Damages + intro Flashcards
1
Q
What is a contract?
A
a legally enforceable promise between two or more people
2
Q
What are the two sources of contract law?
A
1) Statutory law- ex Uniform Commercial code (U.C.C.)
2) Common law- ex- case law, precedents, judge made law, and restatements of law
3
Q
What are restatements?
A
Restatements- legal rules and principles drawn from precedents and previous case laws (not binding to the judge)
4
Q
What is the Uniform Commercial Code?
A
Uniform Commercial Code (UCC)- a set of laws that governs commercial transactions in the United States (binding in statute law)
5
Q
What are generic difficulties associated with rule-based systems?
A
Over-determinacy
Under-determinacy
Indeterminacy
6
Q
What is over-determinacy?
A
This occurs when multiple rules conflict with each other, leading to a situation where the system cannot determine which rule should take precedence
7
Q
What is under determinacy?
A
This happens when there are gaps in the rules, meaning that certain situations or conditions are not covered by any existing rules
8
Q
What is interdeterminancy?
A
occurs when the rules themselves are not clearly defined or have inherent ambiguities. This might involve definitional or inferential issues.
9
Q
What are default rules?
A
provisions that apply automatically if the parties haven’t agreed otherwise, the parties can modify these
10
Q
What are immutable rules?
A
provisions that cannot be waived or modified by the parties
11
Q
If the primary subject of the contract is goods, where should damages be interpreted under?
A
Article 2 of the UCC
12
Q
§1-103 (Construction of UCC):
The UCC must be interpreted broadly to:
A
- Simplify, clarify, and modernize commercial transaction laws.
- Allow flexibility through custom, usage, and party agreement.
- Ensure uniformity across jurisdictions.
Principles of law and equity, such as fraud, estoppel, and duress, supplement the UCC unless displaced by its specific provisions.
13
Q
§2-102 (Scope):
The UCC applies to transactions involving goods, but does not cover:
A
- Security transactions.
- Sales regulated by other statutes (e.g., sales to consumers or farmers).
14
Q
What are goods under the UCC and what kind of things does that include?
A
“Goods” are things that are movable at the time of identification to the contract (excluding money, investment securities, and things in action). Includes unborn animals, growing crops, and things attached to real estate that can be severed.
15
Q
What is a sale under the UCC?
A
the transfer of title from the seller to the buyer for a price.
16
Q
What is a present sale under the UCC?
A
a completed sale at the time the contract is made.
17
Q
If the primary subject of the contract is services, where should it be interpreted under?
A
General common law
18
Q
What is the law for determining the appropriate award for cases involving mixed services and goods?
A
It is based on the primary subject matter in the case. When the primary subject is services, the appropriate award is that which would place the non-breaching party in a position that is as good as if there had been no breach (Expectation interest) (J.O. Hooker & Sons v. Roberts Cabinet Co.)
19
Q
When do damages begin?
A
at the date that the party failed to perform, not at trial.
20
Q
The injured party has a right to damages for any….
A
breach by a party against whom the contract is enforceable unless the claim for damages has been suspended or discharged.
21
Q
What happens if the breach causes no loss or if the loss is not proven?
A
Nominal damages will be given
22
Q
Which case focused on the center of gravity test/subject matter of the contract?
A
(J.O. Hooker & Sons v. Roberts Cabinet Co.)
23
Q
What damages are the go to response for breach of contract and why?
A
- Because it sets a behavioral incentive to not breach contracts, they are basically holding both sides to that agreement
- Functional markets require strong contractual institutions
24
Q
What are expectation damages?
A
Expectation damages- the court attempts to put the aggrieved party in the position that he or she would have been in had there been no breach and the promise been performed by both parties
25
What is the only kind of damage that awards loss profits?
Expectation damages
26
When can a party cover for incidental damages?
under expectation damages, any incidental damages reasonably foreseeable to all parties at the time of contract formation.
