Remedies Flashcards
Specific Performance: why are money damages preferred?
Main reason = money damages encourage efficient breaches (which we want).
Specific performance does not, and can result in inefficiency.
(also money damages seem less intrusive on liberty)
What is an efficient breach?
An efficient breach is when a party voluntarily breaches a K bc it would be more economically beneficial to them to breach and pay damages than fulfill the contract.
If it costs a part less to breach and pay damages than it would to fulfill the contract, then they should breach.
This includes situations when a new contract opportunity would make the breaching party more than their original K’s profit + damages.
Specific Performance: Restatement approach — general rule
359(1)
Specific performance or an injunction will not be ordered if damages would be adequate to protect the expectation interests of the injured party.
Specific performance: restatement approach — when are money damages inadequate?
- Defendant is involved
- Unique good/service
- Difficult to prove damages with adequate certainty
Specific performances: restatement approach — practical problems with granting SP even when money damages are inadequate and what to do if there are practical problems
- Monitoring/oversight is difficult
- Personal service contracts (involuntary servitude issues)
If practical problems ^ court may grant negative injunction (thou shall not)
BUT even negative injunction won’t be enforced if it would
- force someone to perform with a sour relationship, or
- prevent someone from reasonably making a living.
Specific performance: restatement approach — fairness reasons court would deny SP
- K is one sided in favor of party seeking SP
- When the performance at issue undermines public policy
- If SP is likely to have an adverse effect on third parties
- “Unclean hands” — When a party seeking SP has done something unequitable
Specific Performance: modern approach — general
Modern trend is to apply these injunctive relief’s more liberally, not necessarily requiring inadequacy of monetary damages. Instead, views all strong preference stuff from the common law and restatement, and turns it into a tie breaker.
Specific Performance: Judge Posner’s Approach (modern) from Walgreens v. Sarah Creek
Ultimate goal = judges should weigh the costs and benefits of each option (damage v. SP) and determine which is more effective in deriving the ends of justice.
If the balance is even, go with money damages.
We used to prefer damages over SP because we were worried about ordering inefficient performances, but the lesson from the Coast Theorem is that even if a court enforces an inefficient outcome, as long as the parties are allowed to bargain around the injunction, the parties will bargain for an efficient outcome (ASSUMING zero/LOW TRANSACTIONAL COSTS).
Coast Theorem
Any time there is a dispute between parties over a valuable legal entitlement, it does not matter to whom the law allocates that entitlement if the parties can bargain costlessly with each other.
Specific Performance: Judge Posner’s benefits of injunctions > damages
- Reduced fact-finding costs
- greater accuracy (shifts burden of determining cost from court to parties. Prices more accurately determined by market).
Specific performance: judge posner’s benefits of damages > injunctions
- Avoids enforcement costs (court supervision)
- Avoids transactional costs of reaching a mutually agreeable outcome (bilateral monopoly, high transactions costs).
- Avoids third party harms.
Calculating expectancy damages
§ 347
LVP + IL + CL - CA - LA = Expectancy Damages LVP (loss value of performance) What was the value of the performance you thought you would get vs the value of the performance you actually got? This is the MARKET PRICE. Not necessarily what you paid. IL (incidental loss) Any loss the victim incurs trying to get a substitute transaction/performance. Ex: had to cancel a client that would have paid me x in order to find replacement CL (consequential loss) Losses that aren't a party of the promised performance, but were still consequential (proximate) of the breach. **still have to prove with reasonable certainty** CA (cost avoided) Costs that the victim would have incurred performing the contract that they avoid due to the breach. LA (loss avoided) Money that the victim was able to make that they wouldn’t have been able to had the contract been performed.
Defective/Incomplete Performance: LVP calculation methods
- Diminution in Value = the difference between the value of what we were promised and what we got.
- Cost of Performance (cost of completion) = the amount of money it would take to finish the job/get the performance as it was contracted.
Defective/Incomplete Performance: How do you decide which LVP damage calculation to use?
348
- If the damage values are close using either method, the breach victim gets to pick.
