Cloned from: Contracts II



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Expectation Damages
Expectation damages compensate the injured party for the benefit he would have received had the contract not been breached, minus any amount he would have spent in performance of the contract. Such damages must be proven with certainty, and may be measured by the contract price, loss in value, or lost profits. Expectation damages – which may be general or consequential – must be foreseeable.
General Damages
the natural and probable consequence of a breach and are deemed to have been within the contemplation of the breaching party. A party seeking general damages need not offer further proof that the damages were foreseeable.
Consequential/Special Damages
arise from the special facts and circumstances of the case and are not deemed to be within the contemplation of the breaching party unless he was made aware of such specific facts and circumstances. A party seeking consequential damages must demonstrate that the damages were foreseeable at the time the contract was formed.
Damages - in General
intended compensation for a breach, measured in terms of the contract. "Always measured on what the expectations are at the time the contract was made"
Restatement Sect. 347 -Measure of Damages in General
The injured party has a right to damages based on his expectation interest as measured by
UCC 2-713
The difference between the market price and the contract price less the losses avoided plus any incidental cost.
UCC 1-106
aggrieved party would be put in as good a position as they’d be in if the contract was formed.
UCC 2-712 (“cover”)
By making a good faith and without reasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller. Buyer may recover the difference between the cost of cover and the contract price together with any incidental or consequential damages as hereinafter defined (2-715), but less expenses saved in consequence of seller’s breach.
When are consequential damages available?
Only when both parties are made aware of or may reasonably be expected to have knowledge of those special circumstances.
What are “special circumstances,” and must defendants be put on notice?
Not naturally occurring - defendants must be put on notice.
Restatement Sect. 351
(1) Damages are not recoverable for loss that breaching party didn’t have reason to foresee as a probable result of a breach when the contract was made. (2) Loss may be foreseeable as a probable result of a breach because it follows from the breach (a) in the ordinary course of events, or (b) as a result of special circumstances beyond the ordinary course of events that the party in breach had reason to know. (3) A court may limit damages for foreseeable loss by excluding recovery for loss of profits by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances, justice so requires in order to avoid disproportionate compensation.
What standard is used to determine foreseeability of special circumstances?
Reasonable person.
How do you trigger “special circumstances”?
Must put the other party on notice (in every state but Arkansas)
UCC 2-715(2)
Buyer’s Consequential Damages (2)Consequential damages resulting from seller’s breach include (a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise, and (b) injury to person or property proximately resulting from any breach of warranty.
What are consequential damages?
They are indirect, flowing directly from the breach. The problem arises with how far we can push this. Courts have said they have to be such that a reasonable person can foresee at time of contract or given special notice.
Reliance Damages
"compensate the injured party for expenses or loss incurred in reasonable reliance on the contract that was breached. Reliance damages are only awarded when expectation damages cannot be proven, and may not exceed the anticipated benefit of the bargain."
Another way to think about reliance damages
“out of pocket” expenses
Restatement Sect. 349
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.
How many types of damages may be claimed?
Just one.
* note - under expectation damages, the injured party has a duty to prove to a reasonable degree of certainty what the losses are. Under reliance damages, the breaching party has the burden to prove to a reasonable degree of certainty what the losses are.
What are two reasons for Reliance Damages?
(1) You can’t prove your damages. (2) You’ve entered into a losing K.
* There’s an obligation on the part of the breaching party to not add to costs once the K is breached. You’re entitled to get whatever the profit was plus any expenses incurred to that point.
Employment Avoidability of Loss General Rule
Recovery by a wrongfully discharged employee is the amount of salary agreed upon for the period of service, less the amount which the employer alternatively proves the employee has earned, or with reasonable effort might have earned from other employment.
Rstmt. 350 - Avoidability as a Limitation on Damages
(1) Except as stated in (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, burden, or humiliation. (2) The injured party is not precluded from recovery by the rule stated in (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss.
* As a matter of justice, the non-breaching party shouldn’t be able to add to damages by not continuing to work or by not searching for work.
Restitution
compensates a party for the benefit conferred on the other party as a result of partial performance or reliance, and is aimed at preventing unjust enrichment.
How may Restitution damages be measured?
(1) The reasonable value of the benefit received in terms of what it would have cost to obtain such benefit from another source, (2) the extent to which the value of the party’s property has been increased or his other interests advanced.
When may Restitution be available?
(1) in cases of breach, to either party, (2) where a contract is unenforceable (i.e. due to lack of consideration or writing), (3) where contract is voidable (4) where a duty is excused or discharged due to impracticability, frustration of purpose, non-occurrence of a condition, or disclaimer by a beneficiary, (5) in void contracts to a party not in pari delicto.
* Restitution is not available if the injured party has performed all of his contractural duties and the breaching party owes no performance other than payment for a definite sum of money for the injured party’s performance.
UCC 2-708
(1) The general expectation damages for seller is difference between the market price and the unpaid contract price, less expenses saved in consequence of the buyer’s breach. BUT, (2) if measure of damages in (1) is inadequate than the measure is PROFIT. This essentially applies when the seller is a “loss-volume seller”
“Loss-Volume Seller”
Seller has essentially an unlimited supply of goods In a case of a seller who has many of one item (car/boat dealer), it's not adequate to look only at (1).  The idea being when you repudiate a K with a merchant like this, they could've said two cars rather than one!
UCC 2-710
Seller may resell the goods concerned or the undelivered balance thereof. When resale is made in good faith, the seller may recover the difference between the resale price and the contract price together with any incidental damages allowed under the provisions of this Article, but less expenses saved in consequence of the buyer’s breach.
Stipulated Damages
"At the time the contract is formed, the parties may agree to a fixed sum of money or a set formula for setting damages in the event of a breach. Stipulated damages will be enforced if they reflect an honest effort to anticipate the harm caused by a breach. Stipulated damages will be deemed invalid if they represent an attempt to punish the breaching party, such as in the case of unreasonably large damages."
When are stipulated damages enforceable?
When the damages upon breach are uncertain in nature or amount.
Stipulated Damages Test - Reasonableness of the totality of the circumstances
(1) Is the injury caused by the breach one that is difficult or incapable of accurate estimation at the time of K? (2) Are the stipulated damages a reasonable forecast of the harm caused by the breach?
How do courts determine if the forecast is reasonable or not?
Prospective-retrospective approach
What’s the role of mitigation in stipulated damages clauses?
Once a court determines the stipulated clause to be valid, mitigation is irrelevant. The clause trumps the default rule of mitigation.
Real Estate and Specific Performance
The general rule with real estate and specific performance is that in contracts dealing with real estate granting of specific performance is the default rule. This is because Real estate is always unique.
General Rule of Specific Performance and Personalty?
No specific performance as a remedy.
What are the exceptions to the general rule of no specific performance in cases involving personalty?
(1) No adequate remedy at law, (2) Where articles of property are of peculiar, sentimental, or unique value, (3) Where, due to scarcity, the chattel is not readily available.
What is the presumptive form of relief for personalty?
$$
What is the presumptive form of relief for realty?
Specific performance.
UCC 2-716 -Buyer’s Right to Specific Performance or Replevin
(1) Specific performance may be ordered where the goods are unique or in other proper circumstances.
“other proper circumstances”
“commercially feasible”
Is specific performance favored in personal contracts?
No it is highly disfavored.
Exceptions to specific performance of personal service
kids and minors, apprentices under the control of parents, soldiers and sailors under control of others as notaional policy
Why is specific performance for personal services unfavored?
It is highly degrading to the losing party.
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