Remedies

Question 1

Contracts: Available Legal Remedies

Answer 1

Expectation ( compensatory ) Damages, Consequential Damages, Incidental Damages, Liquidated Damages, Money Restitution, Rescission, Reformation, and Specific Performance.

Normally, punitive damages are not applicable in contract law and require that malice be shown.

Question 2

Expectation Damages (Contracts)

Answer 2

The general measure of damages for a breach of contract are expectation damages. Expectation damages arise directly from the breach, and are an attempt to put the non-breaching party in the same position it would have been in but for the breach.

To recover, the damages must be: (1) caused by the defendant (actual cause); (2) foreseeable (proximate cause); (3) certain (damages cannot be speculative); AND (4) unavoidable (the plaintiff must take reasonable steps to mitigate his losses). An award of damages must account and deduct for any costs the injured party avoided because of the breach.

Question 3

Reliance Damages (Contracts)

Answer 3

Reliance damages are generally the expenditures made by a party in reliance of a contract, and are an attempt to put the non-breaching party in the position it would have been if the contract never existed.

Reliance damages are available when: (1) a plaintiff acted in reliance on the defendant’s agreement to perform under a contract; AND (2) the plaintiff’s reliance was foreseeable.

If expectation damages are too speculative, the court may award reliance damages instead.

Question 4

Consequential Damages

Answer 4

Consequential damages arise indirectly from the breach, and are awarded because of the injured party’s special circumstances (e.g. lost profits).

To recover, the damages MUST be: (1) reasonably foreseeable at the time of contract formation; (2) arise from the plaintiff’s special circumstances that the defendant knew or had reason to know of; AND (3) reasonably certain (the damages cannot be speculative).

An award of damages must account for and deduct for any costs the injured party avoided because of the breach.

Consequential damages MAY be limited or excluded by agreement unless the limitation/exclusion is unconscionable.

Question 5

Incidental Damages

Answer 5

Incidental damages are the reasonable costs incurred as a result of a breach of contract (i.e. costs of returning non- conforming goods or caring/storing non-conforming goods).

Question 6

Restitution Damages

Answer 6

Restitution (also referred to as unjust enrichment) is awarded to prevent unjust enrichment and is available when one party confers a benefit onto another party (even if there is no enforceable contract).

Damages will be awarded based on the value of the benefit conferred upon the defendant. A party CANNOT recover both expectation and restitution damages.

Question 7

Liquidated Damages

Answer 7

Damages as specified in the contract.

Liquidated damages will be enforced if: (1) the amount of damages is difficult to estimate at the time the contract was formed; AND (2) the amount is reasonable to the actual damages suffered.

If the liquidated damages clause is valid, then only that amount is valid. If invalid, then actual damages are available.

Question 8

Damages in Contracts for the Sale of Land

Answer 8

For a breach of contract concerning the sale of land, the buyer may recover: (1) any amount paid; (2) the difference between the fair market value of the land at the time of the breach and the contract price; (3) expenses incurred in investigating title and preparing necessary paperwork; (4) expenses incurred in preparing to occupy the land; (5) possible consequential damages; AND (6) interest.

The seller normally recovers the “earnest money” deposit as liquidated damages for breach of a land sale contract.

Question 9

UCC Buyer’s Remedies & Damages

Answer 9

Under the UCC, a buyer who (a) never received the goods – the seller repudiates or fails to make delivery, (b) rightfully rejected non-conforming goods, OR (c) justifiably revoked acceptance of the goods MAY:

(1) cancel the contract;
(2) recover any amount paid (a refund) – even if buyer doesn’t cancel the contract;
(3) recover either Cover Damages or Market
Damages; AND
(4) recover Incidental and Consequential damages.

Question 10

UCC Cover Damages

Answer 10

Cover Damages are the difference between the contract price and the price of substitute goods. This is used as the measure of damages if the buyer covered in good faith.

Question 11

Contracts – Equitable Remedies

Answer 11

Reformation, Rescission, Specific Performance

Question 12

Reformation

Answer 12

Reformation allows a contract to be changed to conform to the parties’ original intent. It is available if a valid contract exists, but there was a misrepresentation OR mutual mistake of a material fact (a unilateral mistake is sufficient if the non-mistaken party had reason to know of the mistake).

A contract will NOT be reformed if a valid equitable defense applies (i.e. unclean hands, laches). Parol evidence is admissible to prove the misrepresentation or mistake.

Question 13

Rescission

Answer 13

Rescission treats the original contract as cancelled. It is available if there was a problem with the formation of the contract (i.e. a defense to formation, fraud, misrepresentation). A plaintiff may sue for both damages and rescission at the same time (but an election of remedies may bar rescission if damages are sought first).

A contract will NOT be rescinded if: (a) a valid equitable defense applies; OR (b) the plaintiff sued for damages under the contract in a prior action.

