Remedies

Question 1

What types of monetary damages are available at common law?

Answer 1

Non-breaching party may be able to recover one of three types of money damages:

+ Expectation interest

+ Reliance interest

+ Restitutionary interest

Question 2

Expectation damages

Answer 2

DEFAULT RULE for the proper measurement of damages in breach of contract cases.

Aggrieved party will be entitled to the amount that will restore him to the position he would have been in had the K been fully performed.

FORMULA:
Loss of value of breaching party’s performance
+ any incidental and consequential costs generated by the breach
- any payments received from breaching party
- any costs saved as a result of the breach

Question 3

Limitations on recovery for expectation damages

Answer 3

Aggrieved party may not be able to recover the full amount of expectation damages in the following situations:

(1) where the cost of performance greatly exceeds the market value of performance;
(2) where expectation damages cannot be calculated with reasonable certainty;
(3) where damages are unforeseeable; AND
(4) where damages can be mitigated.

Question 4

Hadley Rule

Answer 4

Breaching party will be liable for general damages (those damages that naturally flow from the breach) but NOT for special or consequential damages (damages that result from the particular circumstances of the aggrieved party, i.e. lost profit) UNLESS, at the time of contracting, the breaching party knew/had reason to know that the consequential damages would result from breach.

Parties may opt out of application of this default rule and allow liability for all consequential damages in their K, whether foreseeable or unforeseeable.

Question 5

Reliance Damages

Answer 5

May be available where expectation damages are not available.

Amount of money necessary to restore the aggrieved party to the position he was in prior to the contract.

Most common use arises when the expectation damages would be UNCERTAIN or SPECULATIVE, as where the breach would deprive the aggrieved party of opportunities to enter potential transactions with third parties.

Question 6

Restitutionary Damages

Answer 6

Party can opt for restitutionary damages as opposed to expectation damages. Value of the benefits conferred on the breaching party by the aggrieved party during the course of the K.

Restitutionary damages are available to both the breaching and aggrieved parties.

In order to secure restitutionary damages, the party seeking the remedy must have conferred some benefit on the other party through either part performance or reliance.

If aggrieved party has fully performed under K, then aggrieved party is LIMITED TO EXPECTATION DAMAGES.

Question 7

Liquidated Damages Provisions

Answer 7

Parties are free to include a liquidated damages clause, designed to provide for damages of their own choosing in the event of a breach. Enforceable if the court finds it to be a valid LDC, and unenforceable if the court finds that it constitutes a PENALTY.

Question 8

Seller’s remedies under the UCC

Answer 8

Upon buyer’s breach of K for sale of goods, seller is free to cancel K and to withhold delivery of any yet to be delivered goods. Seller may have a right to recover money damages from the breaching buyer.

+ If some or all of the goods have been delivered and accepted, the seller is entitled to collect the K price for those goods.

+ If some or all goods have not been delivered (due to rejection or in context of anticipatory repudiation) the seller can recover damages with respect to them.

+ If seller resells - can recover Contract-Resale differential (difference between K price and resale price).

+ If seller does NOT resell - can recover Contract-Market Differential (difference between market value of goods at time and place of the promised delivery and K price).

Regardless of resale, seller is also entitled to recover INCIDENTAL DAMAGES (i.e. costs associated with getting stuck with goods he thought he had sold and cost of resale).

Question 9

Lost Profits for Lost Volume Sellers

Answer 9

Lost volume seller = one whose supply of goods exceeds demand for the same; the seller can satisfy all potential buyers who may seek to deal with him.

UCC permits lost volume sellers to recover the profit they would have made on the lost sale rather than relegating them to either the contract-market or contract-resale differential.

To recover lost profits, seller must be able to show:

(1) that he could have made the sale to both the breaching buyer and resale buyer;
(2) that it would have been profitable for the seller to make both sales; AND
(3) that he probably would have made the additional sale to the resale buyer even absence the buyer’s breach.

Question 10

Buyer’s remedies under the UCC

Answer 10

Upon a seller’s breach of a K for the sale of goods, a buyer can either recover damages or seek specific performance.

Key factor in measuring a buyer’s damages under the UCC is whether the buyer has COVERED (purchased replacement goods):
+ BUYER COVERS - Damage measure is contract-cover differential (difference between what buyer would paid under K and what he actually paid to secure cover). Cover must be made “in good faith and without unreasonable delay”.
+BUYER DOES NOT COVER - Buyer is entitled to the contract-market differential (difference between what buyer would have paid under K and the market price of the goods at the time the buyer learned of the breach)
+WHETHER OR NOT BUYER COVERS: Buyer is also free to seek incidental damages and consequential damages. However, buyer’s damages will be reduced by an amount reflecting expenses avoided because of the breach.

Question 11

Equitable Remedies

Answer 11

• Injunction
• Specific Performance
• Rescission
• Reformation
• Quite title actions
• Partition proceedings

Question 12

Specific Performance

Answer 12

Extraordinary remedy that is available to order a breaching party’s performance only where a monetary award would be inadequate to grant relief to the aggrieved party.

