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Remedies A. EXPECTATION INTEREST (Putting the aggrieved party where they expected to be as a result of performance.) 1. DISCUSS UCC, WHEN APPLICABLE, LEASES, ETC.)& BONEBRAKE TEST?? 2. Protecting the Expectation Interest 3. Substitute Contract (Preferred) (p.49): encourages the aggrieved party to enter a substitute contract and then award damages to make up any remaining losses. Sellers Damages (Mitigation of Losses): a. b. 2-703, In General 2-704, Identify Goods to the Contract Notwithstanding Breach or to Salvage Unfinished Goods??

c. 2-706: , Resale Including Contract for Resale: [(contract price resale price) + incidental damages allowed - expenses saved from buyers breach] d. 2-708, For Non-Acceptance or Repudiation (Non-Resale) 1) 2-708(1): [(unpaid contract price market price) + incidental damages allowed - expenses saved from buyers breach]. IF INADEQUATE TO PUT SELLER IN AS GOOD A POSITION AS PERFORMANCE, THEN2-708(2) 2) 2-709, Action for the Price: when buyer fails to pay the price as it becomes due, seller can recover: [the contract price of the goods buyer accepted or the conforming goods lost or damaged + incidental damages] OR [the contract price of goods if the seller cannot resell after reasonable price and effort + incidental damages] 4. Inferior Substitute Contracts (p.50) a. b. 2-708(2): [expected profit + incidental damages allowed + due allowance + due credit] 2-710: the seller can always recover incidental damages incurred as a result of the breach Parker v. 20th Century Fox o Issue: Can [P]s refusal of [D]s substitute offer be used in mitigating damages? Rule: The measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon for the period of service, less the amount the employer affirmatively proves the employee has earned or with reasonable effort might have earned from other employment. (IOW, [agreed salary proved mitigated earnings]. This rule is similar to 2706 and 2-708(1).) However, the employer must show that the other employment was comparable or substantially similar.

Holding: [P]s refusal to accept cant be used to mitigate [D]s damages b/c the offer was of employment both different and inferior. Also, no factual dispute was presented on the issue (IOW, [D] didnt present evidence to prove that the substitute was comparable or substantially similar). The court concerned with control and same political views Also consider which facts are missing (e.g. we dont know if Parker ever sought substitute employment) Take away: RULE EXCEPTION: The duty to mitigate at least limits, at most negates, the expectation interest. There is a duty to mitigate but not a very strong duty; the strength of the duty is determined by the employment alternatives available.

Dissent: The issue is, Did [P] act reasonably in refusing it? The dissent holding is, summary judgment not appropriate b/c reasonable minds could differ as to the similarity of the work, and therefore it is an issue of triable fact. Majority opinion also raised the issue but did not discuss it b/c it was not raised at trial. Hence, the difference b/n the majority and dissenting opinions is one of procedure vs. substance, respectively. Answering both questions, however, required answering the same question that is subordinate within the rule: Was the offer substantially similar to the original offer? This is where the two opinions diverge in their answers.

Buyers Restitution (Limits on Sellers Damages) c. 2-718, Liquidation or Limitation of Damages; Deposits: (p.66) The buyer despite her breach may have restitution subject to offset to the extent that the seller establishes a right to recover damages under the provisions (subsections 2-4??) other than subsection (1) 1) 2-718(1): Either party may liquidate damages but only to a reasonable amount in light of anticipated or actual damages resulting from the breach 2) 2-718(2): where seller justifiably withholds delivery of goods b/c of breach buyer is entitled to restitution Neri v. Retail Marine Corporation o o Issue: What are the proper measure of damages? Rules: 2-718(2), 2-718(3), 2-708(1) and (2), and 2-710: 2-718(2) entitles the BB to restitution, however 2-718(3) limits such restitution by offsetting

it against the sellers right to damages provided by 2-708(1) and (2). 2708(1) is inadequate to put seller in as good a position as performance, so apply 2-708(2); AND 2-710 establishes NBSs right to incidental damages. o Holding: Trial court correct to deny attorneys fees incurred b/c not an expense intended by the UCC . Trial court erred in not applying the recent statute change. [P]s are entitled to restitution of their deposit, offset by (less) [D]s right to lost profit and incidental damages. Take away: RULE EXCEPTION: Lost Volume Seller (LVS) negates the mitigation principle. Impossible for a LVS with an inexhaustible supply (e.g. Retail Marine) to mitigate damages. So must apply 2-708(2), not 2708(1). Courts award reasonable incidental damages.

