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The objective of Chapter 6 is to have students focus on the plaintiff’s common law remedies for the
defendant’s breach of contract.
• Depending on the issues raised, an attorney may frame a lawsuit as either a breach of contract or a
restitution cause of action.
• The defendant, for example, may admit to breach rather than raise a “no breach” response and
thereby direct the litigation toward a breach of contract rather than toward a restitution cause of
action.
• The choice of cause of action may depend on a number of factors.
• The elements to be proven
• The applicable Statute of Limitations
• Costs and attorney’s fees (EXAMPLE)
• The degree of difficulty of the issues to be litigated
• The difference in available remedies
• Most remedies for breach of contract are substitutional (money in the form of a judgment for
damages). Seldom does the court order the defendant to perform (e.g., giving up property or working).
• Contract damages are compensatory and not punitive.
• Contract damages may promote the plaintiff’s expectation, reliance, or restitution interest (PowerPoint
ch. 6-1) (EXHIBIT 6-1).
EXHIBIT 6-1
Step Six: The Plaintiff’s Remedies for the Defendant’s Breach of Contract
Step One
Choice of Dispute Resolution
Choice of Venue
Choice of Law
|
Step Two
Contract Formation
|
Step Three
Contract Enforceability
|
Step Four
The Plaintiff’s Allegation of Defendant’s Breach
|
Step Five
The Defendant’s Response to Plaintiff’s Allegation of Breach
|
Step Six
The Plaintiff’s Remedies for Defendant’s Breach
_________________________________________
| | |
expectation remedy reliance remedy restitution remedy
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• Expectation moves the nonbreaching party forward to the place the nonbreaching party would
have been in had the contract been fully performed. Both contracting parties are moved to full
performance.
• Reliance moves the nonbreaching party back to the position the nonbreaching party was in prior to
relying on the breaching party’s promise. The nonbreaching party is compensated for expenditures
that were incurred by relying on the breaching party’s promise less what he or she has already
received.
• Restitution moves the breaching party back to before the breaching party received the benefit from
the nonbreaching party. The nonbreaching party is compensated based on the reasonable value of
the benefit conferred less what the nonbreaching party has already received (PowerPoint ch. 6-2).
EXHIBIT 6-2
The Expectation Damages Formula
[A – B] – [C – D]
(PowerPoint ch. 6-3)
• These two boxes represent the promisor’s promise (the right box) and the consideration for the
promisor’s promise (the left box).
• The box on the left gives the nonbreaching party full performance under the contract. If the
nonbreaching party received nothing, the nonbreaching party received everything promised. If the
nonbreaching party received one-third of what was promise, the nonbreaching party receives the
remaining two-thirds.
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• The box on the right assures that the nonbreaching party does not get a free ride. The
nonbreaching party must pay the contract price. If the nonbreaching party has paid one-third, the
nonbreaching party must pay the remaining two-thirds. If the nonbreaching party has paid in full,
the nonbreaching party has nothing further to pay.
• Because most of the contract remedies are substitutional, a monetary value must be assigned to a
non-monetary performance.
• In construction contracts cases where the contractor has either not completed the work or has
completed the work poorly, the court must choose whether to award the nonbreaching party
the diminished value of the property or the cost to replace or repair. Courts tend to use an
“economic waste” or “economic benefit” test (EXAMPLE).
• PROBLEM 6-1 calls for a choice between diminished value of the land or the cost to
reclaim the land. Applying the “economic benefit” test, the diminished value of the land
if not restored would be $550 an acre, and the cost to reclaim would be almost double
($900 an acre).
• Expectation damages must be reasonably foreseeable at the time of contract formation.
• General damages arise according to the usual course of events from the breach and
therefore are foreseeable.
• PROBLEMS 6-2 and 6-3 ask for an application of what damages could be expected
if the contract were breached. PROBLEM 6-2 is from the employee’s perspective.
PROBLEM 6-3 is from the employer’s perspective.
• PROBLEMS 6-4 and 6-5 change the setting from an employment contract to a
construction contract. PROBLEM 6-4 is from the homeowner’s perspective.
PROBLEM 6-5 is from the contractor’s perspective.
• Special damages (consequential damages) do not arise according to the usual course of events
from the breach but become foreseeable when they may reasonably be supposed to have been
in the contemplation of both parties at the time of contract formation.
• PROBLEM 6-6 raises the question whether damages from the loss of the convention due
to the hotel not being renovated in time was foreseeable. Although the contract stated a
completion date of September 1st, nothing appears in the facts that the parties discussed
why September 1st was so important.
• PROBLEM 6-7 adds facts to PROBLEM 6-6 so the contractor became aware that
missing the completion date would result in the hotel’s losing the profits from the
convention. The loss of profits became foreseeable.
