Remedies

Question 1

What are the 3 types of compensatory damages?

Answer 1

1. Expectation damages
2. Reliance damages
3. Restitution

Question 2

Define

expectation damages

Answer 2

Entitle the nonbreaching party to the amount that will put them in the position they would have been in if the contract had been fully performed

Question 3

What is the formula for calculating expectation damages?

Answer 3

(Loss of value to nonbreaching party + incidental and consequential damages) - (payments/benefits received + any costs saved as a result of the breach)

Question 4

Can expectation damages be speculative?

Answer 4

No, must be calculated with reasonable certainty

Question 5

Can a court award damages for lost profits?

Answer 5

Lost profits, especially with start-ups and new companies, are usually hard to prove and courts will be very hesitant to award damages (reliance damages can be sought instead).

However, courts CAN award damages for lost profits, and they are more likely to do so if the aggrieved party has facts to back up their claim for the damages, rather than merely speculating about what amount they could have made.

Question 6

Can you recover damages for partial performance?

Answer 6

Yes, you can get damages to compensate for the work performed and expectation damages for the work not yet performed

Question 7

List the four situations in which the aggrieved party may not be able to fully recover expectation damages

Answer 7

If:

1. The cost to perform significantly exceeds the market value of such a performance;
2. The party cannot calculate expectation damages with reasonable certainty;
3. The damages are unforeseeable; or
4. Damages could have been mitigated or reasonably avoided

Question 8

A buyer of goods is entitled to what types of compensatory damages?

Answer 8

1. Liquidated
2. Incidental
3. Consequential

Acronym: “LIC”

Question 9

What are incidental damages for a buyer of goods?

Answer 9

Costs that are associated with the breach and mitigation, including transportation, warehouse costs, etc.

Question 10

How do you calculate damages for incorrect construction work?

Answer 10

Amount needed to fix the mistake, if the mistake is material to the contract (requiring fixing)

Question 11

What are consequential damages?

Answer 11

Consequential damages are losses to the buyer because of a particular need or use for the goods.

Only the buyer can get consequential damages against the seller (not the other way around), and only when the losses were reasonably foreseeable to the seller.

Question 12

How do you determine whether damages are reasonably foreseeable?

Answer 12

If they are the natural and probable consequences of the breach

Question 13

When is limiting consequential damages allowed vs. not allowed under the UCC?

Answer 13

Allowed: Breach of warranty cases (unless unconscionable)

Not allowed: Personal injury cases involving consumer goods (prima facie unconscionable)

Question 14

What is a liquidated damages provision?

Answer 14

Some contracts use liquidated damages provisions, which specify how damages should be allocated in the event of a breach.

The parties may choose to use a liquidated damages provision if they would like the damages to reflect their joint assessment of value at the time of the contract (rather than a later court’s).

Question 15

What is the three-prong test to determine whether a liquidated damages clause is enforceable?

Answer 15

1. Did the parties intend the clause to act as a liquidated damages provision, or a penalty for breaching?
   
   • If intended as a penalty, the clause is likely invalid
2. Was the clause reasonable at the time it was written, with respect to valuation of anticipated harms?
3. Are the liquidated damages allocated by the contract reasonable in light of the actual harms that occurred?

Question 16

What is the result if a liquidated damages clause is unenforceable?

Answer 16

The clause will be stricken from the contract, and the parties can seek damages as if the clause never existed.

Question 17

Can a liquidated damages clause be used as a penalty? (i.e. to threaten or punish perfomance/nonperformance)

Answer 17

No, liquidated damages clauses cannot serve as penalties for breach.

The clause’s award of damages must be related to the anticipated damages or a court may find it it unenforceable.

Question 18

Are punitive damages awarded for breach?

Answer 18

Generally no.

Although possibly if it was willful / intentional.

Question 19

What is the duty to mitigate damages?

Answer 19

The nonbreaching party is expected to take reasonable steps to mitigate damages after a breach.

If they don’t, their damages can be reduced, but the breaching party can’t sue them for failing to take reasonable steps.

Question 20

What is reformation and when is it available?

Answer 20

Rewriting the contract to include the intent of the parties

Available if:

1. Prior agreement existed; (oral or written)
2. Agreement was put into writing; and
3. Difference between prior agreement and written expression due to mistake

Question 21

What is mutual rescission?

Answer 21

Agreement to undo or cancel a contract when both parties agree; must be supported by new consideration

Question 22

Can you seek rescission if the contract has third party beneficiaries?

Answer 22

Only if the third party beneficiary rights have not vested

Question 23

What is release?

Answer 23

When one party releases the other party from their contractual duties

Common law: consideration needed;

UCC: no consideration needed

Question 24

When can equitable remedies be sought?

Answer 24

Only when monetary remedies are inadequate

Question 25

Define

injunction

Answer 25

An order issued by a court that either compels a party to do a particular action, or prohibits them from doing a particular action.

Question 26

What are the two types of contracts where specific performance is generally available?

Answer 26

1. The subject of the contract is a unique object, like art or precious heirlooms; and
2. Real property

Question 27

What are the two ways the UCC liberalizes the application of the remedy of specific performance?