Cases where Specific Performance is generally available:

(1) unique objects; or
(2) real property

Whether to grant/deny specific performance is committed to court’s remedial discretion based on competing equities in particular cases. Not bound by hard-and-fast rules.
Court’s determination will likely take into account some or all of the following factors:
+ whether the aggrieved party has clean hands;
+ whether the terms of the K in question are sufficiently definite
+ whether performance by the aggrieved party can be reasonably assured
+ whether terms of the K are fair
+ whether specific performance would be in the public interest

Question 13

Instances where specific performance is NOT available

Answer 13

Contracts for personal services

Contracts requiring ongoing cooperation between parties (not capable of immediate enforcement)

Question 14

Specific Performance - Sale of Goods Contracts under the UCC

Answer 14

UCC liberalizes rules governing availability of specific performance for sales of goods in 2 ways:

(1) specific performance may be permitted if the goods are unique or in “other proper circumstances”; and
(2) specific performance is available even where ongoing cooperation would be required between the parties so long as the requisite inability of a party to cover can be established.

Question 15

Replevin

Answer 15

Action to repossess property.

Buyer has a right of replevin for goods identified in K if:

(1) after reasonable effort, the buyer is unable to cover;
(2) the circumstances reasonably indicate that an effort to cover will be unavailing; OR
(3) if the goods have been shipped under reservation (i.e. seller has reserved a security interest in the goods) and satisfaction of the security interest in them has been made or tendered.

Question 16

Negative Injunctions

Answer 16

Orders by the court prohibiting the breaching party from taking particular action. Limitations that apply to specific performance also apply to negative injunctions.

Most commonly used to prevent employees from going to work for a competitor or competing with their former employer. Availability depends on whether the former employer is seeking mid-term or post-employment relief.

Question 17

Negative injunctions for Midterm Relief

Answer 17

When an employee is under K for a specified period of time and the employee breaches the K by departing before the end of that period, a negative injunction will be available to prevent employee from competing directly or indirectly with former employee if the employee’s services are unique or extraordinary.

Question 18

Negative injunctions for Post-employment Relief

Answer 18

Enforcement of employment K provisions that prohibit post-employment competition against the employer have become a common source of negative injunctions.
Validity of such clauses depends on 3 factors:
(1) most courts require a significant business justification for enforcing post-employment restraints.
(2) most jurisdictions limit the scope of the enforcement of noncompetes to reasonable duration and geographical restrictions; AND
(3) most courts will issue a neg. inj. against a competing employee only if the employment K contains an EXPRESS noncompetition agreement, but some courts have granted relief in the absence of such a provision based on the tort theory of inevitable disclosure of trade secrets.

Question 19

Rescission

Answer 19

Equitable remedy that cancels the K (and forms the basis for restitution). Both parties are placed back where they were before the K was executed.

Rescission of a K is available:

(1) by consent of both parties;
(2) for mistake (either unilateral or mutual);
(3) for fraud, misrepresentation, and nondisclosures;
(4) for duress or undue influence;
(5) for illegality; OR
(6) for failure of consideration (which would also be a material breach).

A party seeking rescission must be ready to return to the other party all benefits received.

Question 20

Promissory Estoppel

Answer 20

Type of interest a party can claim under promissory estoppel depends on the jx in which it brings suit. Courts are split:
+ some courts award expectation damages
+ other courts favor reliance damages
+ other courts award damages on a case-by-case basis and tailor the remedy to the injustice of the issue, where possible.

In the courts that award damages on a case-by-case basis, courts will focus on:

(1) the strength of the proof for each of the individual elements of the claim;
(2) the blameworthiness of the breach;
(3) the extent of the detrimental reliance by the aggrieved party;
(4) the relative positions of the parties; AND
(5) the availability of alternative options to granting full enforcement of the promise.

Question 21

Restitution and Unjust Enrichment

Answer 21

A party aggrieved by a breach of K may have the option of electing a restitutionary, rather than expectation, recovery.

Contexts where restitution might be available:

(1) benefits conferred under a failed contract;
(2) benefits conferred by a breaching party;
(3) emergency benefits conferred by a health care provider; AND
(4) benefits conferred by mistake.

Question 22

Agreed-To Remedies

Answer 22

Parties to a K may also contract out of legal and equitable remedies available under the law, by specifying agreed-to remedies in K. Typically either liquidated damages provisions and/or provisions limiting or excluding damages.

Question 23

Provisions Limiting or Excluding Damages

Answer 23

Different types of exclusive remedies provisions, including:

(1) provisions that limit or alter the measure of damages available; and
(2) exclusive remedies provisions, in which the parties expressly agree that only one remedy, or certain specified remedies, will be available in the event of a breach.

Such provisions are enforceable unless they are unconscionable.

Under the UCC, limitation of consequential damages for personal injuries in the case of consumer goods is prima facie unconscionable.

Question 24

How is the non-breaching party’s restitutionary interest measured?

Answer 24

Aggrieved party’s restitutionary interest will be measured by either:

(1) the reasonable value of the benefit conferred upon the breaching party (measured by the market value of the service(s) rendered, not K price); OR
(2) the extent to which the breaching party’s property has increased in value based upon the aggrieved party’s performance.

Question 25

When is a liquidated damages provision valid?

Answer 25

3-pronged test for determining whether a clause in a particular K is a valid liquidated damages provision:

(1) Did the parties intend for the clause to operate as LDC or penalty?
(2) Was the clause reasonable at the time of contracting in relation to the anticipated harm?
(3) Was the clause reasonable in relation to the harm and losses that ACTUALLY occurred due to the breach?

Some courts will uphold LDC if it satisfies the second prong but no the third. Other courts will conclude that the clause is a penalty if it specifies damages that are “grossly disproportionate” to the actual harm, even if it was reasonable at the time of contracting.

Clause will be stricken from the K if the court concludes that it is, in fact, a penalty.