REMEDIES AT LAW: DAMAGES

Policy

Corollary/competing policy Do not award damages for injuries that the aggrieved party could have avoided/prevented/mitigated (because they were not caused by the breaching party) Avoid under-compensation, forfeitures and penalties Avoid letting the breaching party profit from the uncertainty caused by the breach, even if the measure of damages is somewhat uncertain, and resolve uncertainties in favor of the aggrieved party to ensure adequate compensation

Award those damages and only those damages caused by the breach

Avoid over-compensation, windfalls and double recovery Avoid speculative damages (too uncertain in amount) because there is insufficient basis for believing such damages are compensatory Award consequential damages ONLY if it was FORESEEABLE to the breaching party, at the time of contract formation, that the other party would suffer a loss from that kind of breach

Avoid burdening the breaching party with damages the risk of which was not reasonably contemplated when deciding whether to enter into the agreement

(I) Three kinds of damages (A) Expectation Damages (1)Designed to put the aggrieved party into the position that it would have been if it had received the full performance promised (2)Make the plaintiff whole by paying the amount necessary to approximate the value of full performance (B) Reliance Damages (1)Designed to put the aggrieved party back into the position that it would have been in today if the parties had not entered the contract (2)Compensate out-of-pocket expenses incurred by the aggrieved party in reliance on the existence of the contract as well as opportunities the aggrieved party let pass in reliance on the contract (lost opportunity costs) (C) Restitution Damages (1)Designed to avoid unjust enrichment of the breaching party by forcing that party to restore to the aggrieved party any benefits conferred for which the aggrieved party was not already compensated (II) Expectation Damages (A) Direct vs. Indirect (incidental and consequential) (III) Direct Damages (A) Amounts awarded for injury to or loss of the value of what was promised as consideration in the contract

(1)Ex. Compensate for loss because of services not performed, property not delivered, etc. (IV) Indirect Damages (A) Amounts awarded for other, secondary losses resulting from the breach (1)Classified as (B) Incidental Damages (1)Extra costs incurred by the aggrieved party in dealing with the breach (2)Ex. Handling a defective delivery or arranging for purchase of substitute goods (3)Might include costs incurred in storing or reshipping or reselling goods, paying a broker to find a substitute buyer, paying extra insurance, etc. (C) Consequential Damages (1)Other losses arising as a consequence of the breach and are often where the "real money" is in the dispute (2)May include such items as lost profits, lost customers, lost business volume and downstream breaches caused by the original breach (V) Direct Damages: Amount for damages (A) Typical damages (B) Need to know time and place at which market should be measured and which market provides an appropriate measure (1)UCC 2-708(1) specifies using the market price at the time and place at which the seller was to tender the goods to the buyer under the contract (i) Common law has similar rules (2)UCC 2-713(1) specifies using the market price at the time when the buyer learned of the breach (i) If the seller has repudiated or failed to perform, the market price is at the place where the seller was supposed to have tendered the goods (ii) If the seller has tendered defective goods or otherwise breached, the market price is at the place where the goods arrive (iii) Common law has similar rules (C) Damages when there is no market (1)Sackett v. Spindler (i) Facts a. Newspaper sale case b. P buyer, D seller c. D does several acts of mitigation - goes from daily to weekly, gets personal mortgage, sells half his stock (ii) Damages determined based on resale price a. Buyer argues that the valuation of the paper at the time of breach should be used rather than the resale price i. Also argues about liability assumed b. By the end of the court's discussion you find a fairly wide open field c. Whether a breach of contract is total or partial depends upon its materiality. To determine the materiality of a failure to fully perform a promise, the following factors are considered: (use R2nd241) 7.04 Determining Whether Writing is a Complete or Partial Integration