27
What kind of things do insurance agencies cover in the medical world?
don’t cover expenses from special contracts made with doctors and patients, only malpractice, error, or mistake
28
What is the standard formula for calculating expectation damages under the restatement?
Subject to the limitations stated in §§350-353, the injured party has a right to damages based on his expectation interest as measured by
(a) the loss in the 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.
29
When can damages for pain and suffering be recovered?
While pain and suffering damages are not usually available in contract damages, pain and suffering and emotional distress that flow naturally from a breach are compensable contract damages under either an expectancy or a reliance measure
30
What is covering?
A buyer can cover by making in good faith and without unreasonable delay any reasonable purchase of goods in substitution for those due from the seller. In that case, the buyer may recover from the seller as damages the difference between the cost of cover and the contract price. If the buyer is unable to cover or chooses not to cover, the measure of damages is the difference between the market price and the contract price.
31
What is the formula for cover?
cost of cover-k price + incidental/consequential damages- costs/losses avoided
31
What are incidental damages?
costs the buyer incurs because of the sellers breach (includes Inspection, receipt, transportation, and care of goods that were properly rejected, Costs related to finding a replacement (covering) goods, and Other reasonable expenses caused by the breach or delay)
32
What are consequential damages?
damages the seller should have known about when the contract was made, which the buyer couldn’t have avoided (includes losses from specific needs or requirements the buyer had at the time of the contract, Personal or property injury caused by the breach of warranty.)
33
What is the buyers right to deduct?
Buyer’s Right to Deduct:
The buyer can notify the seller and then subtract all or part of the damages caused by the seller's breach from any remaining amount due under the contract.
34
What was the Groves opinion on determining which market to use?
Damages for willful breach of a construction contract, even if there has been substantial performance, are awarded as the cost of completing the failed performance.
35
What is the minority Peevyhouse opinion on which market to use?
Generally cost of completion is fine and if the party insists on it we usually defer to it, but NOT if the provision breached was only incidental to the main purpose of the contract and the diminution of value is much lower than the cost of completion (Peevyhouse). This rule has been overruled.
36
What is the modern test for determining which market to use?
The economic waste doctrine
If breach results in defective or unfinished construction and the loss in value to injured
party is not proved with sufficient certainty, the
injured party can claim damages on EITHER
(a) The diminution in market price of property, OR
(b) the reasonable cost of completion or remedying
breach SO LONG as this cost is not clearly
disproportionate to the probable loss of value to
him.
37
What are reliance damages?
an attempt to put the aggrieved party back in the position they would have been in had the promise not been made (position before entering a contract)
38
What does restatement 349 say about reliance damages?
As an alternative to the measure of damages stated in 347, the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed
39
Reliance damages are capped at ________
expectation damages
40
When would someone want to use reliance damages over expectation damages?
when the contract was a bad deal or became one
41
Why do reliance damages cause more breaches than expectation damages?
it does not incentivize performance of the contract in the same way expectation damages do
42
What is the majority opinion on recovering lost expenditures?
A nonbreaching party may recover expenditures in lieu of lost profits after the contract but before breach
43
What is the minority opinion on recovering lost expenditures?
A nonbreaching party may recover expenditures in lieu of lost profits, including those expenditures incurred both before and after the agreement was made.
44
What are restitution damages?
Restitution damages- puts the breaching party back in the position they would have been in had the promise not been made, breaching party needs to give back the benefit
45
How does restitution damages work for a breaching buyer under the UCC?
When the seller justifiably withholds delivery of goods due to the buyer’s breach, the buyer may be entitled to restitution.
Restitution = Payments made by the buyer - (Liquidated Damages or 20% of contract value or $500, whichever is smaller).
Seller can offset restitution by proving 1) Damages seller can recover under the UCC, or 2) Benefits the buyer has received from the contract.
46
How can you contract around restitution damages?
Liquidated damages clause
47
What conditions must be met for restitution damages?