Jordan v. Worldcom o Issues: Should either motions made by both parties for summary judgment be granted? Rules: Federal Rule of Civil Procedure 56(c) allows summary judgment only when there is no genuine issue of material fact. Holding: As a matter of law, Jordan has not mitigated damages and there must be an evidentiary hearing on how much his claim should be reduced consistent with his duty to mitigate. Take away: Mostly a lesson in civil procedure. NBS has initial burden of establishing that BB breached K. Then burden shifts to BB to prove [P] had duty to mitigate. Then burden shifts back to NBS to prove it had no duty to mitigate b/c it is a LVS.

5. Performance Rather Than Damages (p.89) Buyers Remedies a. 2-711, in General: the buyer may cancel and in addition to recovering damages, also cover, recover, and 1) 2-711(2)(b): obtain specific performance b. 2-716, Buyers Right to Specific Performance or Replevin 1) 2-716(1): where goods are unique or in other proper circumstances 2) Official Comment #2: Specific performance is no longer limited to goods which are

Copylease Corp. v. Memorex Corp. o Issue: Is a NBB (Copylease) entitled to specific performance of K as well as damages? Rule: Contrary to Copyleases argument, Californias common law (Long Beach Drug Co v. United Drug Co.) establishes that (1) a remedy is not necessarily inadequate merely b/c calculating damages may be difficult and (2) courts are adverse to ordering specific performance. Holding: Absent an exception to the general rule, Copylease can recover only damages. However, under 2-716(1), Copylease may be entitled to specific performance if it can prove that Memorexs toner is unique OR that Copyleases inability to cover is strong evidence of other proper circumstances. If Copylease can prove 2-716(1), then damages would require measuring the uniqueness or degree of difficulty in covering against the difficulties in enforcement which have caused courts to refrain from granting specific performance. Take away: RULE EXCEPTION: 2-716(1) courts will grant specific performance for damages in addition to damages if the NBB can prove uniqueness OR other proper circumstances. Become sensitive to exclusivity in contracts Specific performance creates institutional problems: 1) courts dont have the means to enforce judgments and 2) courts dont want to force parties into arrangements and continuing relationships they dont want

6. Breach Deterrence vs. Liquidated Damages (p.100) Lake River Corp. v. Carborundum Company o Issues: 1) Does Lake Rivers entitlement to damages also entitle it to assert a lien against Carborundums property? 2) If not valid, then is the liquidated damages clause in the contract valid? 3) If not valid, what are the proper damages to be assessed? Rules: 1) The court could find no rule on facts similar to the case to establish the validity of Lake Rivers lien; 2) Under Illinois law a liquidation of damages must be a reasonable estimate at the time of contracting of the likely damages from breach, and the need for estimation at that time must be shown by reference to the likely difficulty of measuring the actual damages from a breach after the breach occurs; AND 3) Lake River is entitled to its Illinois common law damages [unpaid contract price expenses saved b/c of breach] Holding: 1) The court rejected Lake Rivers lien claim as invalid; 2) concluded that the clause was actually a penalty b/c it always assured

Lake River more than its actual damages; AND 3) Even though the clause was an invalid penalty, Lake River is still entitled to damages and the case was returned to the lower court to re-determine both parties damages. Judges want to retain determination of punitive (penalty) issues b/c it will keep contracts free from emotions Carborundum never gives up ownership of the goods, so the UCC does not apply Take away: Contrary to Judge Posners opinion, it is unlikely that it could have been an efficient breach b/c there was not a substitute deal. (Efficient breach makes most sense when BS has a special deal that beats the market price, otherwise any gain from the breach is eaten up in the damages analysis.) It is possible for both parties to renegotiate more favorable terms in a rising market that is wealth-maximizing for both. It is more reasonable to have liquidated damages clause if it is difficult to estimate damages.