1) Four corners" or "plain meaning" rule If the writing appears complete and final on its face, the writing is conclusively presumed to be a complete integration. 2) Collateral contract" concept All final writings are deemed to be partial integrations. 3) Reasonable person" approach (from Williston's rules) If a writing appears to be a complete expression of the parties' agreement, it is a complete integration unless the additional terms are such that it would be natural to enter a separate agreement as to such terms, in which case the writing is a partial integration. This is the majority approach. 4) Intention of the parties" approach (Corbin) This approach allows all relevant evidence on the issue of intent, including evidence of prior negotiations. There is increasing acceptance of this approach, as it has been incorporated into the UCC and the Restatement Second. [See Restatement 210, comment b; UCC 2202] (VI) COST OF COMPLETION/REPAIR VS. DIMINUTION IN VALUE (1)Jacobs & Youngs v. Kent (i) Facts a. Plumbing Pipe case (ii) Damages a. Measure is not the cost of replacement but the difference in value (iii) ROL - In most cases the cost of replacement is the measure unless the cost of completion is grossly and unfairly out of proportion to the good to be attained. When this is true, the measure is the difference in value. (2)Difference in Value Rule: (Diminution) a. Where substantial performance has been rendered= the remedy is the cost of completion or correction b. UNLESS the cost is grossly and unfairly out of proportion to the good to be attained. c. If the cost to complete or correct is out of proportion = the measure for damages is the difference in value d. BUT where the defect in performance is substantial, the cost of completion or correction will be awarded. (3)Khiterer v. Bell (i) Facts: Dentist case (ii) Damages a. Rule- Where substantial performance has been rendered, the remedy is the cost of completion or correction unless that cost "is grossly and unfairly out of proportion to the good to be attained." When that is true, the measure is the difference in value

b. Policy - the difference in value rule is applied to avoid economic waste (4)Lyon v. Belosky Construction, Inc. (i) Facts a. P - Lyon - entered into contract with D - Belosky - for construction of a custom home - home was built but the roof was centered over the library not the living room as represented in the drawings as well as other problems (ii) Procedure a. P sued for breach of contract b. D argued diminished value should be used, not cost of completion c. Court found cost of completion - awarded P $73K d. D appealed (iii)Holding a. Finds that D acted negligently and it was a substantial defect b/c it was a custom home (iv) Damages ROL a. RULE - proper measure of damages in cases involving the breach of a construction contract is the "difference between the amount due on the contract and the amount necessary to properly complete the job or to replace the defective construction, whichever is appropriate" b. RULE: Where, however, "the contractor's breach was unintentional and constituted substantial performance in good faith" and remedying the defective performance would result in unreasonable economic waste, damages should be based upon i. "the difference between the value of the property as constructed and the value if performance had been properly completed" (5)Peevyhouse v. Garland Coal & Mining Co. (i) Facts a. P - Peevyhouse - own a farm with coal deposits and leased premises to D b. D - Garland Coal - specifically agreed to perform certain restorative and remedial work at the end of the lease c. D didn't do the remedial work so P sued d. D introduced testimony that the difference between the present value (ii) Procedure

a. P sued D for breach of contract and was awarded considerably less than was sued for so both P and D appealing i. P awarded $5K and had sought $25K (iii)Holding a. Reduced judgment to $300 for P (iv) Damages ROL a. Undue Expense RULE i. Where the defect is one that can be repaired or cured without undue expense, the cost of performance is the proper measure of damages, but where the defect in material or construction is one that cannot be remedied without an expenditure for reconstruction disproportionate to the end to be attained, the value rule should be followed

(B) Seller's lost profits and lost volume (1)Neri v. Retail Marine Corp. (i) Facts: P contracted to buy a boat and requested immediate delivery but P's lawyer sent D a letter rescinding the sales contract because P was about to undergo hospitalization and it would be impossible to make payments a. Boat had already been ordered and in D's possession b. D declined to refund deposit c. D later sold the boat four months later for the same price i. P argued D made up loss ii. D argued it would have sold two boats and had to pay incidental expenses for upkeep, storage, etc. (ii) Holding a. D CAN RECOVER LOSS OF PROFITS AND INCIDENTAL EXPENSES i. Measurement is period between date performance was due and time of resale (iii) RULE- Damages a. UCC 2-708 i. (1) Measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for offer and the unpaid contract price together with any

