Three Common Law Types of Damage Remedies
- Expectancy Test
- Reliance
- Restitution
*We walk through the process of breach of contract beginning with remedies, bc when a client walks into your office they ask, “So what do I get since party x breached our contract”
The general goal of the expectancy measure in contracts is to____…
put the non-breaching party in as good a position they would have been in had the breach not occurred.
EXPECTANCY MEASURE - Restatement (Second) of Contracts
§ 347 “Measure of Damages in General” the injured party has a right to damages based on his expectation interest as measure by:
LOV + OL – CA – LA
(a) the loss in value to him of the other party’s performance caused by its failure or deficiency, plus
(b) any other loss, including incidental or consequential loss, caused by the breach, less
(c) any cost or other loss that he has avoided by not having to perform
* Subject to the limitations stated in §350-353 (AVOIDABILITY - Luten, unforeseeability - Hadley, UNCERTAINTY - Dempsey)
What is the Expectancy Measure (formula)
LOV + OL – CA – LA
Rule: VALUE EXPECTED is the value that _____…
…the non-breaching party expected to receive from the breaching party through their performance of the contract.
*Includes expected profit and costs. (Cost arising from the K performance, any profits expected from the K)
Rule: VALUE RECEIVED is____….
…..what was received by the non-breaching party prior to the breach of the breaching party. In other words, it is the breaching party’s performance prior to the breach.
Rule: LOSS OF VALUE is____….
…what the non-breaching party lost as a result of the breach.
Rule: OTHER LOSS is loss that ____….
…was sustained by the non-breaching party as a result of the breach (causation) but that were not accounted for in the contract.
- i.e. they existed outside the contract.
Analysis: VALUE EXPECTED
What the contract explicitly calls for
Ex: Party A contracts with Party B to have Party B mow his lawn for $30. Party B’s value expected is $30.
Analysis: OTHER LOSS
First note all of the possible other losses according to the facts from the hypothetical,
Then analyze if they can be considered other losses according to the governing rules and restrictions:
A PROMISE may be ___, ___, or ___ from conduct; and is a ___…
manifestation of intention TO ACT or REFRAIN FROM ACTING in a specified way so made as to justify a promisee in understanding that a commitment has been made.
An AGREEMENT is a ___…
manifestation of MUTUAL ASSENT on part of two or more persons
A BARGAIN is and ___…
agreement to exchange promises or to exchange a promise for a performance or to exchange performances.
Other Loss: DAMAGES RULE
- If there is no causation between the expense and the breach/if the expense would have been incurred regardless, then it cannot be considered other loss.
- Hooker v. Roberts: Roberts was not forced to rent additional space to store cabinets as a result of the breach. Since he would have incurred the expense regardless of the breach the expense is not counted as other loss.
Restrictions on Other Loss
- FORSEEABILITY
- CERTAINTY
- AVOIDABILITY (not mitigation which only arises under employment contracts )
*Restatement §§350-353: analyze these restrictions only AFTER analyzing causation
Restrictions on Other Loss=> FORESEEABILITY has the following two prongs ____ and ____.
(1) Naturally Arising AND
(2) Special Circumstances
*as determined by Hadley v. Baxendale
Foreseeability=> Damages that are NATURALLY ARISING are those that…
… arise during the natural course of contract’s breach.
*Must have been reasonably foreseeable as a possible result of the breach.
Foreseeability=> Damages that arise from SPECIAL CIRCUMSTANCES are those that:
…arise outside of the ordinary course of events.
- Hadley: “such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.”
The RULE for Damages that arise from Special Circumstances is…
…that the Non-breaching party must have communicated to breaching party (must have had ACTUAL NOTICE of) the special circumstances such that the damages would be in contemplation of a reasonable person.
Restrictions on Other Loss=> CERTAINTY
RULE: Damages are not recoverable for loss beyond an amount that the evidence permits to be QUANTIFIED WITH REASONABLE CERTAINTY.
*Chicago Coliseum Club v. Dempsey – Chicago Coliseum club seeks losses for (1) lost profits and other damages but even with expert witnesses did not show a quantifiable loss by reasonable certainty…
…too many factors to allow them to reasonably quantify the lost profits – there had never been a Dempsey/Wills Chicago fight before and could have even varied based on weather, marketing, etc.
Restrictions on Other Loss=> AVOIDABILITY
Non-breaching party is not able to recover for losses it could have avoided after breach.
- Sub-Issue: When can losses be avoided?
- Rule: A party cannot recover for losses it could have avoided without undue:
o RISK
o BURDEN
o HUMILIATION
Avoidability => RULE: A party cannot recover for losses it could have avoided without undue:
o RISK
o BURDEN
o HUMILIATION
- Injured party is not precluded from recovery to the extent that he has made a REASONABLE BUT UNSUCCESSFUL EFFORT to avoid loss.
- Rockingham County v. Luten Bridge Co. –builder continues to build the bridge AFTER breach and being asked to stop work; can’t recover because the losses easily could have been avoided.
Avoidability => EMPLOYMENT CONTRACTS
Rule: Measure of recovery is___…
…the amount of salary agreed upon for the period of service LESS the amount which the employer affirmatively proves the employee has earned or with reasonable effort might have earned from other employment (MITIGATION).
Avoidability => Employment Contracts => MITIGATION
Non-breaching party in employment contracts has an affirmative duty to conduct themselves in a way that would mitigate loss by seeking alternative employment that is “SUBSTANTIALLY SIMILAR .”
Avoidability => Employment Contracts => Mitigation => SUBSTANTIALLY SIMILAR
Alternative employment is not substantially similar if it is different in kind or inferior.
