Rules Flashcards
Economic Purpose of Contracts
Effect should be to make BOTH parties feel richer than before
Efficiency: people will naturally engage in trades up to point where it no longer produces further mutual advantage
Common Policy Rationales
(1) Retributive Justice – punish those who break promises
(2) Corrective justice – help those who detrimentally relied on another’s promise
(3) Economic efficiency – sometimes more efficient to break K (efficient breach)
(4) Distributive justice – redressing systemic inequalities and wealth/income/opps
Expectation Damages
put injured party in position they’d expect to be in had breacher performed
Reliance Damages
put injured party in position they were in IMMEDIATELY BEFORE entered K
Restitution Damages
make breacher return value of benefits they received (as if K never made)
Specific Performance
order parties to perform K
Buyer’s Right to Cover Rationale
(KGM)
unjust enrichment concern
efficient breach/econ efficiency considerations
Cardozo Rule on CoC v. DMV
Expectation Damages
Most cases, measure = CoC, UNLESS CoC = grossly disproportionate, THEN measure = DMV
Pros and Cons for CL + UCC preference for Fair Market Value
PRO: administrative ease
CON: if no replacement market, too unique, or too many markets
Foreseeability Rationale
(1) unfair to hold parties liable for unforeseeable damages
(2) downstream consequences (less people would enter Ks, deterrence concern)
(3) want fair and equitable results
(4) efficiency (objective standard – less lit/easier to evaluate/more consistent results)
Tacit Agreement Test
(Morrow)
D must be given notice of special circumstances and ASSENTED to bearing the risk of those damages
REJECTED by UCC + almost everywhere (hard to prove, not as effective)
Recovery for Certainty Limit
Ps may switch to RELIANCE theory of recovery
Ways to Establish Reasonable Certainty
(Chicago Coliseum)
(1) Profits made at similar events in the past
(2) If K included expected profits
(3) testimony/survey of industry “experts”
(4) discounted cash flow analysis
(5) market price as valuation basis (if readily ascertainable)
Rationale for Uncertainty as Limitation on Damages
(Winston Cigarette)
(1) Damages based on lost profits = uncertain/speculative; incapable of legal computation
(2) would disregard the just rights of parties
(3) harm to party in default if unlimited discretion given jury
(4) parties can specify otherwise if they disagree (ex: LDC)
Avoidability
can’t recover for losses that, with reasonable effort, injured party could’ve avoided after breach was known
*LEGAL OBLIGATION to take/be presumed to have taken reasonable steps to avoid waste and minimize cost of breach
Rationale for No Performance After Repudiation
(Luten Bridge)
liability, not economically efficient (waste of resources)
LDC Pros and Cons
PROS
- parties can figure out damages in advance, no litigation expense
- when hard to price damages, can establish one
- minimize risk exposure
- more efficient outcomes
CONS
- unequal bargaining power; someone might benefit disproportionately
- if current market price changes
- hard to distinguish punitive v. liquidated damages
- LDC might exceed actual damages
- unfair/coercive bargaining power
- deter breaches
Factors to determine whether LDC = reasonable
(1) apply to specific/overall breach?
(2) ease of calculating damages?
(3) anticipated/actual breach
Posner’s Preference for Penalty Clauses
(1) encourages performance
(2) would let promisor include more beneficial deals
(3) same deals at lower price
if bad econ market (increase risk of bankruptcies) – no need to micromanage risky business decisions
result in inefficient breaches/discourage efficient breaches – if parties known this could be consequence, can K accordingly
Restitution
one person has, without intending as a gift, conferred a benefit onto another
- can be legal remedy (comp for damages) OR cause of action (legal claim)
When Restitution is Available
when either:
(1) K “totally” breached/repudiated, OR
(2) No actual K, BUT P deserves some type of remedy/recovery (quasi-Ks)
Repudiation of K defined
when breaching party has specifically stated intent to breach
(Luten Bridge, Dempsey)
Rescission defined
never had K in first place; RESCIND K, have to undo what’s been done for K so far (situational)
2 Grounds for Restitution
(1) ONCE WAS VALID K
- material breach
- non-breacher prefers calling off K v. enforcing it
(2) K NEVER VALID
- misreps, duress, infancy, etc
- K never should’ve been enforced
- payments made = unjust