Answer 27

1. Specific performance may be allowed for unique goods, or in “other proper circumstances” UCC 2-716(1)
   
   • This provision applies to when the goods are not unique, but the buyer has adequately attempted to cover the breach to no avail
2. Specific performance is permitted even when the contract requires ongoing cooperation between the parties, as long as the inability of the buyer to cover is established.

Question 28

What are reliance damages?

Answer 28

Reasonable out-of-pocket expenses incurred by the nonbreaching party as a result of reliance upon the nonperforming party’s promise to perform

⭐️ Can be used for lost profits or when expectation damages are too speculative

Question 29

Can reliance damages and expectation damages be sought together?

Answer 29

No

Question 30

How do you calculate reliance damages?

Answer 30

Any expenditures made in preparation for performance or in actually performing

-minus-

Any loss the breaching party can prove the aggrieved party would have suffered had the contract had been fully performed.

Question 31

What are restitution damages?

Answer 31

Restitution damages are the value of benefits conferred on the other party. Sometimes you can get restitution damages even if the other party has not breached (or if there was no valid contract formed).

⚠️ Not available when the aggrieved party has fully performed

Question 32

How do you calculate restitutionary damages?

Answer 32

Calculation is within the court’s discretion, and as justice may require the court generally uses one or some combination of:

• The reasonable value or cost of benefits conferred
• The amount the other party’s property has increased in value due to the benefits received

Question 33

What are 2 common examples where a party can receive restitution for benefits conferred where the party from whom restitution is sought did not breach a contract?

Answer 33

1. Medical services rendered by a medical professional during a medical emergency, where the beneficiary of the medical services was unconscious or incapacitated and therefore unable to assent to the treatment
2. Benefits conferred by mistake to one who purposely availed herself of the benefits

Question 34

What is the right of replevin, and when may a person enforce it?

Answer 34

A buyer has the right to repossess their property (replevin) for goods identified in the contract if:

• The buyer is unable to cover after reasonable effort;
• Circumstances indicate that the buyer will be unable to cover through reasonable effort; or
• If the goods were shipped with a security interest, and satisfaction of the security interest was made

Question 35

What are the UCC seller’s monetary remedies if the buyer breaches (repudiates or wrongfully rejects the goods)?

Answer 35

• Resell and recover damages for the difference between K price and resale price (as long as no bad faith)
• If seller doesn’t resell, seller can recover damages for difference between K price and the market price
• If lost volume sellers (where the supply of goods is greater than the demand), may be able to recover lost profits

AND

• Incidental damages: cost of retaining and reselling the goods (ads, storing, etc.), minus any savings or reduction in expenses due to the breach

UCC § 2-703

Question 36

What does a seller of goods’ right to recover depend upon?

Answer 36

Whether the goods have been delivered and accepted by the buyer

Question 37

Under the UCC, what is a seller’s monetary remedy if goods have been delivered to and accepted by the buyer?

Answer 37

The full contract price

Question 38

What is the calculation for the seller’s monetary remedy if the seller resells the goods?

Answer 38

(The contract price) - (the gain from the resale) + (incidental damages)

Question 39

What is the seller’s remedy if the seller has not resold?

Answer 39

(Contract price) - (the market price for the goods) + (incidental damages)

UCC § 2-708(1)

Question 40

When can a seller recover lost profits?

Answer 40

When the seller is a lost volume seller.

Seller can recover if they resell the item to another buyer, and can show that they would have made the sale regardless of the breach (meaning they would have made 2 sales w/o breach but they only made 1 w/ breach).

For example, Ian sells couches. Ian breached his K to buy a couch from Max. Max was able to sell the same couch to Carly, but since Max is a couch-dealer, he would have sold the couch to Carly regardless of whether Ian breached. Thus, he missed out on two salesb/c of the breach.

Question 41

What is the remedy for lost volume sellers?

Answer 41

The profit they would have made on the lost sale.

⚠️ They do not get the the profits that would have been earned + the contract price; only the lost profits from the sale.

Question 42

What are the buyer’s remedies if the seller breaches (doesn’t deliver goods or buyer rejects noncomforming goods)?

Answer 42

• Cover
• Difference b/w market price & K price
• Incidental damages
• Consequential damages

Question 43

What does it mean for a buyer to “cover” and how do you calculate damages if they cover?

Answer 43

Covering is when the buyer purchases substitute goods from a different seller, and it must be reasonable & in good faith for the value to be respected by a court.

Damages = Cover price - K price

⚠️ Buyer is not required to cover

UCC § 2-712

Question 44

What damages can the buyer seek if they don’t cover?

Answer 44

Market price (at the time when breach was discovered), minus the contract price

UCC § 2-713

Question 45

What happens if the buyer accepts goods but later revokes the acceptance b/c they’re defective?

Answer 45

Buyer can sue for breach of K and recover the difference between the value of the goods contracted for and the value of the goods received

Question 46

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

Answer 46

Generally reliance damages necessary to prevent injustice

Question 47

What’s the difference between a quasi-K and an officious intermeddler?

Answer 47

Quasi-K: benefiting party is aware of benefits being conferred

Officious intermeddler: benefitting party is unaware of benefits being conferred

Question 48

If an employer breaches an employment contract (ie decides to not go through with hiring), what can the employee recover?

Answer 48

Expectation damages to put her in the same position but for the breach