- Shirley MacLaine Parker v. Twentieth Century Fox – Court found the new position was different in kind and therefore not substantially similar.
- Burden is on the defendant to show that plaintiff could have received substantially similar employment.
Cost Avoided (CA) RULE:
Any cost or expense that the non-breaching party expected to incur in during the course of the contract but did not because of the breach.
Cost Expected (CE) – Cost Spent (CS).
Cost Avoided (CA) ANALYSIS:
Hooker (cabinets). The non-breaching party there was to receive $150,000 but did not have to spend the $120,000 it would have cost to perform the contract. Therefore, the $120,000 the non-breaching party did not incur would have to be subtracted from the LOV.
Loss Avoided (LA) RULE:
Any value or savings that the non-breaching party has created that could have value outside the contract. We give the breaching party a “credit” for this value.
Loss Avoided (LA) ANALYSIS:
In Hooker there were leftover cabinets that could have been resold/used by the non-breaching party outside of the contract. Therefore, it was not able to recover for the cabinets.
Alternative Methods of Remedies
I. Reliance
II. Restitution
III. Liquidated Damages Clauses
IV. Equitable Remedies: Specific Performance
RELIANCE MEASURE is an alternative when the expectancy measure does not work to ___…
… put the non-breaching party in the position they would have been in had the promise NOT BEEN MADE.
Reliance Measure RULE:
Award damages for…
… expenditures incurred by the non-breaching party in preparation for performance or in performance of the contract LESS any loss the breaching party can reasonably prove the non-breaching party would have suffered had the contract been performed.
*Limitation: MAY NOT RECOVER damages in reliance for expenditures MADE PRIOR to the formation of the contract
RESTITUTION MEASURE is an alternative when expectancy and reliance measures do not work.
This method focuses on the breaching party and attempts to…
…revoke benefits conferred upon them in the course of the contract by the non-breaching party. (unjust enrichment)
Puts the BREACHING PARTY in the position they would have been in had there not been a breach.
*Bush v. Canfield (wheat)
Restitution is MEASURED by:
(1) The reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant’s position, OR
(2) The extent to which the other party’s property has been increased in value or his other interests advanced
* Restitution measures are capped by K value when breaching party sues.
Quantum Meruit
Is an action brought by the breaching party based upon the concept of UNJUST ENRICHMENT. In it, the party in breach is entitled to restitution for…
…any benefit that he has conferred by way of part performance or reliance in excess of the loss that he has caused by his own breach.
To bring a Quantum Meruit claim the breaching party must prove:
- Unjust enrichment → If the benefit given is greater than the damages incurred.
- Be able to measure the benefit from the perspective of the non-breaching party. → At the time of the breach
- Contract price is a cap – under no circumstances does the breaching party get more than the full contract price
- Deduct any loses sustained from the breach
- Breach cannot be willful
* Liquidated damages clauses can be defenses to restitution when the plaintiff cannot prove that the liquidated damages clause was unreasonable, invalid, and unenforceable. Burden is on the plaintiffs.
Restitution in Quasi-Contracts are:
1) Implied in LAW when…
…the law suggests that compensation is just in the given circumstances and there is a public policy reason for the existence of the quasi-contract
*Cotnam v. Wisdom – compensates MDs for emergency services
Restitution in Quasi-Contracts are:
2) Implied in FACT when…
…the contract is inferred from the parties’ intention which, rather than being expressed in words, is determined by the actions of the parties in light of surrounding circumstances.
1) Look at the circumstances, the ordinary course of dealing, and the common understanding of men.
* must be performed under circumstances that put the recipient of the benefit on notice that the party performing the services expected to be paid.
Liquidated Damages Clauses
Parties have the right to stipulate the amount of (liquidated) damages to be enforced in the case of a breach in the contract.
*clauses must be REASONABLE. If too high, they will be determined to be unenforceable and deemed a PENALTY.
Characteristics of when liquidated damages impose a PENALTY:
(1) When the clause is DISPROPORTIONATE compared to the actual harm
(2) When the actual harm/damages are EASY TO ASCERTAIN
Liquidated Damages Reasonableness Test:
(1) Did the parties intend to provide for damages or for a penalty?
(2) Is the injury caused by the breach one that is difficult or incapable of accurate estimation at the time of contract?
(3) Are the stipulated damages a reasonable forecast of the harm caused by the breach?
Liquidated Damages Takeaway-
Liquidated damages clauses can allow for additional consequential recovery that would not be permitted in common law remedies because they are not foreseeable or too difficult to quantify.
Equitable Remedies: SPECIFIC PERFORMANCE
Specific performance is a non-monetary equitable power that may be obtained if __…
…the party shows that the legal remedy is inadequate.
Specific Performance => INADEQUATE
A legal remedy is inadequate when…
…the property is unique.
Specific Performance => Inadequate => UNIQUE
Property is unique if it is LAND or if PERSONAL PROPERTY when it is…
(1) One of a kind
(2) Peculiar/Has sentimental value
(3) Scarce/Not readily available
Specific Performance => Inadequate => Uniqueness of LAND, GOODS, and PERSONAL SERVICES
(1) Land - ALWAYS
(2) Goods - AVAILABLE when the goods are unique or in other proper circumstances.
(3) Personal Services - *NEVER
* Exception: courts may enforce negative covenants through injunction if the employee is unique or exceptional.
Specific Performance => Inadequate => Uniqueness = Personal Services Exception => NEGATIVE COVENANTS
Negative covenants will only be enforced if ___…
…the employee is a person of exceptional and unique knowledge, skill, and ability.
(not whether one of a kind but that the same service provided could not be easily obtained from others)
