Common Law Remedies

Question 1

Three Common Law Types of Damage Remedies

Answer 1

1. Expectancy Test
2. Reliance
3. 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”

Question 2

The general goal of the expectancy measure in contracts is to____…

Answer 2

put the non-breaching party in as good a position they would have been in had the breach not occurred.

Question 3

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:

Answer 3

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)

Question 4

What is the Expectancy Measure (formula)

Answer 4

LOV + OL – CA – LA

Question 5

Rule: VALUE EXPECTED is the value that _____…

Answer 5

…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)

Question 6

Rule: VALUE RECEIVED is____….

Answer 6

…..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.

Question 7

Rule: LOSS OF VALUE is____….

Answer 7

…what the non-breaching party lost as a result of the breach.

Question 8

Rule: OTHER LOSS is loss that ____….

Answer 8

…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.

Question 9

Analysis: VALUE EXPECTED

Answer 9

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.

Question 10

Analysis: OTHER LOSS

Answer 10

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:

Question 11

A PROMISE may be ___, ___, or ___ from conduct; and is a ___…

Answer 11

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.

Question 12

An AGREEMENT is a ___…

Answer 12

manifestation of MUTUAL ASSENT on part of two or more persons

Question 13

A BARGAIN is and ___…

Answer 13

agreement to exchange promises or to exchange a promise for a performance or to exchange performances.

Question 14

Other Loss: DAMAGES RULE

Answer 14

• 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.

Question 15

Restrictions on Other Loss

Answer 15

1. FORSEEABILITY
2. CERTAINTY
3. AVOIDABILITY (not mitigation which only arises under employment contracts )

*Restatement §§350-353: analyze these restrictions only AFTER analyzing causation

Question 16

Restrictions on Other Loss=> FORESEEABILITY has the following two prongs ____ and ____.

Answer 16

(1) Naturally Arising AND
(2) Special Circumstances

*as determined by Hadley v. Baxendale

Question 17

Foreseeability=> Damages that are NATURALLY ARISING are those that…

Answer 17

… arise during the natural course of contract’s breach.

*Must have been reasonably foreseeable as a possible result of the breach.

Question 18

Foreseeability=> Damages that arise from SPECIAL CIRCUMSTANCES are those that:

Answer 18

…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.”

Question 19

The RULE for Damages that arise from Special Circumstances is…

Answer 19

…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.

Question 20

Restrictions on Other Loss=> CERTAINTY

Answer 20

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.

Question 21

Restrictions on Other Loss=> AVOIDABILITY

Answer 21

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

Question 22

Avoidability => RULE: A party cannot recover for losses it could have avoided without undue:

Answer 22

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.

Question 23

Avoidability => EMPLOYMENT CONTRACTS

Rule: Measure of recovery is___…

Answer 23

…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).

Question 24

Avoidability => Employment Contracts => MITIGATION

Answer 24

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 .”

Question 25

Avoidability => Employment Contracts => Mitigation => SUBSTANTIALLY SIMILAR

Answer 25

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.

Question 26

Cost Avoided (CA) RULE:

Answer 26

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).

Question 27

Cost Avoided (CA) ANALYSIS:

Answer 27

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.

Question 28

Loss Avoided (LA) RULE:

Answer 28

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.

Question 29

Loss Avoided (LA) ANALYSIS:

Answer 29

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.

Question 30

Alternative Methods of Remedies

Answer 30

I. Reliance II. Restitution III. Liquidated Damages Clauses IV. Equitable Remedies: Specific Performance

Question 31

RELIANCE MEASURE is an alternative when the expectancy measure does not work to ___...

Answer 31

... put the non-breaching party in the position they would have been in had the promise NOT BEEN MADE.

Question 32

Reliance Measure RULE: Award damages for...

Answer 32

... 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

Question 33

RESTITUTION MEASURE is an alternative when expectancy and reliance measures do not work. This method focuses on the breaching party and attempts to...

Answer 33

...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)

Question 34

Restitution is MEASURED by:

Answer 34

(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.

Question 35

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...

Answer 35

...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.

Question 36

To bring a Quantum Meruit claim the breaching party must prove:

Answer 36

1. Unjust enrichment → If the benefit given is greater than the damages incurred. 2. Be able to measure the benefit from the perspective of the non-breaching party. → At the time of the breach 3. Contract price is a cap – under no circumstances does the breaching party get more than the full contract price 4. Deduct any loses sustained from the breach 5. 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.

Question 37

Restitution in Quasi-Contracts are: 1) Implied in LAW when...

Answer 37

...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

Question 38

Restitution in Quasi-Contracts are: 2) Implied in FACT when...

Answer 38

...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.

Question 39

Liquidated Damages Clauses

Answer 39

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.

Question 40

Characteristics of when liquidated damages impose a PENALTY:

Answer 40

(1) When the clause is DISPROPORTIONATE compared to the actual harm (2) When the actual harm/damages are EASY TO ASCERTAIN

Question 41

Liquidated Damages Reasonableness Test:

Answer 41

(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?

Question 42

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.

Question 43

Equitable Remedies: SPECIFIC PERFORMANCE Specific performance is a non-monetary equitable power that may be obtained if __...

Answer 43

...the party shows that the legal remedy is inadequate.

Question 44

Specific Performance => INADEQUATE A legal remedy is inadequate when...

Answer 44

...the property is unique.

Question 45

Specific Performance => Inadequate => UNIQUE Property is unique if it is LAND or if PERSONAL PROPERTY when it is…

Answer 45

(1) One of a kind (2) Peculiar/Has sentimental value (3) Scarce/Not readily available

Question 46

Specific Performance => Inadequate => Uniqueness of LAND, GOODS, and PERSONAL SERVICES

Answer 46

(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.

Question 47

Specific Performance => Inadequate => Uniqueness = Personal Services Exception => NEGATIVE COVENANTS Negative covenants will only be enforced if ___...

Answer 47

...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)