Remedies

Question 1

Contract Damages - Generally

Answer 1

Contract compensatory damages include:

1. benefit of the bargain (expectancy) damages;
2. consequential damages;
3. reliance damages;
4. incidental damages; and
5. liquidated damages.

Question 2

Contract Damages - Requirements

Answer 2

Contract compensatory damages must be:

1. causal (“but for”),
2. foreseeable (as of the time of formation),
3. certain, and
4. unavoidable (duty to mitigate losses)

Relevant factors in determining certainty are availability of the evidence, certainty of actual loss, and culpability of the defendant.

Question 3

Contract Damages - Benefit of the Bargain

Answer 3

Benefit of the bargain damages seek to put the parties in the position they would have been in had the contract been performed. These damages focus on the economic deal itself—the costs to produce or sell, the profit, and the purchase price.

Normal benefit of the bargain damages are the market price less contract price. If the seller breaches, the additional market price above contract price is the buyer’s damages. If the buyer breaches, seller will get its profit margin—the difference between the contract price and its cost of sale.

If the contract is controlled by the UCC, discuss benefit of the bargain damages in terms of the UCC, including the concept of “cover” (for the seller, the cost of “cover” (the amount it costs to purchase replacement goods) less the contract price).

Question 4

Contract Damages - Consequential Damages

Answer 4

Consequential damages are the damages that logically flow from a breach of the contract other than the cost of sale, profit and purchase price. These include future profits beyond those from the deal itself, costs incurred due to the breach that were not part of the original deal, and similar damages.

The four-part analysis regarding damages must be undertaken whenever plaintiff seeks lost future profits (other than a seller’s immediate profit from the deal), consequential damages and reliance damages.

Question 5

Contract Damages - Reliance Damages

Answer 5

Reliance damages seek to put the party in the position they would have been in had the contract not been formed in the first place. These are usually out of pocket costs incurred by a party before the contract is actually performed.

Reliance damages are only available if the benefit of the bargain—expectancy—damages are too speculative, which often occurs where the contract is never performed at all.

Question 6

Contract Damages - Incidental Damages

Answer 6

Incidental damages are expenses reasonably incurred in shipping, care and custody of the goods and, for the seller, in re-selling the goods after a breach.

Question 7

Contract Damages - Liquidated Damages

Answer 7

Liquidated damages are agreed-upon damages where actual damages are hard to calculate.

Liquidated damages are upheld if damages will be extremely difficult to ascertain and the stipulated amount is a reasonable forecast of the damages. Otherwise, liquidated damages are void as a penalty.

Question 8

Contract Damages - Equitable Remedies

Answer 8

Equitable contract remedies include:

1. specific performance,
2. rescission, and
3. reformation.

Question 9

Specific Performance - Elements

Answer 9

A party is entitled to specific performance when:

1. there is a valid and enforceable contract, definite and certain;
2. the party has met all the conditions required, or they are excused;
3. the legal remedy is inadequate (the subject of the contract is unique); and
4. the remedy is feasible for the court to supervise.

Question 10

Rescission - Rule

Answer 10

Rescission is the undoing of a contract. It is a restitutionary remedy. The plaintiff effects a cancellation of the contract by prompt notice of the rescission and tender back of the consideration, or, more commonly, by a lawsuit in which the plaintiff seeks rescission and offers to tender back the consideration.

The grounds for rescission must have existed at the time of the making of the contract, making it voidable, and are typically mistake or misrepresentation.

Question 11

Rescission - Mistake

Answer 11

There are two types of mistake: mutual and unilateral.

Mutual mistake requires a mutual mistake, among all parties to the contract, as to a material fact—one that goes to the basis of the bargain. The mistake must be as to the nature or identity of the subject matter of the contract—not its quality.

A unilateral mistake as to a material fact will only be grounds for rescission if the non-mistaken party knows or should have known of the mistake. The modern trend grants rescission if the mistake is basic, and the mistaken party’s hardship outweighs the detriment to the non-mistaken party’s expectations under the contract.

Question 12

Rescission - Misrepresentation

Answer 12

Misrepresentation requires:

1. a false representation of a material fact or omission of a material fact;
2. that the defendant knew was false (intentional misrepresentation), or should have known was false (negligent misrepresentation), or made innocently (innocent misrepresentation);
3. which was reasonably relied upon by the plaintiff to his or her detriment.

While a plaintiff may only get damages for fraudulent and negligent misrepresentation, any form of misrepresentation—innocent, negligent, or fraudulent—will be grounds for rescission.

Question 13

Reformation

Answer 13

Reformation is the remedy by which the court alters or modifies a written instrument to make it conform to the parties’ previous understanding. It requires the existence of a valid prior agreement.

The grounds for reformation include:
1. a mutual mistake of fact, including scrivener’s errors;

2. unilateral mistake;
3. mistake of law as to the legal meaning of terms; and
4. fraud.