7. Lost Anticipated Profits & Consequential Damages (p.113) Buyers Damages a. b. c. 2-713, Buyers Damages for Non-delivery or Repudiation: [(contract price market price@breach) + incidental damages expenses saved from sellers breach] 2-715: Buyers Incidental (subsection 1) and Consequential (subsection 2) Damages 2-715(2): grants the buyer consequential damages as defined by (a) and (b) Hadley v. Baxendale (THE FORESEEABILITY TEST) o Issue: Can [P] recover the lost profits it would have otherwise earned from performance? The Hadley Rule: The non-breaching party (usually the NBB) is entitled to: 1) damages that arise naturally from the breach OR special terms damages both parties agreed to when they reasonably anticipated (foresaw) and communicated to each other the consequential damages arising from special circumstances at the time of making the contract; AND 2) the profits (CLARIFICATION: the profits to be made in operating a business using the goods the BS was supposed to sell NOT the profits the BS was going to make from the sale) (is this always the NBB?? Can it be a BB??) the NBB/non-breaching party can prove it lost as a consequence of the breach b/c the beach and the profits are closely related.

Holding: No. The loss of profits cannot reasonably be considered as resulting from the delay (breach); there might be other reasons for the loss of profits besides the delay. Rule absolute is a court order to show cause;affirms the party asking for the order. RULE NISI?? Why important to this case? Take away: Rule absolute is important to this case b/c the courts want to protect the breaching seller from damages that they could not foresee. This forces the buyer to be more specific about the terms needed for the seller to perform the contract. In the Hadley Rule, to recover lost profits, must prove that profits are closely related to the breach and were lost b/c of the breach; this is difficult to prove. In 2-715(2), the causation element of the Hadley Rule is omitted. Omitting the causation element takes the discretion away from juries in deciding the strength in relationship b/n lost profits and the breach. Consequently, 2-715(2) offers more protection than the Hadley Rule to the NBB b/c omitting makes it easier to hold the BS liable. Per both rules, a buyer must foresee special circumstances and communicate these to a seller so that in the case of a breach, the NBB can recover lost profits.

d. Official Comment of 2-715: the buyer (NBB) has the burden of proving consequential damages (loss of profit) and the liberal administration of remedies will allow the NBB to calculate damages in any way that is reasonable under the circumstances. Evergreen Amusement Corporation v. Milstead (PROOF OF DAMAGES WITH REASONABLE CERTAINTY) o Issue: Can a new, unestablished business submit evidence to prove loss of profits? Rules: Restatement, Contracts, 331: Damages are recoverable for lost profits only if the evidence showing the loss provides a sufficient basis for estimating their monetary amount with reasonable certainty. Otherwise damages may be measured by the rental value of the property. However, loss of profits for a non-established business cannot be recovered b/c they are only speculative and cannot be determined with the requisite degree of certainty. Holding: A new business claim for loss of profits is too speculative b/c it does not have an established operating history to provide a sufficient

basis for estimating damages. The trial court was right to base damages on fair rental value and actual monetary losses incurred. Evergreen proffered a witness as evidence for loss of profits but the court dismissed it. Take away: The best argument that the Court of Appeals got it right was that loss of profits was too speculative, no operating track record, and held with prior precedent. It is uncertain if Evergreens proffered witness was an expert witness; witnesses must be qualified.

