Remedies: Damages for Breach of Contract

Question 1

What are the options for monetary damages at common law?

Answer 1

A party may elect one of these remedies:

1. Expectation Damages
2. Reliance Damages
3. Restitutionary Damages

Question 2

What are compensatory Damages?

Answer 2

Meant to compensate the nonbreaching party for actual econ. losses

*

Question 3

What are expectation damages?

Answer 3

The Benefit of the bargain

Question 4

How do you calculate expectation damages?

Answer 4

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)

Question 5

Loss in value defined

Answer 5

Dif. b/w perf. that the nonbreaching party should have received under the K and what was actually received, if anything

Question 6

Other loss defined

Answer 6

Includes consequential and incidental damages

Question 7

Loss Avoided Defined

Answer 7

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

Question 8

Expectation Damages - Construction Contracts where contractor fails to begin or complete building

Answer 8

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

Question 9

Expectation Damages - Construction Contracts where owner fails to pay the contract price

Answer 9

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

Question 10

Expectation Damages for failing to deliver goods

Answer 10

Measured by the difference b/w the K price and the market value of the goods (or cost of cover)

Question 11

Expectation Damages for Real-Estate Contracts

Answer 11

Damages for failing to perf. a real-estate K

• measured by difference b/w K price & market value

Question 12

Expectation Damages - Contract to lend money

Answer 12

If breach of K to lend money

• Measure is the additional cost of getting a loan from another lender

Question 13

Cost avoided defined

Answer 13

Additional cost that the nonbreaching party can avoid by rightfully discontinuing perf. under the K as a result of the other party’s breach

Question 14

Expectation Damages & Partial Performance

Answer 14

If a party partially performs, they can recover for work performed + expectation damages for the wor not yet perf.

Question 15

Expectation Damages - Defective Performance & Construction Contracts

Answer 15

Damages = measured by the cost of correcting the defect

Question 16

Expectation Damages - Defective Performance & Sale of Goods Contracts

Answer 16

Damages = the difference b/w the value of the goods as warranted and the actual value of the tendered nonconforming goods

Question 17

Expectation Damages & Diminution in Value

Answer 17

If the award of expectation damages would result in econ. waste, courts may award damages = to diminution in value e

Question 18

When does economic waste occur ?

Answer 18

When the amount of damages owed is disproportionate to any economic benefit/utility gained as a result of the award

Question 19

What type of companies have difficulty getting expectation damages ?

Answer 19

A new business with no profit history

Question 20

What can a buyer of goods seek for damages?

Answer 20

1. Incidental Damages AND
2. Consequential Damages

Question 21

What are consequential damages?

Answer 21

Reasonably foreseeable losses to nonbreaching party that go beyond expectation damages (e.g. loss profits)

Question 22

Consequential Damages - Foreseeability

Answer 22

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

Question 23

Consequential Damages - Causation

Answer 23

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

Question 24

Consequential Damages - Reasonable Certainty

Answer 24

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)

Question 25

UCC breach of Warranty - Consequential Damages

Answer 25

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

Question 26

UCC Breach of Warranty - Measures of Damages

Answer 26

Difference at the time & place of acceptance b/w the value of the goods accepted and the vlue they would have been as warranted

Question 27

What are liquidated damages?

Answer 27

K clause designated to provide a set formula for calc. damages in the event of breach

Question 28

When are liquidated damages enforceable?

Answer 28

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

Question 29

When are liquidated damages unenforceable?

Answer 29

Damages are essentially a penalty designed to punish a breach

Question 30

What happens if the court rules that a liquidated damages clause is in fact a penalty ?

Answer 30

Clause is sstricken from the K and the damages are recoverable according to the default rules

Question 31

How is it determined whether actual damages would be uncertain in amount and difficult to prove?

Answer 31

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.

Question 32

What are incidental damages?

Answer 32

Compensation for commercially reasonable expenses incurred as a result of other party’s breach

Question 33

What are punitive damages?

Answer 33

Rarely available in K actions but may be available if conduct constituting breach is also recoverable under tort theory

Question 34

What are nominal damages?

Answer 34

When no damages are alleged/proven P is still entitled to judgment for nominal damages (e.g. $1)

Question 35

Attorney’s fees

Answer 35

• 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

Question 36

Mitigating Damages

Answer 36

• 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

Question 37

What types of damages can be recovered in a K action based on promissory estoppel?

Answer 37

Depends on the juris.

1. Expectation
2. Reliance
3. Damages chosen on case by case basis

Question 38

Compensatory Damages

What is the Goal ?

Answer 38

Goal - put nonbreaching party in as good as a position as perf. would have done

Question 39

How are compensatory Damages Calculate?

Answer 39

+ consequential & incidental damages if any

• possible mitigation of damages

Alternatively, P might recover liquidated D, reliance D, or restitutionary relief

Question 40

What is the goal of expectation damages?

Answer 40

Intended to put the nonbreaching party in the same position as if the K had been perf.

Question 41

What is the effect if Expectation Damages are too speculative?

Answer 41

P may seek reliance damages instead