- If there is a big difference (usually COP much bigger) then the court will award the smaller measure (usually DIV)
Defective/Incomplete performance: What we do if we are a contracting party with idiosyncratic values?
- Breach victim can sue for specific performance (but not often available…)
- Specify IN THE CONTRACT “in case of breach, the measure of damages will be cost of performance”
Damage Limitations: Avoidable consequences doctrine — generally
§350
Loses that breach victims COULD have avoided by acting reasonably are not recoverable.
Why? Tons of social waste. No benefit to either party.
Damage Limitations: Avoidable consequences doctrine — Employees
Wrongfully discharged employees have an obligation to accept alternative employment to mitigate damages unless the employment is “different or inferior”
You have an unqualified right to turn down inferior or different employment EVEN if doing so seems unreasonable.
Damage Limitations: Foreseeability limitation — general and two ways
Consequential damages cannot be recovered by victim unless they were foreseeable at the time the breaching party entered the contract.
Two ways damages are foreseeable:
1. Those sorts of damages naturally flow from that kind of breach OR
2. Not the normal kind, but it was brought to the attention of the breaching party at the time the contract was entered into.
** court’s may limit the consequential damages even if foreseeable if it concludes justice so requires in order to avoid disproportionate compensation.
Damage Limitations: Emotional distress damages
§353
Emotional distress damages are typically not available for a breach of contract UNLESS
a. breach also caused bodily harm OR
b. the contract is of such a kind that serious emotional disturbance was a likely result.
— ONLY few situations:
1. outrageous behavior by innkeepers / common carriers
2. contracts involving the transmission of death message
3. contracts involving the handling of a dead body.
Damage Limitations: Ascertainability
The burden is on the plaintiff to prove with sufficient certainty the amount of damages resulting from the breach.
Lost profit typically hardest to prove.
Reliance as an alternative measure of damages
As an alternative to expectancy damages 347, breach victim has the right to damages based on his reliance, including expenditures made in preparation for performance or in performance, MINUS any loss the breaching party can prove would have happened had they performed.
Liquidated Damages: what are they
You can specify in the making of a contract that in case of breach, my damages will be x (cash terms what an estimate of the damages will be)
Liquidated damages — when are these enforceable and when are they not enforceable? what if too big/small?
Person trying to enforce the liquidated damages provision bears the burden of showing:
- the stipulated damages (in the provision) are reasonable in amount OR reasonably accurate to the actual damages; and
- it is difficult to determine damages, so an estimation/liquidation clause was needed
the stronger your showing on one of these prongs, the weaker it is allowed to be on the other.
If provision is way too big = penalty clause. unenforceable.
If provision is too small = may be unenforceable under the unconscionability doctrine
Liquidated Damages: Lambo’s libertarian argument against policing this
Parties can take into account harsh damages provision in their pricing. Although it may encourage inefficient performances, allowing parties to contract through penal clauses may allow more voluntary contracts to take place.
Breach of Sales K: Jilted buyer options
- Substitute transaction = COVER ( cover - K )
- No substitute = (market - k)
- Limited specific performance = (unique goods or other special circumstances where buyer can find no cover)
Breach of Sales K: Jilted seller options
- Substitute transactions (resale) = (K - resale)
- No substitute = (k - market)
- Specific performance-ish = “action for price”
- Loss volume seller
Breach of sales k: jilted seller — when is action for price available?
- breach occurs after buyer accepts the goods or risk of loss has passed to the buyer OR
- goods that cannot be resold a for a reasonable price (custom, spoil, etc)
breach of sales k: jilted seller — what is loss volume seller? who is a loss volume seller?
If the seller sells multiple of the same item (doesn’t just have one to sell), then the substitute transaction (resale) would have been an additional profit, so 2-706 doesn’t make them whole.
Measure of damages = the profit from full performance of the buyer.
Who is a loss volume seller?
Party must show they
1. Have the capacity to make an additional sale
2. it would have been profitable to the party to make both of these sales
3. Likely would have made the additional sale.