Chunng v. Kaonohi o Issues: 1) Can damages for emotional distress resulting from a breach be awarded in a commercial contract? 2) Can an unestablished business be awarded damages for loss of anticipated profits? Rules: 1) Dold v. Outrigger Hotel: Where a contract is breached in a wanton or reckless manner as to result in a tortuous injury, the aggrieved person is entitled to recover in tort. 2) The Court of Appeals rejected the harsh per se rule and instead adopted a rule allowing the awarding of damages for a new or unestablished business where a [P] can prove lost future profits with reasonable certainty. Holding: 1) Yes??; the dispositive factor is not the nature of the contract, but the wanton, reckless nature of the breach. 2) There was sufficient evidence presented to base an awarding of loss of profits. Chung offered Voronaeff as an expert witness. Although Voronaeffs income stream analysis figures for estimating the loss of profits were not based on a history of profit, the analysis was reasonably certain enough. Furthermore, the [D] failed in their crossexamination to prove that it was merely speculative. Take away: B. RELIANCE INTEREST (Compensating the non-breacher for out-of-pocket expenses made.) 1. Two types of reliance loss (p.139): a. 1) Buyer makes expenditures to unlock the value of Sellers performance; 2) Buyer discontinues seeking contracts from other sellers (reliance of lost opportunitiesno recovery for damages) 2-715(2): grants the buyer consequential damages as defined by (a) and (b)


2. If damages are too speculative : use reliance

[If damages are inadequate to put in as good a position : use 2-708(2)] Security Stove v. American Railway o Issues: 1) Can [P] sue for an unenforceable breach of promise to deliver shipment on time? 2) Can [P] recover expenses as damages or 3) is [P] limited to recovering only loss of profits? Rules: 1) Delivery within a reasonable time was necessary to comply with the agreement. 2) and 3) Where there is a breachthe party suffering the loss can recover only that which he would have had had the contract not been brokenButIn some instances, the injured party may recover expenses incurred in relying upon the contract. This rule is similar to 2-715(2). Holding: The damages [P] suffered were a consequence of the breach b/c in order for the [P] to benefit from the contract, the shipment had to be delivered on time and [D] was advised of the importance of the shipment. May have mistakenly been a torts case b/c it dealt with duty, notice, and negligence. Out-of-pocket expenses are not speculative b/c can be proven with reasonable certainty. If he was going to sell the stove, the proper damages would have been expectation, not reliance, b/c it would involve the loss of profits. Even though Security Stove was in a better position b/c of the breach, the court still awarded damages b/c it was concerned about negligence and but for causation (i.e. but for the breach, there would be no damages). THIS IS THE DIFFERENCE B/N TORTS & CONTRACTS: in torts, ??? Take away: Reliance doesnt penalize b/c unlike in Lake River where Judge Posner said there was not a strong enough connection b/n the breach and loss of profits, in reliance, damages are explicitly b/c of the breach. Therefore RULE EXCEPTION: Reliance is an exception to the expectation interest; both cannot be used at the same time. Reliance damages are never greater than expectation damages b/c if they are then the difference must be deducted (aka the Hand Limitation). These reliance damages are consequential not incidental b/c they are a consequence of (closely caused by) the breach not a consequence of performing the contract. Reliance damages are

built into subsection 2, not built into incidental damages (subsection 1). Albert & Son v. Armstrong Rubber o Issues: 1) Did the judge incorrectly deny the breaching seller interest for the value of the motor? 2) Were NBBs out-of-pocket reliance expenses closely caused by the BSs delay (breach) such that the buyer is entitled to reliance damages? Rules Considered: 1) Reagan v. New York & New England Ry. Co. and Healy v. Fallon: When the value of goods can be ascertained with reasonable certainty as of a definite time, interest should be covered. 2) A promisees damages for breach of contract are [the value of the promised performance outlay, which includes the payment to the promisor and any expenses needed to prepare for the performance] Rules Adopted: Restatement of Contracts 333(d): The promise can recover its outlayfor the performance subject to limitations such as, the promisor may deduct whatever he can prove the promise would have lost, if the contract had been fully performed. Holding: 1) The seller should have been awarded interest. 2) There is insufficient proof of the causation to award reliance damages. We will notput the [P] in a better position thanhad the contract been fully performed. Therefore, the buyer is entitled to $3K (an offset against the sellers recovery of interest) less whatever the seller can prove the buyer would have lost had the Refiners been delivered. Armstrongs damages would have been difficult to calculate b/c they were unforeseeable. Reliance (and restitution) acts as though the contract was never formed. Take away: RULE LIMITATION: the breaching party has the right to limit the non-breachers damages by meeting its burden of proof to deduct the amount that the non-breacher would have lost had the contract been performed. The burden of proof applied in reliance damages is a control measure and makes reliance damages approximate that of the expectation interest.