incidental damages provided in 2-710, but excluding expenses saved in consequence of the buyer's breach ii. (2) If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in Section 2-710, due allowance for costs reasonably incurred and due credit for payments or proceeds of resale b. UCC 2-718 i. Buyer, despite his breach, may have reimbursement of the amount by which his payment exceeds: ii. Reasonable liquidated damages stipulated by the contract, or iii. Absent such stipulation, 20% of the value of the buyer's total performance, or $500, whichever is smaller c. UCC 2-718 i. Buyer's right to restitution under (2) is subject to offset to the extent that the seller establishes: ii. A right to recover damages under the provisions of this article other than subsection (1) (C) Vitex Mfg. Corp. v. Caribtex. Corp. (1)Facts (i) P - Vitex (ii) D - Caribtex - appealing judgment for P for loss of profits (iii) Service contract for administering chemicals (2)Holding - affirmed - district court not compelled to consider P's overhead costs (3)Damages (D) Overhead RULE (1)Include broadly the continuous expenses of the business, regardless of the outlay on a particular project (E) Lost Profits RULE (1)In a claim for lost profits, overhead should be treated as a part of gross profits and recoverable as damages and should not be considered part of seller's costs (VII) Indirect Damages (A) Incidental Damages--> extra costs incurred by the aggrieved party in dealing with the breach (1)Usually administrative and mitigative costs (2)UCC 2-710 Sellers Incidental Damages (i) Incidental damages to an aggrieved seller include any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation, care and custody of goods after the buyer's breach, in

connection with return or resale of the goods or otherwise resulting from the breach (3)UCC 2-715 Buyer's Incidental Damages (i) Incidental damages resulting from the seller's breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expenses incident to the delay or other breach (B) Consequential Damages --> losses triggered by the breach itself (not costs associated with the aggrieved party's efforts to mitigate further losses) (i) Likely include a. Lost profits, lost customers, lost business volume, downstream breaches caused by the original breach and other losses (ii) Aggrieved party must prove the injury was caused by the breach a. Causation alone is not enough (iii) Almost always awarded only to buyer/recipient, not seller/supplier (iv) Must be foreseeable at the time of contract formation (2) Hadley v. Baxendale (i) Facts a. P - Hadley - millers who had equipment problems so D - Baxendaletook shaft for repair but was delayed in return to P and P lost profits i. The delay resulted in consequential damages (ii) Holding a. Orders new trial with rule on how to determine damages (iii) ROL a. First category - General Consequential Damages i. An injured party may recover those damages reasonably considered to arise naturally from a breach of contract, or those damages within the reasonable contemplation of the parties at the time of contracting. b. Second category - Special Consequential Damages i. Information made known to the other party (by the time of contract formation) regarding type of breach and resulting damages (3) Vanessa Redgrave v. Boston Symphony Orchestra, Inc. (i) Facts a. P - Redgrave - sues D - BSO - after they cancel her contract to narrate Oedipus Rex after she supported PLO i. She wins a $100K verdict at trial for loss to career (ii) Holding a. Awards her $12K not the original $100K (iii) ROL and Reasoning a. Real argument is about the indirect damages - the consequential damages b. First question is about the recoverability of loss of professional opportunities i. D argues it is damage to reputation ii. P argues it is loss of future jobs