There must be a material and total breach
This means that the plaintiff (the party seeking restitution) has not fully performed their obligations under the contract due to the other party's breach
48
What is a material breach?
A material breach occurs when one party fails to perform an essential part of the contract, significantly undermining the purpose of the agreement. For restitution to be available, the breach must be material—meaning it is so significant that it justifies the other party in terminating the contract.
49
Is there symmetry between seller and buyer in restitution damages?
No. If a seller has already performed everything they were supposed to do (delivered the goods, completed their part of the contract, etc.), they typically cannot claim restitution from the buyer, but if a buyer has paid and not yet received the goods they are entitled to restitution damages
50
What is quantum meruit?
a legal principle where a person can recover payment for services or goods provided, even if there wasn’t a formal contract
51
What is the general rule and exception for an employee promising to do something but not completing all of it?
- The general rule is that if an employee promises to do A and they do not do all of it, then they are not entitled to any of the money for completing A.
- The exception is that the party in breach is entitled to restitution for any benefit that he has conferred by way of part performance
52
What are the Elements of Restitution (Quantum meruit):
1) Benefits cannot be gratuitous- A party can only seek restitution for a benefit they conferred with the expectation of being compensated, not as a gift.
2) Benefits conferred cannot be officious- the benefit must have been conferred at the request of or with the approval of the recipient.
3) Benefits must be measurable- the value of the benefit conferred must be measurable. It should be possible to determine how much the recipient benefited from the performance.
4) If brought by the breaching party, cannot cut into expectation interest of the non-breacher
53
What is a quasi contract?
Quasi contract- a legal fiction created by the court when there is no evidence of an actual agreement between the parties.
Where there is no agreement on which the court may enforce a contract between the parties, as where physicians render services to persons who are unable to contract due to their condition, the court may use the legal fiction of a quasi-contract to require payment for those services
54
How are restitution damages measured?
(a) 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
(b) The extent to which the other party’s property has been increased in value or his other interests advanced
55
What are the three limitations to damages?
The foreseeability doctrine, certainty doctrine, avoidability doctrine
56
What is the old test for the foreseeability doctrine?
breaching party is only responsible for losses that Naturally arise from the breach in the usual course of things, or
Were reasonably within the contemplation of both parties at the time they made the contract
57
What is the foreseeability doctrine?
Damages are not recoverable for losses that breaching party did not have reason to foresee as a probable result of breach at the time of contracting
58
What is the modern test for the foreseeability doctrine?
Losses are foreseeable if they happen in the ordinary course of events as a result of special circumstances that breaching party had reason to know
59
How might a court limit damages for foreseeable losses?
excluding lost profits, limiting plaintiff to her reliance interest, or otherwise to avoid disproportionate compensation
60
When is foreseeability judged at?
at the formation of the contract not the time of breach or litigation
61
What is the symmetry of the foreseeability doctrine?
Asymmetric
The breacher’s liability is capped by what they could reasonably foresee.
But the innocent party’s actual loss might exceed that — and not be recoverable
62
What is the degree of foreseeability?
probable
63
What is the standard for foreseeability?
It is an objective standard
64
What is the minority test for the foreseeability doctrine?
The tacit-agreement test says that one agrees to all terms of a contract that can reasonably be assumed to be part of the agreement, but one cannot be liable for special circumstances of which one did not have actual notice
Basically it says that Not only must the breaching party have known about the potential loss…
⚠️ …they must also be understood to have implicitly agreed to be legally responsible for it if the breach occurred.
65
What is the certainty doctrine?
It renders unrecoverable any portion of the plaintiff’s damages that evidence cannot establish with reasonable certainty. - You do not have to pinpoint a number but rather that the type of damage/harm is reasonably certain to be greater than zero
66
What type of damages does the certainty doctrine effect?
Loss profits
67
At what stage of the process does the certainty doctrine apply?
At litigation
68
What does Chicago Coliseum Club v. Dempsey say about recovering for damages?