• Damages for breach of contract need not be proven with mathematical certainty, but there
must be sufficient evidence to enable the finder of fact to establish with a reasonable degree
of certainty the actual damages. Damages cannot be speculative.
• PROBLEM 6-8 illustrates how the monetary damages from some breaches cannot be
estimated with reasonable certainty.
• PROBLEM 6-9 illustrates the difficulties encountered when trying to prove lost profits
with reasonable certainty. Does a track record of profits help this calculation? What if the
breach took place at the beginning of the lease and before the lessee could establish a
track record of profits?
• Having a liquidated damage provision in a contract may address the problem of establishing
damages with reasonable certainty. A provision will be enforceable as liquidated damages and
not as a penalty if three requirements are met.
• The damages that were to be expected as a result of a breach were uncertain in amount or
difficult to prove.
• The parties intended to liquidate damages in advance.
• The amount stipulated was not greatly disproportionate to the amount of damages the
parties anticipated in the event of breach and therefore were reasonable.
• PROBLEM 6-10 illustrates how the speculative nature of damages in PROBLEM 6-9
could be rectified by a liquidated damage provision.
• The nonbreaching party has a duty to mitigate the damages.
• The EXAMPLE has the contractor ignoring the breach and continuing to build, rather
than mitigating the breaching party’s damages.
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•The EXAMPLE illustrates the use of “saved time” to mitigate in an employment context.
Time is fleeting whether used productively or not.
• The nonbreaching party may recover incidental damages. These are the post-breach
expenses (EXAMPLE).
• In some cases, the nonbreaching party can establish breach but is unable to provide actual
damages. In those cases, the nonbreaching party may be entitled to nominal damages (i.e., 6
cents or $1). Receiving a judgment establishes the rights of the parties, and the nonbreaching
party may be awarded court costs in addition to nominal damages.
• A contracting party may breach one contract in favor of a more lucrative contract. The law of contracts
does not distinguish between an intentional and an unintentional breach.
• The EXAMPLE illustrates the economics of breach.
• As a general rule, the remedy for breach of contract is substitutional—money for the breach. On rare
occasions, the court may award plaintiff an expectation remedy other than damages.
• Specific performance mandates the performance of the promise. The nonbreaching party must
prove three elements.
• The remedy at law is inadequate.
• The breaching party can perform.
• The nonbreaching party has performed his or her obligations.
The remedy at law may be inadequate when the subject of the contract is unique.
• The EXAMPLE uses land as an illustration of something unique.
• Money is not unique and therefore the remedy is money damages and not specific
performance.
• A court orders an injunction to mandate the breaching party from further action.
• The EXAMPLE illustrates the use of an injunction to protect a company’s trade secrets,
unique practices, and confidential customer lists.
EXHIBIT 6-3
The Reliance Damages Formula
Less Less
• Note that because the nonbreaching party is moving back and not forward, expectation becomes
irrelevant. Therefore, what the nonbreaching party expected to receive (A) and what the nonbreaching
party expected to give (C) drop from the damage calculation. What remains is what the nonbreaching
party received in reliance on the breaching party’s promise (B) and what the nonbreaching party gave
in reliance on the breaching party’s promise (D). The net result is that the nonbreaching party recoups
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the substitutional value of what he or she has given but must give back anything received
(EXAMPLE).
• PROBLEM 6-11 asks students to compare expectation and reliance damages.
• Andrew’s expectation damages would be $14,000 less $125 × 12 days. These facts raise the
question whether the money earned with saved time should be capped by the money that
would have been earned during this same period. With the cap, Andrew would be entitled to
$2,000 [($1,000 × 14) – ($1,000 × 12)] for expectation but only $1,400 for reliance. Without
the cap, Andrew would be entitled to $0 [($1,000 × 14) – ($1,250 × 12)].
EXHIBIT 6-4
The Restitution Damages Formula
Less Less
• Because the breaching party is moving back and not forward, expectation becomes irrelevant.
Therefore, what the nonbreaching party expected to receive (A) and what the nonbreaching party
expected to give (C) drop from the damage calculation. What remains is what the breaching party did
receive from the nonbreaching party (B) and what the breaching party gave to the nonbreaching party
(D). The net result is that the breaching party pays the reasonable value of the benefit to him or her and
receives credit for what he or she has already paid (EXAMPLE).
• PROBLEM 6-12 requires a comparison among expectation, reliance and restitution remedies.
Expectation—$2,000 or $0
Reliance—$1,400
Restitutiuon—$2,000
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• Some state statutes are more restrictive than others when it comes to the allocation of costs
(EXAMPLES—compare the Texas and Oklahoma statutes).
• PROBLEM 6-13 involves a contract for the purchase of real property. When the seller refused
to convey the deed, the buyer sued for breach of contract and prevailed. The contract did not
allocate attorney’s fees.