Question 14

Torts Damages - Generally

Answer 14

There are three kinds of tort damages:

1. general damages foreseeable from the injury, such as pain and suffering;
2. special damages that could not have been foreseen from the mere occurrence of the wrong, such as wage losses after the personal injury occurred; and
3. punitive damages.

Special damages and punitive damages must be specially pleaded in the Complaint.

Question 15

Tort Damages - Requirements

Answer 15

Tort compensatory damages must be:

1. causal (“but for”),
2. foreseeable (as of the time of the breach of duty—and thus compliant with proximate cause rules),
3. certain, and
4. unavoidable

Question 16

Punitive Damages - Generally

Answer 16

Punitive damages may be awarded for willful and wanton conduct amounting to fraud, oppression, or malice.

If punitive damages are “grossly excessive,” they may be invalid under the 14th Amendment Due Process Clause. The issue is whether the defendant had fair notice of the possible magnitude of the punitive damages.

The factors in assessing notice include:

1. the reprehensibility of the defendant’s conduct;
2. the disparity between the actual or potential harm suffered and the punitive award; and
3. the difference between the punitive award and the criminal or civil penalties authorized for comparable misconduct.

Question 17

Temporary Restraining Order - Requirements

Answer 17

To receive a TRO, plaintiff must show:

1. a reasonable likelihood of success on the merits,
2. a threat of irreparable harm if the injunction is not granted, and
3. a balancing of the hardships in plaintiff’s favor.

Most applications for a TRO require short notice, or a declaration showing why the giving of notice would render the TRO useless.

Question 18

Permanent Injunction - Requirements

Answer 18

To obtain a permanent injunction—which is granted only after trial on the merits, plaintiff must show:

1. an inadequate legal remedy,
2. feasibility of enforcing the injunction, and
3. a balancing of the hardships in plaintiff’s favor.

Question 19

Inadequate Legal Remedy - Generally

Answer 19

The major reasons why a legal remedy may be inadequate are:

1. money damages are inadequate;
2. damages are too speculative;
3. the potential of a multiplicity of suits (this works well in repeated trespass or nuisance cases);
4. irreparable injury (because, for example, land is unique); and
5. threat of a prospective tort.

Question 20

Voluntary Waste - Remedies

Answer 20

An injunction is always available to stop defendant from harming the land.

Legal remedies include damages measured by the lesser of the diminution in value of the property and the cost of repairs.

Statutes may permit treble damages.

Question 21

Permissive Waste - Remedies

Answer 21

The only real remedy is damages for the cost of repairs or diminution in value. An injunction usually is unavailable because it would require affirmative acts.

Question 22

Ameliorative Waste - Remedies

Answer 22

Damages are normally not recoverable, except for the cost of restoration of the premises to their original condition in certain circumstances.

An injunction depends on the facts of a case, so a short-term tenant might be enjoined from making substantial changes, but a long-term tenant might not be so enjoined.

Question 23

Quasi-Contract - Generally

Answer 23

The theory of quasi-contract imposes a legal obligation on the defendant who receives a benefit pursuant to an unenforceable contract or a wrongful act.

Thus, if a contract is unenforceable because of the Statute of Frauds, incapacity, fraud, duress, or illegality, a defendant who still receives the benefit may be forced to make some form of restitution.

Question 24

Replevin - Generally

Answer 24

Replevin is the recovery of personal property wrongfully taken or detained. With replevin, it is possible to recover prejudgment possession of the personal property, in a proceeding for a provisional remedy called “claim and delivery.”

Replevin requires that the defendant have possession of the wrongfully taken or detained property, but that plaintiff has the right to reclaim possession or title.

Question 25

Replevin Under the UCC

Answer 25

Under the UCC, to obtain an order of replevin in connection with the sale of goods, plaintiff must show either:

1. that the goods are specifically identified in the contract, and the plaintiff is unable to cover despite reasonable attempts to do so; or
2. if the buyer has made part payment and seller has not delivered the goods, and seller becomes insolvent within 10 days after receiving buyer’s payment or the goods were purchased for personal, family, or household purposes.

Question 26

Replevin At Common Law

Answer 26

At common law, replevin requires a showing of the immediate right to possession or title. Then, unless the plaintiff can show an immediate right to recover (such as when the buyer under an installment contract fails to make payments), replevin is unavailable.

If the property has then been sold to a bona fide purchaser, replevin is unavailable, since sale to a bona fide purchaser cuts off most restitutionary remedies.

Question 27

Ejectment - Generally

Answer 27

Ejectment is a legal remedy to have possession restored to a plaintiff against a defendant wrongfully in possession of real property, such as a tenant who holds over.

If an ejectment action is not brought timely, the possessor can prevail in an adverse possession action.