1. Massachusetts says damage to reputation is unduly speculative and cannot be presumed to have been within the contemplation of the parties when they entered into the contract - 2 factors on p. 50 2. McCone ROL --> claims for damages to reputation and other emotional injury could not be sustained in the suit because "these additional damages are not contract damages. iii. Court distinguishes her claim from what D is arguing to what she is arguing that it is a loss of future jobs so the court holds yes it is recoverable in her kinds of damages that she wants to recover c. Second issue - proper jury instructions - court holds yes d. Next issue is whether there is sufficient causation of the damages by the breach i. Could the computation calculation by rational means ii. BSO statements - perceived reaction iii. BSO cancelation led to damages iv. They discuss other reasons - movies not obtaining financing v. Nexus between breach and so called result wasn't proven up by P and it was P's burden vi. She also can't seem to prove the nature of her jobs changed substantially enough after the cancellation vii. There are ways to put holes in her causation arguments e. ROL - to recover for consequential damages, P must establish a "basis for an inference of fact" that P has actually been damaged and the fact finder must be able to compute the compensation by rational methods upon a firm basis of facts f. ROL - Damages must be capable of ascertainment by reference to some definite standard, either market value, established experience or direct inference from known circumstances (4)UCC 2-715. Buyer's Consequential Damages (i) Consequential damages resulting from the 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 b. Injury to person or property proximately resulting from any breach of warranty (VIII) Mitigation of Damages Doctrine (avoidable damages) (1)The use of reasonable care and diligence in an effort to minimize or avoid injury. (2)Under the mitigation of damages doctrine, a person who has suffered an injury or loss should take reasonable action, where possible, to avoid additional injury or loss. The failure of a plaintiff to take protective steps after suffering an injury or loss can reduce the amount of the plaintiff's recovery. The mitigation of damages doctrine is sometimes called minimization of damages or the doctrine of Avoidable Consequences. (3)Aggrieved party cannot exact revenge by "running up the ante" (B) Sackett v. Spindler (1)Facts

(i) Newspaper shares case - seller mitigates (2)RULE: (i) Mitigation RULE - A party injured by a breach of contract is required to do everything reasonably possible to minimize his own loss and thus reduce the damages for which the other party has become liable (ii) Question of fact a. Financial condition of paper immediately after breach was worse than one year later (C) Parker v. Twentieth Century Fox Film Corp. (1)Facts (i) P - Shirley Maclaine Parker - sues 20th Century after they dropped the movie Bloomer Girl and offered her Big Country Western movie which she declined (ii) Contract contains liquidated damages clause (iii)D argues P refused to mitigate by not accepting other role (2)Holding (i) Affirmed summary judgment for P a. Other movie was different and inferior (3)RULE (i) General ROL - measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon for the period of service, less the amount, which the employer affirmatively proves the employee, has earned or with reasonable effort might have earned from employment. a. However, before projected earnings from other employment opportunities not sought or accepted by the discharged employee can be applied in mitigation, the employer must show that the other employment was comparable or substantially similar to that of which the employee has been deprived; the employee's rejection of or failure to seek other available employment of a different or inferior kind may not be resorted to in order to mitigate damages (4)Dissent (i) Says the movie wasn't different enough - says it was comparable (ii) ROL - Rather than permitting employee to remain idle . Law requires him to make a reasonable effort to secure other employment. (iii) Kunz doesn't like dissent because it would be cramming down a modified contract on the party and that isn't right (IX) Reliance Damages (A) Designed to put the aggrieved party in the position that it would have been in TODAY if the parties had not entered the contract (i) Compensate out-of-pocket expenses incurred by the aggrieved party in reliance on the existence of the contract as well as lost opportunity costs (ii) May also be awarded when a promise is enforced under promissory estoppel a. And Restatement (Second) 90 (B) Available only for REASONABLE expense incurred IN RELIANCE on the existence of the promise (1)The aggrieved party may not recover for expenses that could have been avoided through reasonable actions to mitigate or avoid losses (C) Security Stove & Mfg. Co. v. American Ry. Express Co. (1)Facts