A party can recover only on damages which naturally flow from and are the result of breach.
69
What is the avoidability doctrine?
damages are not recoverable for loss that the injured party could have avoided without undue risk, burden, or humiliation
The injured party is not precluded from recovery by the rule stated in subsection 1 to the extent that he has made reasonable but unsuccessful efforts to avoid loss
70
If a nonbreaching party in a contract for services receives notice of another party’s breach, what must the non breaching party do?
the nonbreaching party must treat the contract as broken when notice is received and cease performance and may then sue for any losses sustained from the breach as well as profits that would have been realized upon performance.
71
What happens if a non breaching party does not treat the contract as ended after receiving notice from the other party of their breach?
Makes you pay for damages that a reasonable person would have avoided
72
What must an aggrieved party do for a material breach under the avoidability doctrine?
They must cease performance and sue immediately
73
What is a breach of substantial performance?
where something is missing but the party is still holding up most of their end of the bargain.
74
What must an aggrieved party do for a substantial performance breach under the avoidability doctrine?
The aggrieved party must complete the performance and sue later
75
What are adequate assurances?
if you have reason to doubt whether the other side wants to proceed with the contract, you can request adequate assurance to know one way or another from the party and they either answer or the silence also means something as well.
76
What is the majority rule for the measure of recovery by a wrongfully discharged employee
the amount of salary agreed upon, less the amount the employee has earned or with reasonable effort might have earned from substantially similar employment
77
What does waiting for the seller to cure mean?
If the breach isn’t clear, the buyer can wait a commercially reasonable time before taking action.
78
What is the scrap or finish concept under the UCC?
When the buyer quits the contract before the seller finishes the product Scrap: Market value of half-finished goods (if any).
Finish and Resell: Contract Price - Resale Price + Incidental Damages.
79
What is the lost volume seller?
If a buyer repudiates a contract with a lost-volume seller, the seller is entitled to the profit the seller would have made from full performance by the buyer, plus reasonable incidental damages associated with resale.
80
In what situations does the lost volume seller apply?
Lost volume seller applies in very limited circumstances, usually where limited demand meets very big supply. The seller has a big supply of the product but the demand for it is very limited, meaning that if one person repudiates their contract it has a big impact on the seller and loses them a sale
81
What kinds of cases has the loss volume seller been involved in?
The lost volume seller exception is not written in the UCC so it has been in non-goods cases, but in UCC cases, most courts presume that it applies absent evidence to the contrary from the other party
82
What does Subsection 1 of UCC 2-719 allow parties to do?
allows parties to modify or limit remedies available under the UCC, subject to certain limitations set out in subsections (2) and (3).
Gives parties flexibility
83
What is an optional remedy?
A remedy that a party has a choice to pursue
84
What is an exclusive remedy?
The sole remedy for the breach
85
What are the two exceptions to parties being able to alter and limit remedies available under the UCC
If an exclusive remedy fails to meet its essential purpose (e.g., repair does not fix the problem), the injured party may seek other available remedies under the UCC.
Consequential damages can be limited or excluded, but the limitation is unconscionable if it’s deemed unfair.
86
What are stipulated damages?
a provision in a contract that addresses an amount that will be paid in the case of breach. We do not know whether it will be upheld or enforced. IF it is, then you could move to liquidated damages. If it is not, then you call it a penalty.
87
What are liquidated damages
These are pre-determined amounts agreed upon by the parties at the time the contract is made, meant to represent a reasonable estimate of the loss that would occur if the contract is breached.
88
What are penalty clauses?
These are amounts agreed upon by the parties that are intended to punish the breaching party, rather than just compensate for the actual loss
89
What stipulated amounts does the penalty doctrine apply to?
doesn't apply to stipulated amounts that are "unreasonably small," but only to those that are "unreasonably large."
90
How does the penalty doctrine apply to each party?
The Penalty Doctrine applies uniformly to all parties involved in a contract, no matter their level of sophistication, experience, or expertise.
