Remedies: Damages for Breach of Contract Flashcards
What are the options for monetary damages at common law?
A party may elect one of these remedies:
- Expectation Damages
- Reliance Damages
- Restitutionary Damages
What are compensatory Damages?
Meant to compensate the nonbreaching party for actual econ. losses
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What are expectation damages?
The Benefit of the bargain
How do you calculate expectation damages?
Must be calc. with reas. certainty
- Exp. Dam. = Loss in value + other loss - cost avoided - loss avoided
- Compare value of perf. w/out breach (what was promised) with the value of performance with the breach (what was received)
Loss in value defined
Dif. b/w perf. that the nonbreaching party should have received under the K and what was actually received, if anything
Other loss defined
Includes consequential and incidental damages
Loss Avoided Defined
The beneficial effect of the breach due to the nonbreaching party’s ability to salvage or realocate resources that would have been devoted to perf. under the K
- Loss avoided is subtracted ONLY if the savings result from the injured party not having to perf. rather than from some unrelated event
Expectation Damages - Construction Contracts where contractor fails to begin or complete building
If contractor fails to begin or complete the building
- Damages = the dif. b/w the K price and the cost of construction by another builder + compensation for delay in completion of construction
Expectation Damages - Construction Contracts where owner fails to pay the contract price
Expectation damages =
- profits that builder would have earned
- any costs incurred by builder
- any amount of any payments made by the owner to the K
- any materials purchased by the contractor that are used by him on another job
Expectation Damages for failing to deliver goods
Measured by the difference b/w the K price and the market value of the goods (or cost of cover)
Expectation Damages for Real-Estate Contracts
Damages for failing to perf. a real-estate K
- measured by difference b/w K price & market value
Expectation Damages - Contract to lend money
If breach of K to lend money
- Measure is the additional cost of getting a loan from another lender
Cost avoided defined
Additional cost that the nonbreaching party can avoid by rightfully discontinuing perf. under the K as a result of the other party’s breach
Expectation Damages & Partial Performance
If a party partially performs, they can recover for work performed + expectation damages for the wor not yet perf.
Expectation Damages - Defective Performance & Construction Contracts
Damages = measured by the cost of correcting the defect
Expectation Damages - Defective Performance & Sale of Goods Contracts
Damages = the difference b/w the value of the goods as warranted and the actual value of the tendered nonconforming goods
Expectation Damages & Diminution in Value
If the award of expectation damages would result in econ. waste, courts may award damages = to diminution in value e
When does economic waste occur ?
When the amount of damages owed is disproportionate to any economic benefit/utility gained as a result of the award
What type of companies have difficulty getting expectation damages ?
A new business with no profit history
What can a buyer of goods seek for damages?
- Incidental Damages AND
- Consequential Damages
What are consequential damages?
Reasonably foreseeable losses to nonbreaching party that go beyond expectation damages (e.g. loss profits)
Consequential Damages - Foreseeability
Damages are recoverable if:
- they are natural & probable consequences of breach OR
- if they were contemplated by the parties at the time of K formation OR
- If they were otherwise foreseeable
Consequential Damages - Causation
Defendant can defend on the ground that the losses that the plaintiff seeks to recover would have occurred even if the D had not breached the contract
Consequential Damages - Reasonable Certainty
to recover damages, plaintiff must prove the dollar amount with reas. certainty
- Courts are hesitant to award damages for lost profits
- If they are too speculative, courts may limit recovery to reliance damages (reas. expenditures made in connection with the K)
UCC breach of Warranty - Consequential Damages
Consequential damages for breach of war. may be limited or excluded unless limitation is unconscionable
- Limitation of consequential damages for pers. injury in the case of consumer goods is prima facie unconscionable
- Limitations of damages when the loss is commercial is not prima facie unconscionable
UCC Breach of Warranty - Measures of Damages
Difference at the time & place of acceptance b/w the value of the goods accepted and the vlue they would have been as warranted
What are liquidated damages?
K clause designated to provide a set formula for calc. damages in the event of breach
When are liquidated damages enforceable?
Enforceable if this 3 prong test is met:
- Parties intended to agree in advance to damages that might arise from breach
- Stipulated amount was resonable at time of K, bearing some relation to damages that might be sustained AND
- Actual damages would be uncertain in amount & difficult to prove
When are liquidated damages unenforceable?
Damages are essentially a penalty designed to punish a breach
What happens if the court rules that a liquidated damages clause is in fact a penalty ?
Clause is sstricken from the K and the damages are recoverable according to the default rules
How is it determined whether actual damages would be uncertain in amount and difficult to prove?
Courts look to the time of contracting not to the time of breach
- Damages in the liquidated damages clause must be for a specific amount for a specific breach
- Can be a threat to secure perf. or a means to punish nonperf.
What are incidental damages?
Compensation for commercially reasonable expenses incurred as a result of other party’s breach
What are punitive damages?
Rarely available in K actions but may be available if conduct constituting breach is also recoverable under tort theory
What are nominal damages?
When no damages are alleged/proven P is still entitled to judgment for nominal damages (e.g. $1)
Attorney’s fees
- Gen. not recoverable unless parties have agreed otherwise or there is specific law auth. the recovery of such fees
- UCC doesn’t auth. recovery of fees
Mitigating Damages
- Party to K must avoid or mitigate damages to the extent possible by taking such steps as to not involve undue risk, expense, or inconvenience
- Nonbreaching party held to std. of reas. conduct in preventing loss
- Failure to mitigate reduces damages that may be recovered by nonbreaching party
What types of damages can be recovered in a K action based on promissory estoppel?
Depends on the juris.
- Expectation
- Reliance
- Damages chosen on case by case basis
Compensatory Damages
What is the Goal ?
Goal - put nonbreaching party in as good as a position as perf. would have done
How are compensatory Damages Calculate?
+ consequential & incidental damages if any
- possible mitigation of damages
Alternatively, P might recover liquidated D, reliance D, or restitutionary relief
What is the goal of expectation damages?
Intended to put the nonbreaching party in the same position as if the K had been perf.
What is the effect if Expectation Damages are too speculative?
P may seek reliance damages instead