C. RESTITUTION (Giving back to the non-breacher who has not yet fully performed that portion which they [unjustly] enriched the breacher .) 1. Three requirements of restitution: a. There must be a breach

b. c.

The non-breacher must rescind the contract (RISK: if the person did not in fact breach, then the rescinder may or may be found to be in breach) The non-breacher must elect restitution as an alternative

Oliver v. Campbell o o Issue: Is [P] entitled to the reasonable value of his services? Rules: 1) Restatement of Contracts 350: Restitution is not available for an employee who has fully performed if they have been paid in full for their services except for a liquidated debt in the contract (e.g. a bonus). But restitution may be available to an employee who has fully performed if the outstanding payment owed to them is something other than a liquidated debt. This rule is aka The Full Performance Rule??? and is similar to UCC ???. 2) Lessing v. Gibbons: One who is wrongfully discharged and prevented from further performance may electto treat the contract as rescinded, may sue upon a quantum meruitand may recover the reasonable value of the services performed. Holding: No; [P] can recover only the full sum ($850) specified in the contract b/c he had completely performed. (The Supreme Court reversed the trial courts decision.) There were two versions of this contract: 1) what the lawyer claimed and 2) what the administratrix as [D] claimed. This case was not about a breach of contract; if [P] had sued for breach, he would only be entitled to the contract price of $850. So he claimed the reasonable value of services, not breach of contract. Restitution can put the aggrieved party in a better position than had the contract been performed, therefore discouraging efficient breaches. Take away: RULE LIMITATIONS: 1) The [P] cannot elect restitution if [P] has fully or substantially performed and is entitled to the contract sum (p.186) AND 2) There must be a benefit conferred. The Full Performance Rule was interpreted differently by the trial court (midstream) and Supreme Court (fully performed = cant rescind = no restitution), which led to differently results. The courts are wary of saving the sophisticated from their own bad contracts. Oliver had a duty to advise Campbell during their disagreement that he was committing a breach and would need a new lawyer.

This advice would have created a conflict of interest for Oliver and the courts may have been concerned about Olivers failure to advise. At times, restitution fails to limit/control the breached partys damages so that they are not in a better position than if the contract had been performed. (understand principal-agency, p.177)

Dissent: This court misapplies the very rules it citesThis court errs when it says there being no dispute as to the amountthe services having been in effect fully performed. The foregoing statement is neither supported factually by the record nor legally by the authorities citedThe discharge amounts to a clear repudiationin which case [P] is entitled to recover the reasonable value of the service performed ($5,000).

2. Restitution for the Plantiff in Default (p.188, looking at it from the other side) De Leon v. Aldrete o o Issue: Does the defaulting buyer forfeit his payments or have a right to? Rule: The Majority/Forfeiture Rule: A defaulting buyer cannot recover any money she pays even though the seller has abandoned performance and keeps the money. Rule Exception: Lipscombv. Fuqua: If it would be inequitable for there not to be restitution, then there must be restitution. Holding: The [P] (defaulting buyer) was awarded restitution for payments plus interest. The defaulting buyer was also awarded reliance-related architects fees because the NBS never contested it. Therefore, the defaulting buyer ended up in a better position than had the contract been performed. Take away: LIMITATION: Restitution is not neat or mathematically precise b/c it is an equitable remedy and concerned with fairness (i.e. unjust enrichment). From the buyers perspective, the majority rule would have been unfair b/c it penalizes the buyer for trying to perform AND overcompensates the non-breacher beyond its expectation damages. It is possible to get restitution that exceeds the NBSs expectation interest.


