Colour
Employment
S.P. cannot award when K is for personal service
affirmative covenants are not allowed
(contrast this case with Lumley)
Lumley v. Wagner
Opera Singer Case
This case shows that courts will enforce negative covenants.
In this case, the court cannot force Wagner to sing for Lumley. However, the court may enjoin Wagner from singing for someone else, specifically Covent Garden.
For example: non-compete clauses
1. Are the employees skills special or unique
2. The N.C. cannot be unreasonably broad in time, space, and subject matter
Dallas Cowboys v. Harris
The definition of unique was too narrow.
It is not abount quantity but no possibility of a similar replacement
not easily attainable does not equal “one of a kind”
Is specific performance a default rule?
Sort of, courts have left room to expand th escope of SP rather than shrink it
SP is available, but only in cases where the withheld performance is …
Unique, rendering the remedy at law inadequate, and if performance is possible