Question 14

Specific Performance

Answer 14

Specific performance is an available remedy when: (1) a valid contract exists with clear and definite terms; (2) the plaintiff has performed under the contract or is ready, willing, and able to perform; (3) legal remedies are inadequate (i.e. rare/unique item, contracts involving the sale of land, as legal remedies are inadequate because land is unique); (4) enforcement is feasible for the court (it is NOT feasible to enforce personal service contracts or where land/person is outside the court’s jurisdiction); AND (5) no valid equitable or contractual defenses exist.

Question 15

Torts Remedies

Answer 15

Actual Damages, Reliance Damages, Nominal Damages, Punitive Damages, Incidental Damages, Restitution, Replevin, Ejectment, Constructive Trusts, Equitable Liens, Temporary Restraining Orders, Preliminary In junctions, and Permanent Injunctions.

Question 16

Compensatory Damages

Answer 16

Compensatory damages attempt to put the injured party in the same position it would have been in but for the injury. To recover, the damages must be: (1) caused by the defendant (actual cause); (2) foreseeable (proximate cause); (3) certain (damages cannot be too speculative); AND (4) unavoidable (the plaintiff must take reasonable steps to mitigate his losses).

Non-economic losses resulting from a tort (i.e. pain and suffering) are NOT subject to the same certainty rules. Additionally, future earnings are available, and are calculated based on the difference in the person’s earning ability before the injury and the earning ability after the injury; it is NOT based on the person’s actual past earnings.

Question 17

Nominal Damages

Answer 17

Nominal damages are available when the plaintiff has NOT suffered an actual injury, but still wants to establish his rights. Nominal damages are not available where either damages or actual injury is an element to a cause of action.

Question 18

Punitive Damages

Answer 18

Punitive damages are awarded to punish the defendant, and are available if:

(1) the plaintiff was awarded actual damages (expectation or nominal damages); (2) the punitive damages are proportional to the actual damages; AND (3) the defendant’s conduct was willful, malicious, or egregious (must be more than just negligent).

Question 19

Restitution Damages

Answer 19

Restitution (also referred to as unjust enrichment) is awarded to prevent unjust enrichment, and is available when one party confers a benefit onto another party. Damages will be awarded based on the value of the benefit conferred upon the defendant.

Question 20

Damages for Fraud

Answer 20

Damages for fraud or deceit are either:

(a) the actual losses suffered – the difference in actual value at the time of the transaction between what the plaintiff gave and what he received; OR (b) the benefit-of-the-bargain – difference in value between what the plaintiff actually received and what he was fraudulently led to believe he would receive.

Question 21

Damages for Conversion of Property

Answer 21

When a plaintiff has suffered a conversion, he may recover either:

(a) possession of the property; OR (b) the fair market value of the property at the time of conversion. A plaintiff may also receive reasonable compensation for time spent trying to recover the property.

Question 22

Damages for Trespass to Chattels

Answer 22

In an action for trespass to chattels, the damages awarded are the actual damages suffered, which may include the cost of repairs.

Question 23

Damages for Trespass to Land

Answer 23

In an action for trespass to land, damages are measured by either: (a) the diminution in value of the property; OR (b) the cost to repair the property.

Question 24

Temporary Restraining Orders

Answer 24

An emergency remedy used to maintain the status quo ( for 10 days in state courts , or 14 days in Federal courts , normally , but can be extended) pending the outcome of a hearing.

The moving party must 1 ) show a likelihood of success on the merits; 2 ) a likelihood of irreparable harm ; 3 ) a balancing of the hardships in favor of the non-movant; 4 ) provide notice to the moving party; and 5 ) provide a bond should the case fail.

Question 25

Preliminary Injunction

Answer 25

A preliminary injunction maintains the status quo pending the outcome of an action in order to protect irreparable harm to a party.

The party moving for an injunction MUST SHOW: (1) a likelihood of success on the merits; (2) a likely threat of irreparable harm to the movant; (3) balancing of the hardships in favor of the moving party (the harm alleged by the movant outweighs any harm to the non-moving party); (4) an injunction is in the public interest (if there is a public interest at issue).

Question 26

Preliminary Injunction Continued

Answer 26

A court may issue a preliminary injunction ONLY:

(1) upon notice to the adverse party; AND (2) if the moving party gives security in an amount the court deems proper (which will be used to reimburse the non-moving party for any injury caused by the injunction if the moving party does not succeed on the merits).

If the moving party has an adequate remedy at law (can be compensated by money damages for any potential loss), then a motion for a preliminary injunction should be denied.

A court has the ability to issue a restraining injunction (preventing a party from doing something) OR a mandatory injunction (compelling a party to do something).