Peevyhouse v. Garland Coal & Mining o Issue: Is the proper measure of damages what it will cost to obtain performance of the work that [D] defaulted on or is it the expectation interest of the difference b/n the market value before and after the work was performed? Rules: 1) O.S. 1961, Subsection 96: one cannot recover a greater amount in damages for breach than one would have gained by full performance and 2) Subsection 97: where there may be an obligation creating unconscionable and grossly oppressive damages, only reasonable damages may be recovered. Holding: In a coal mining lease, where the portion of the contract that was breached was only incidental to the main purpose of the contract, and where the economic benefit of full performance is grossly disproportionate to the cost of performance, the lessor may recover the diminution in value resulting from the non-performance. Judgment of $300 for [P]. The courts decision upholds the expectation interest. If restitution was granted, Garland would have to restore the coal to the land. Take away: PROBLEM: The Supreme Courts use of the main purpose analysis to come to its decision overlooks the fact that there would not have been a contract without the remedial work clause. The courts interpretation had the effect of rewriting the contract by seeing the remedial work as incidental. If the remedial work is incidental, are the damages arising from the breach of the incidental portion of the contract also incidental? Even if the court had issued specific performance, the parties would likely renegotiate more favorable terms.

Dissent: [D]s breach was willful and not in good faith; [P] would not have agreed to the contract without the included clause; the cost of performance could be reasonably approximated when the contract was negotiated and there is nothing existing that could not have been reasonably anticipated, therefore [D] knew the cost of performance would be disproportionate when it agreed to the contract; if the value of performance should be considered in determining the measure of damages , the value of the benefits the breaching party received should also be considered.

Hawkins v. McGee o Issue: Is a warranty a contract? If so, what are the proper damages?

Rule: Expectation Interest: [(the value of the goods as they would have been if the warranty as to the quality had been true - the value of the goods at the time of sale) + gains prevented and losses sustained + other damages reasonably anticipated by the parties (i.e. pain and suffering)]. Holding: The true measure of damages is the difference b/n the value to him of a perfect/good hand and the value of his hand in its present condition, including any incidental damages contemplated by the parties (i.e. pain and suffering). An offer and an acceptance makes a special contract via assent. A warranty is a special promise about the quality of the service or good. Take away: If Hawkins had had additional surgeries to fix Dr. McGees mistake, he would be able to recover incidental damages for those surgeries. But under the current contract with Dr. McGee, Hawkins would not be awarded pain and suffering.

Sullivan v. Connor o Issue: Is the [P] limited to recovering out-of-pocket expenses or can she also recover for pain and suffering for and/or disfigurement and associated mental distress? Rule: There is no general rule barring such items [pain and suffering, mental distress, and disfigurement] of damageWhen the contract calls for an operation, psychological and physical injury may be expected Suffering or distress resulting from the breach going beyond what was anticipated by the agreed treatment should be compensable. Holding: Reliance Interest: [expenditures made b/c of contract + other foreseeable damages closely caused by the breach]. The [P] is entitled to recover out-of-pocket expenses, for the expectation or reliance interest for the worsening of her condition, and for the pain and suffering and mental distress incurred from the third operation. By withdrawing her appeal, [P] waived her right to an expectation claim and by default was awarded by applying the reliance interest. Also b/c of her withdrawal, the opinion was relegated to dicta and therefore not binding. Take away: Judge Caplan says that reliance may be the most appropriate remedy and pain and suffering incurred in a failed operation may be awarded b/c it is analogous to wasted out-of-pocket expenses due to the breach.

The expectation measure may not be the most appropriate damages to award in a non-commercial contract but reliance may be an appropriate alternative.