#11257 - Contract And Off Contract Remedies - Contracts

1. CONTRACT REMEDIES

   1. Expectancy

      1. Calculating Expectancy

Expectancy is the principle of putting Π in the position he would have occupied absent the breach. It is the meta-principle of contract remedies.

• Objective Expectancy: This means giving Π the fair market value of what he would have had but for the breach.

  • Rest. § 348 (2): For defective or unfinished construction, Π may recover

    • (1) The cost of mitigation, if it is feasible doesn’t require unreasonable waste; or

    • (2) The difference in value of the property as it is and as it would have been absent the breach. (Groves v. John Wunder Co.)

• Subjective Expectancy: Where Π’s expectancy interest exceeded the market rate, we may award this instead. (Landis v. Fannin Builders: where Δ got the color of Π’s dream house wrong, Π may recover the cost of new stained siding rather than the cost of painting the existing siding).

  1. Market Differential & Substitution

A party may collect the difference between the contract price and the price of obtaining a substitute contract when the other party breaches. (See: MITIGATION)

• Π recovers the difference between the contract price and the market price at the time Π learns of the breach. If the difference in price is in Π’s favor, then the contract was a “dog” and Π’s expectation interest is negative (zero). (Acme Mills v. Johnson)

• UCC § 2-712: (See: MITIGATION) (c.f. Missouri Furnace v. Cochran)

• UCC § 2-713: (See: MITIGATION)

• UCC §§ 2-602 et seq.: Buyer’s remedies.

• UCC §§ 2-703 et seq.: Seller’s remedies.

  1. Lost Profits & Consequential Damages

A party may collect lost profits resulting from the breach, within limits.

• UCC § 2-708: Expectancy is the full contract price if the party is a “volume seller;” i.e., we can assume that the substitution contract would have happened regardless of the buyer’s breach. (Neri v. Retail Marine Corp: seller of a custom boat who sold the boat at the contract price shortly after buyer’s breach could still collect full contract price).

• Reasonable Certainty Principle: A party seeking to collect lost profits may only collect those profits which were “reasonably certain” to materialize. (See: Chicago Coliseum Club v. Dempsey, MindGames v. Western Publishing).

  1. Reliance

     1. General

Reliance damages are costs incurred in fulfillment of the contract. Reliance damages are meant to restore Π to the status quo ante.

• Rest. § 349: Expectancy Caps Reliance. Where Π’s contract was a “dog” and Π’s expectancy is negative, Π may recover reliance damages but only up to the point of expectancy. The burden of showing Π’s losses falls on Δ. (L. Albert & Sons v. Armstrong Rubber).

• Reliance damages may be sought as an alternative theory where expectancy is hard to quantify.

• Fixed and Variable Costs: Π may typically recover variable costs incurred in performance of the contract only. (Chicago Coliseum Club v. Dempsey: Π may recover wages of secretarial staff hired to promote event but not salaries of its officers).

• If Δ made a promise and had reason to believe Π would detrimentally rely on the promise, Π may have a promissory estoppel claim to collect reliance (or expectancy) damages. (See: PROMISSORY ESTOPPEL)

  1. Restitution

Restitution is sought as an alternative to reliance or expectation damages. Restitution may be sought where Δ has been unjustly enriched by Π’s performance of the contract, in part or in full. Alternatively, it may be sought where no contract is found (See: DEFENSES TO FORMATION), but Π has still conferred some benefit upon Δ which it would be unjust to leave intact. Restitution has a close relationship with equity.

1. Quantum Meruit

Quantum Meruit: or “quasi contract.” This is a legal action in equity to recover the value of what was conferred upon Δ.

• To recover in QM, it is not sufficient to say that Π has lost something. Δ must have gained something. (Boone v. Coe)

• However, if Δ performed something at Π’s specific request, then Π may collect the fair value of his performance even if Δ never actually received the benefits. (Kearns v. Andree)

• But preparatory work which does not benefit Δ and which was not done at Δ’s specific request is only recoverable on the contract, not in quantum meruit. (Curtis v. Smith: stone quarry)

• Where Π has substantially performed the contract, the contract price will be used as the measure of Π’s damages. Courts like using the contract as evidence of damages when it is possible to do so. (Oliver v. Campbell)

• However, where Π has partially performed, Π may instead seek the market price for what was done. (United States v. Algernon Blair)

• Wilful Breacher: The breaching party may not sue in quantum meruit if he didn’t have a good excuse for breaching. This is because QM is an equitable remedy and thus imports the concerns for motive and morality that are absent in contract analysis. (Stark v. Parker)

• Excusable Breacher: The breaching party may sue in QM if he has a good reason and can show that the other party would be unjustly enriched in keeping what he has conferred. (See: Vines v. Orchard Hills). However, the breaching party’s award is capped by expectancy, and may be reduced by as much as the other party can show it was injured by the breach. (Britton v. Turner).