• Under the Texas statute, the buyer could recover costs under (8), “a written contract.”
• Under the Oklahoma statute, the buyer could not recover costs.
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Suggested Answers to the Review Questions
Chapter 6
True/False
1. T Under common law, all three measures are available.
2. T A restitution remedy for breach of contract could be maintained if a benefit was
conferred by the plaintiff on the defendant but the action would be for breach of
contract and not for restitution.
3. T Damages (substitutional) is the norm rather than specific performance or
injunction.
4. T
5. F This statement is for a restitution remedy rather than for reliance damages.
6. T Expectation damages must be foreseeable whether general or special damages.
7. F Special damages are also foreseeable. If the damages were not foreseeable at the
time of contract formation, plaintiff could not recover as special damages.
8. F Special damages are called consequential damages.
9. F Only a reasonable certainty is required.
10. F Some liquidated damages provisions are enforceable, and others are not because
they are ruled a penalty.
11. F The nonbreaching party must attempt to mitigate damages.
12. F Incidental damages may be awarded. Punitive damages may not awarded in
breach of contract cases.
13. F Specific performance is seldom available because a substitutional (damages)
remedy is the norm.
14. F The plaintiff’s judgment may include costs.
15. F The plaintiff’s judgment may include attorney’s fees if the contract or a statute
so provides.
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16. Specific performance
17. Injunction
18. Restitution remedy
19. Reliance remedy
20. Court costs
Multiple Choice
1. (a)
2. (a)
3. (b)
4. (c)
5. (c)
6. (d)
7. (b)
8. (c)
9. (a)
10. (d)
11. (c)
12. (b) Jill expected to receive $1,500 and did receive $700 resulting in an $800
deficiency. Jill expected to give the website and did give the website so
C – D = 0.
13. (a) Jill spent $1,000 on the developer and received $700 resulting in a $300
deficiency.
14. (d) The benefit that Jill conferred was $2,000, and she received $700 resulting in a
$1,300 deficiency.
15. (c) 12 weeks left in the year at $1,000 a week or $12,000. Alfred mitigated by
working four weeks at $800 a week or $3,200 leaving a balance of $8,800.
A more interesting question would be how to count $1,200 a week for
four weeks. Should $4,800 be deducted or only $4,000 (four weeks at $1,000 a
week)?
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Another random document with
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would justify. In this way he contrived to eke out a humble but
respectable subsistence, and after gaining the good will of his
employer by his faithful and honest exertions, he scraped together
sufficient money to enable him to set up an establishment of his own,
where a flaming board proclaimed that Richard Dashall executed
sign, house and chaise painting, in all its varieties, “in the most neat
and expeditious manner possible;” assisted by two or three active
young apprentices in all his handicrafts. In due course of time he
joined to his fortunes a pretty little lady of a wife, and conjointly they
reared up and educated a numerous progeny. So ends the history of
poor Dick Dashall; and it is that of many an honest and industrious
young fellow, who is cast forth like a weed upon the ocean of life, to
sink or to swim as the chance may be.
The Fata Morgana.
Travels, Adventures, and Experiences of Thomas
Trotter.
CHAPTER XIII.
Messina.—Trade of the place.—The Fata Morgana.—Embark for
Naples.—The Sicilian pilot.—The Faro of Messina.—Scylla
and Charybdis.—Exaggerations of the ancient writers.—Fatal
adventure of a Neapolitan diver.
CHAPTER XIV.
A calm among the Lipari islands.—Manners of the crew.—Stromboli.
—A natural lighthouse.—A gale of wind.—Fright of the crew
and danger of the vessel.—Loss of the topmasts, and narrow
escape from shipwreck.—Arrival at Lipari.
Next morning, as I went on deck, I found the wind had died away,
and left us becalmed among the Lipari islands. We were close to the
island of Stromboli, which looked like the top of a mountain rising out
of the water, with the smoke constantly pouring out at the top. All
these islands are volcanic, and send forth flame and smoke
occasionally, but Stromboli is constantly burning. Notwithstanding
this, there are several thousand inhabitants upon it, who live chiefly
by fishing. They pass a strange life, constantly pent up between fire
and water. All day we lay becalmed, and I amused myself with
looking at these curious islands through a spy-glass, and watching
the odd behavior of the crew. They were picturesque-looking
mortals, as all the Mediterranean sailors are: exceedingly ragged,
noisy, and good-humored. When they were not telling stories, or
cutting capers, they were sure to be eating. Indeed, there was very
little time during the voyage that their jaws were not in motion. The
principal food was bread and vegetables. There was a pile of greens
on the deck nearly as big as a haycock: it was a species of fennel,
which the Italians eat raw. The sailors munched it by handfuls as
they went about their work. There was no meat in all the ship’s
stores, but now and then a mess of fish was served up to the crew.