Question 27

Permanent Injunction

Answer 27

Permanent injunction is issued after a full trial on the merits, and requires the following:

(1) inadequate legal remedies (harm cannot be compensated by money damages); (2) a protectable personal or property interest (historically, this could only be a property interest, but now, any personal or property interest is sufficient); (3) feasibility of enforcement (not a concern with negative injunctions, but potentially with mandatory injunctions); (4) a balancing of hardships to both parties (balance the benefit to the plaintiff versus the hardship to the defendant); AND (5) there are no valid equitable defenses.

Question 28

Equitable Lien

Answer 28

An equitable lien is available if a defendant: (1) wrongfully acquired title to property; AND (2) would be unjustly enriched if allowed to keep the property. The court will force the sale of the property, and the plaintiff will receive the proceeds.

The plaintiff is entitled to a deficiency judgment if the proceeds are less than the value of the property at the time it was taken. A plaintiff may trace his property to other forms, but he is NOT entitled to any increase in value of the property. However, a bona fide purchaser (BFP) is NOT subject to an equitable lien.

Question 29

Constructive Trust

Answer 29

A constructive trust is an equitable remedy used to prevent unjust enrichment resulting from wrongful conduct, such as fraud, undue influence, or breach of a fiduciary duty.

• A constructive trust is available if a defendant: (1) wrongfully acquired title to property; AND (2) the defendant would be unjustly enriched if allowed to keep the property.
• The court will require the defendant to hold the property as a trustee, and then return it to the plaintiff. A plaintiff may trace his property to other forms and is entitled to any increase in value to the property. However, a bona fide purchaser (BFP) is NOT subject to a constructive trust. The statute of frauds DOES NOT apply to constructive trusts; thus, oral promises may be used to establish a constructive trust.

Question 30

Replevin

Answer 30

Replevin allows the recovery of specific personal property, and is available if (1) the defendant is wrongfully withholding personal property, (2) that the plaintiff has a right to possess.

A plaintiff may recover the property before trial if: (1) there is a preliminary judicial hearing; AND (2) the plaintiff posts bond.

Question 31

Ejectment

Answer 31

Ejectment allows the recovery of specific real property, and is available if: (1) the defendant has actual possession of the property; (2) the defendant is wrongfully withholding the property; AND (3) the plaintiff has a right to possess the property.

Question 32

Defenses

Answer 32

Laches, Unclean Hands, Mitigation of Damages, Misrepresentation

Question 33

Laches

Answer 33

The defense of laches bars a plaintiff’s recovery when: (1) there is an unreasonable delay between when the plaintiff learned of the injury/breach and when the action was brought; AND (2) the defendant is prejudiced by the delay.

Question 34

Unclean Hands

Answer 34

The doctrine of unclean hands bars a plaintiff’s recovery when a plaintiff is guilty of unethical, unlawful, or otherwise improper conduct related to the subject of the lawsuit.

Question 35

Mitigation of Damages

Answer 35

A plaintiff CANNOT recover damages as a result of a breach that could have been avoided. Accordingly, a party must take reasonable steps to mitigate his losses. If he fails to do so, the court will reduce the total damages by the amount that could have been avoided.

Suitable Substitute: Whether an available alternative transaction is a suitable substitute depends on all the circumstances, including the similarity of performance.

Question 36

Intentional Misrepresentation

Answer 36

To state a prima facie case for intentional misrepresentation, a plaintiff must show: (1) misrepresentation of a material fact by the defendant; (2) the defendant knew that the statement was false (scienter); (3) intent of the defendant to induce the plaintiff; (4) actual and reasonable reliance by the plaintiff; AND (5) damages

Question 37

Negligent Misrepresentation

Answer 37

To state a prima facie case for negligent misrepresentation, a plaintiff must show: (1) a misrepresentation (false statement of a material fact) by the defendant; (2) supplied for the guidance of others in a business transaction; (3) the defendant knew or should have known that the information was supplied to guide the plaintiff in his business transactions; (4) the defendant was negligent in obtaining or communicating the false information; (5) actual and reasonable reliance by the plaintiff, AND (6) the false information proximately caused plaintiff’s damages.

Question 38

Concealment

Answer 38

Concealment (an affirmative act intended to keep another from learning of a fact) is equivalent to a misrepresentation (a false statement of fact). Generally, there is no duty to disclose information, UNLESS: (a) active concealment of a material fact occurs; (b) a fiduciary relationship exists; (c) it is necessary to correct an earlier mistake; OR (d) it is necessary to correct a past statement from being misleading.

Question 39

Loss in Value Damages

Answer 39

If the buyer keeps the non-conforming goods, then the buyer is entitled to Loss-in-Value Damages – measured by the difference between the value as promised and the value of the non-conforming goods.

Question 40

Market Value

Answer 40

Market Damages are used if the buyer did not cover in good faith or did not cover at all, and are the difference between the market price (at the time when buyer learned of the breach) and the contract price. Market price is determined as of (a) the place for tender, or (b) the place of arrival in cases of rejection after arrival or revocation of acceptance.