91
What are the two ways to evaluate the reasonableness of stipulated terms?
- Anticipated approach: Looking at what the parties expected the damage would be when the contract was signed.
- Actual approach: Looking at what the actual damages were after a breach occurs.
92
What is the rule for liquidated damages under the UCC?
Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss, and the inconvenience or non-feasibility of otherwise obtaining an adequate remedy, a term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty.
93
What are the factors courts use when determining reasonableness?
(1) Was the award under the clause intended as damages or penalty? (2) Would it be difficult to calculate the award at the time of breach? and (3) Is the amount of damages stipulated a reasonable prediction of the injury caused by the breach?
94
When is the difficulty of accurate estimation measured?
at the making of the contract, at the time of breach, or at litigation
95
When is the reasonable prediction of damages measured?
at the making of the contract, at the time of breach, or at litigation
96
How is the reasonableness of estimated damages measured?
The less difficult it is to estimate, the narrower the range is, and the more difficult it is, the wider it is. It falls within the range it is a liquidated damage, if it doesn’t unreasonably high damages are penalties, but not unusually low damages
97
What was the writ system in old England?
based on strict rules and precedent, focused on monetary damages and legal rights
98
What was the bill system in old England?
bill system(courts of equity)- much more flexible than the strict system of courts of law. In order to get to the courts of equity you would have to argue that money damages was an inadequate remedy at law (ex-money damages would not make us whole).
99
What were the requirements for a plaintiff in the bill system?
- Plaintiffs must come in with completely clean hands.
- Equitable relief needs to be feasible, meaning it must be possible for the defendant to do.
- There must not be an undue burden
100
What kind of cases does specific performance apply to?
Applies to contracts where the object is unique (ex- you can’t purchase that exact car or hire a different musician that performs the same kind of music)
Money damages would not make you whole
101
What is the presumption of courts on specific performance?
The presumption is that courts favor damages over specific performance, but that depends on the subject matter
102
What is the modern test for specific performance?
Specific performance is available, but only in cases where the withheld performance is unique, hard to replace, or one’s remedy at law is inadequate (it does not need to necessarily be a one of a kind thing, maybe there are others but they aren’t for sale, etc, the main takeaway is that money damages cannot make you whole).
103
What is the presumption of specific performance on land?
presumption in favor of specific performance/uniqueness (no two plots of land share the same GPS coordinates)
104
Is the land presumption of specific performance symmetric?
This applies even if the seller wants the sale to go through instead of the buyer, or if the buyer was going to resell the land for profit (symmetric)
105
What is the presumption of specific performance on goods and why?
presumption against specific performance and non-uniqueness presumed because - In a world of mass production, there are usually replacements for things
106
What is replevin?
replevin- situations in which the buyer can demand specific performance even in situations of uniqueness may not apply because the buyer has already done everything he can and the goods have been identified in the contract
107
When does a buyer have a right to replevin?
The buyer has a right of replevin for goods identified to the contract if after reasonable effort he is unable to effect cover for such goods or the circumstances reasonably indicate that such effort will be unavailing or if the goods have been shipped under reservation and satisfaction of the security interest in them has been made or tendered.
- Happens after the buyer has already paid the purchase price
108
How does a seller get specific performance?
(1) When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages under the next section, the price of goods the buyer already accepted or the listed goods in the contract if the seller is unable after reasonable effort to resell them
109
What is the presumption for specific performance in personal service contracts?
very strong presumption against uniqueness/specific performance. Courts will not force people to perform something.
110
What was the old rule for enforcing negative covenants in employees?
courts will enforce negative covenants against the employee if the employees’ skills are special and unique AND the enforcing injunction’s reach is not unreasonably broad in time, space, or subject matter
111
What was the modern rule for enforcing negative covenants in employees?
An injunction will be granted to enforce a negative covenant in a contract for personal services when the breaching party possesses “exceptional and unique knowledge, skill and ability in performing the service called for in the contract