• Where the party has substantially performed but breached by performing incorrectly, the party may recover on the contract price minus the diminution in value to the other party. (Pinches v. Swedish Evangelical Lutheran Church)

• FOUR SCENARIOS:

  • Π substantially performs and Δ takes the benefits: Π gets K price minus damages

  • Π does not substantially perform but Δ takes the benefits: No K, but QM

  • Π does not substantially perform but breaches unintentionally: QM capped by K

  • Π does not substantially perform, Δ takes no benefits, wilful breach: No recovery

    1. Wilful Breach

A wilful breacher may not typically recover in restitution. The trouble is defining willfulness.

• Intentional standard: did Π mean to breach? (Pinches)

• Premeditated breach at time contract is formed

• “Good cause” standard (Vines)

• Moral depravity

• Opportunistic breach

When A has wilfully breached, we don’t typically like to force B to prove the extent of his damages to justify keeping A’s output.

1. Liquidated Damages

Where parties anticipate damages in the event of breach at the time of contracting, they may specify liquidated damages to be awarded in the event of breach, subject to limits.

• Rest. § 356: Liquidated damages are allowed, but only in an amount reasonably calculated to cover expected losses at the time of contract formation or actual losses at the time of the loss.

  • Comment: The harder damages are to prove, the more latitude will be allowed in fixing liquidated damages.

• UCC § 2-718:

  • (1) Liquidated damages may be awarded if they reasonably approximate actual or anticipated loss due to breach, in light of the difficulty of proving loss and the difficulty of obtaining an adequate remedy.

  • (2) If the seller withholds delivery because the buyer breaches or is insolvent, the buyer is entitled to restitution of any amount which exceeds:

    • (a) the terms fixing the seller’s entitlement under (1); OR

    • (b) if no terms exist, 20% of the buyer’s obligation under the contract or $500, whichever is smaller.

  • (3) The buyer’s right to restitution under (2) is subject to offset when the seller can prove:

    • (a) the right to other damages besides those in (1); and

    • (b) the value of benefits the buyer has taken as a result of the contract.

• Reasonableness: A liquidated damages clause must reasonably approximate expected damages at the time of the breach OR actual damages resulting from breach, in order to be enforceable.

  • This is the source of the “one look or two” paradox. If we know what actual damages are, how much will we tolerate awarding liquidated damages which are different from actual damages?

• Liquidated damages need to reflect actual or anticipated economic loss. Courts will not enforce a “penalty” which compensates Π for non-economic losses. (Muldoon v. Lynch: funerary monument case)

• Burden of Proof: The burden of proving actual or anticipated damages depends on the jurisdiction.

• Liquidated damages are different from limitation of liability clauses. Courts will allow parties to explicitly cap or disclaim liability for consequential damages at the time of contracting. (Samson Sales, Inc. v. Honeywell)

• UCC § 2-719(3): Consequential damages may be limited or excluded by a contract unless this would produce an unconscionable result.

• Limitation of Liability in Commerce: Courts will generally not enforce limitation of liability in contracts between a business and the public, but will enforce it between businesses.

  1. Specific Performance

     1. Generally

Specific performance is a subspecies of injunction unique to contract law. It is a court order to compel a party to perform as required by a contract.

• Negative vs. Positive: Courts favor negative injunctions (don’t do X) over positive ones (do X).

• Courts are hesitant to order specific performance except in special cases:

  • Uniqueness of the good (UCC § 2-716)

  • Difficulty of valuing money damages (Edge Group WAICCS LLC v. Sapir Group LLC)

  • Inadequacy of money damages (Curtice Bros. v. Catts: tomato crop)

• Rest. § 360: Whether money damages are adequate depends on:

  • The difficulty of proving damages with reasonable certainty (Edge Group)

  • The difficulty of procuring a substitute suitable performance with money (Curtice)

  • The likelihood that damages could not be collected

• UCC § 2-716(1): Specific performance for delivery of a good is appropriate where...