They drank freely of red wine, but I never saw any one of them
intoxicated.
The calm continued through the day and the following night. After
dark, the summit of Stromboli began to grow red, and all night long it
shot up streams of fire, giving a light that might be seen a great way
off. This island is a natural lighthouse, loftier and more efficient than
any work ever constructed by man. Volcanoes, with all their danger,
are not without their uses.
A little after sunrise, a light breeze sprung up from the north, and
by ten o’clock it blew pretty fresh. This was a head wind again, but
we preferred it to a calm, as we were enabled to make some
progress northward, by tacking. In a few hours, the clouds rose thick
in the northwest, and the wind increased to a gale, with a violent
chopping sea. We took in sail as fast as possible, but nothing could
surpass the confusion and fright of the sailors. They ran fore and aft,
as if out of their wits, and instead of pulling the ropes, did little else
but cross themselves, fall on their knees, and pray to the Virgin Mary.
I began to feel alarmed, though I had seen worse weather than this
—and there was really no danger to the vessel with proper care—
yet, with a crew half frightened to death, any accident might be the
destruction of us all. The captain bawled to the sailors, who paid no
attention to him, but bawled to one another, and cried, “Santissima
Vergine! San Gennaro! Santa Rosolio!” and the names of forty other
saints, male and female. My apprehensions became serious when I
saw matters growing worse, instead of better. The crew did nothing
which they should have done, and the vessel pitched, rolled, and
floundered about, at the mercy of the winds and waves. The gale
came on in harder gusts than ever; the sea dashed over the bows;
and amid the roaring of the storm and the cries of the frightened
wretches around me, I began to think it was all over with us. There
was, however, one savage-looking fellow among the crew, whose
looks gave me some hope: he was a real caitiff in appearance, and
was evidently born to be hanged; therefore I concluded he could
never be drowned.
Meantime, the masts were bending like twigs under the gale; the
rigging was slack and crazy—worse than ever was seen on the
clumsiest wood-thumper in Penobscot Bay. I saw it was impossible
the spars could hold on much longer, unless the wind went down.
Presently the foretopmast snapped short, just above the cap, and
went over the side with an awful crash! The main-topmast followed
almost immediately, and left us little better than a mere hulk. It is
impossible to describe the scene of confusion and terror that
followed. The miserable crew lost all courage and self-possession.
They threw themselves upon their knees, and called upon the saints
to save them. Had they behaved with the least coolness and
discretion in the beginning of the gale, they might have guarded
against this disaster. For my part, I almost gave myself over for lost;
and as to my gallows-looking friend, I am quite certain that he lost for
a time all hopes of dying by a rope. In fact, there was not a man in
the whole crew but would have given his whole ragged wardrobe for
the chance of a dry death. The vessel was now entirely
unmanageable, and fell off with her broadside to the wind. A heavy
sea came rolling on, and how we escaped being thrown on our
beam-ends, I hardly know; but the vessel continued to roll and labor,
with the sea dashing over the deck, to such a degree that I expected
every moment would be our last. By good fortune at length she fell
off still further, and brought her stern to the wind. The crew recovered
from their fright sufficiently to attempt doing something to save their
lives. With great exertions they got the wrecked spars clear, and set
a little sail on the lower masts. By this help we began to scud before
the wind. Having once more the vessel under some control, we
gathered courage; but the gale was as furious as ever, and the sea
increased in violence. We continued to scud for an hour and a half,
when the cry of “terra! terra!” raised by the whole crew, announced
the discovery of land, ahead. Such had been the hurly-burly,
confusion, and terror on board, from the beginning of the gale, that
not a man of the crew could guess where we were, or what land was
in sight. Some thought it was Stromboli, and others imagined it to be
the coast of Sicily. I now began to have more fear of the land than of
the water, and wished for sea-room. Had there been any shoals in
this quarter, we should infallibly have been shipwrecked; but
fortunately there were none, as all the coasts have bold shores.
The land was high and mountainous, and we presently made it
out to be the island of Lipari, about thirty miles from Stromboli. We
steered as close to the island as we dared, and ran under the lee,
where the height of the land broke the force of the gale. In this
shelter we cast anchor, and found ourselves tolerably safe, with the
probability that the gale would blow over in a few hours. I thanked
Heaven for our escape; but formed a resolution never to trust myself
at sea with Italian sailors again, as long as I had any other means of
pursuing my rambles. In the midst of all these dangers, I would have
given more for a couple of Yankee cabin boys than for the whole
twenty lubbers of our valiant crew.
(To be continued.)
THE PILOT.
The curling waves with awful roar
A little boat assailed,
And pallid fear’s distracting power
O’er all on board prevailed,—
CHAPTER XIII.
Sick-room incidents and reflections.