Question 28

Constructive Trust - Generally

Answer 28

A constructive trust provides for specific restitution of specific property that has been wrongfully acquired by a defendant.

A constructive trust may only be imposed on property to which defendant obtains title.

Question 29

Constructive Trust - Trustee’s Duties

Answer 29

The sole trust obligation of the constructive trustee is to convey title to the property to the plaintiff, who also then gets the benefit of any increase in the value of the property. If defendant does not have full title to property, it cannot be made subject to a constructive trust.

Question 30

Equitable Lien - Generally

Answer 30

An equitable lien does not provide specific restitution of specific property, but rather a security interest for the equitable debt. It is the appropriate remedy where the wrongdoer commingles their own funds with the funds misappropriated from the victim, or uses the funds to purchase property.

Unlike a constructive trust, plaintiff does not get the benefit of an increase in value of the property subject to the equitable lien.

Question 31

Equitable Lien - Limits on Recovery

Answer 31

Where the wrongdoer dissipates funds from the account after commingling them, and later adds more funds, the victim can only impose an equitable lien on the lowest intermediate balance—the lowest balance after recalculating that balance after each deposit and withdrawal.

Question 32

Purchase Money Resulting Trust - Generally

Answer 32

When a person who takes title did not supply all or part of the consideration, and thus holds title or partial title in trust for the person who did supply the consideration - the resulting beneficiary - a resulting trust is created and is known as a purchase money resulting trust. Like a constructive trustee, the resulting trustee’s sole trust obligation is to convey the property to the plaintiff.

Question 33

Purchase Money Resulting Trust - Rebuttable Presumption

Answer 33

The presumption of a resulting trust arising from the supply of consideration can be rebutted by:

1. proof of a gift from the resulting beneficiary to the resulting trustee;
2. proof of a loan from the resulting beneficiary to the resulting trustee; or
3. proof that the consideration was payment of a debt owing from the resulting beneficiary to the resulting trustee.

Question 34

Misappropriation of Money - Remedies

Answer 34

The first potential remedy is for damages for the tort of conversion.

Alternatively, plaintiff can waive the tort of conversion and seek restitution in quasi-contract, where the remedy would be a constructive trust or resulting trust if the money is traced to specific property acquired with the money.

Finally, if a constructive trust is not available because the money is commingled or used to improve the wrongdoer’s property—the appropriate remedy is an equitable lien.

Question 35

Misappropriation of Personal Property - Remedies

Answer 35

The possible legal remedy is for conversion or trespass to chattels, depending on the nature of the interference with the personal property.

Alternatively, if the property has not been destroyed or sold to a bona fide purchaser, plaintiff can seek the legal restitutionary remedy of replevin.

The appropriate equitable remedies would include a constructive trust (if the converter obtains title to the property, sells the property for money, or takes that money and acquires title to some other item of personal property), an equitable lien, or a mandatory injunction (if replevin is inadequate).

Question 36

Equitable Defenses - Laches

Answer 36

Laches is the equitable equivalent to a statute of limitations. It requires both an unreasonable delay, and that the delay has resulted in harm to the other party.

The period of laches may be shorter than the legal statute of limitations, but it cannot be longer.

Laches runs from when a plaintiff has knowledge that a right has been infringed.

Question 37

Equitable Defenses - Unclean Hands

Answer 37

The party seeking equitable relief must not be guilty of inequitable or wrongful conduct with respect to the subject matter of the present suit.

The essence is unfair dealing or conduct, not whether plaintiff has committed an actual tort.

Question 38

Equitable Defenses - Sale to a Bona Fide Purchaser

Answer 38

The wrongdoer’s sale of property to a bona fide purchaser cuts off the remedies of replevin as to all possible defendants, and constructive trust, and equitable lien as to that bona fide purchaser.

A bona fide purchaser is liable for actual, but not punitive, damages to the true owner in an action for conversion of personal property.

Question 39

Equitable Defenses - No Injunction Against Breach of Contract

Answer 39

Equity will not enjoin a breach of contract, because with a breach of contract, damages are generally adequate.

But, where the contract involves a unique subject matter, so that the legal remedy might be inadequate and specific performance is available, it is possible that an injunction would be available to aid in obtaining specific performance.

Question 40

Equitable Defenses - No Injunction Against Criminal Prosecution

Answer 40

No injunction against a criminal prosecution by the District Attorney can be granted without a strong showing of irreparable injury.

Question 41

Equitable Defenses - No Injunction Against Crimes

Answer 41

Injunctions against crimes do not fall within equity jurisdiction, unless the crime is also a public nuisance. A public nuisance is one that endangers the public health and welfare.

Thus, an injunction will lie to enjoin operation of an illegal brothel or illegal dumping of toxic substances, both of which constitute crimes as well as public nuisances.