(i) P - manufacturer (ii) D - shipper (iii)P wants to exhibit stove and needs D to transport it to show for them. P has 21 packages - all numbered - and all but one arrive (the most essential one is missing) a. Couldn't replace it so couldn't mitigate (iv) P sues seeking reliance damages for expenses and interest (2)Holding (i) Court holds that it was proper to allow recovery a. D was well aware of purpose and may have been negligent (3)ROL (i) Good example of what to do with uncertainty about expectation damages then drop down to reliance damages (ii) Peculiar circumstances ROL - page 76 - when aware, then responsible for loss (D) Lancellotti v. Thomas (1)Facts (i) P - Lancellotti - sues D - Thomas (ii) P agreed to purchase D's luncheonette business and rent premises from D. Also agreed to buy name, goodwill and equipment for $25K and a promise that only he would operate the business and promise to build an addition to the existing building a. Five-year lease with condition about construction (iii)Contract is broke so P sues seeking $25K back (iv) D seeks $52K in damages including $6,665 for unpaid rent of property and missing equipment (2)Holding (i) Adopts Restatement (Second) 374 (ii) Remands to apply reasoning and new rule (3)RULE: (i) Court goes through problems with old rule (ii) Majority adopts new Restatement and remands it for them to apply it a. So no real action on how much they get to keep (iii)See that trial court is really pissed off about the fact that these guys seem to have had this hoagie business and they really just wanted to buy in and find out secrets of trade and then get out a. How would you measure those damages (E) Measuring Restitution Damages (1)Multiple ways to measure this (i) Net enrichment (ii) Cost of services provided (iii) Pro rata portion of the contract price (2)Net enrichment often furnishes a lesser amount than cost of services or pro rata - but that profit is often not included in measuring the value obtained by the aggrieved party (F) Liquidated/agreed/stipulated Damages (1)UCC 2-718. Liquidation or Limitation of Damages, Deposits (i) Damages for breach by either party may be liquidated in the agreement BUT ONLY at an amount, which is reasonable in light of the anticipated OR actual harm, caused by the breach, the difficulties of proof of loss and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing large liquidated damages is VOID as a penalty.

(2)Restatement (Second) 356. Liquidated Damages and Penalties (i) Damages for breach by either party may be liquidated in the agreement BUT only at an amount that is reasonable in the light of the anticipated OR actual loss caused by the breach and the difficulties of proof of loss. (ii) A term fixing unreasonably large liquidated damages is UNENFORCEABLE on grounds of public policy as a penalty. (G) Wassenaar v. Panos (1)Facts (i) P - Wassenaar employee D - Panos - hotel - employer (ii) P was hired as a general manager for D for 3-year period but was fired 21 months before end. P was unemployed for 2.5 months. (iii)There was a liquidated damages clause (2)Holding (i) Court upholds clause (3)RULE (i) Validity of liquidated damages is a question of law (ii) Policies that support and disfavor liquidated damages a. Courts have to make sure private remedy doesn't stray too far from compensatory principles b. Damages clause held in check i. Parties toward and against enforceability (4) 3-Factor Wisconsin test: Whether the clause is reasonable under the totality of the circumstances: (i) Did the parties intend to provide for damages or for a penalty? (ii) Is the injury caused by the breach one that is difficult or incapable of accurate estimation at the time of the contract (iii) Are the stipulated damages a reasonable forecast of the harm caused by the breach a. Prospective and retrospective approach discussed in third factor (5)The Theory of Efficient Breach (i) Judge Posner is a proponent a. Idea of what it takes to amount to an efficient breach b. Good points about honoring the intent of the parties i. Kunz likes his arguments ii. Sees point about sophisticated parties but says it is really hard to draw that line iii. Huge windfall problem generated here 1. If enforce a lot of penalty clauses, end up giving the lucky aggrieved party piles of damages 2. Would the dollar amount - the disproportion of the liquidated damages compare to the actual damages matter at all if you were to go with Posner's test a. Details to be worked out still (H)Punitive Damages (1)RARE (2)At court's discretion (i) Usually as deterrence (3)Majority Rule - Restatement Second rule too - is that punitive damages may be awarded when the breach of contract is also an independent tort

(4)Romero v. Mervyn's (i) Facts a. P was shopping with daughters and got trampled. D manager said D would pay and then didn't pay P's medical bills (ii) Holding a. Affirmed (iii) ROL a.General Punitive Damages ROL --> punitive damages may be recovered when D's conduct was i. Malicious ii. Fraudulent iii. Oppressive, or iv. Committed recklessly with wanton disregard for P's rights b. Malice Definition --> intentional doing of a wrongful act without just cause or excuse. D not only intended to do the act which is ascertained to be wrongful, but knew it was wrong when he did it c. Wanton Definition --> wrongfulness, when the evidence demonstrates conduct committed without concern for the consequences, rather than intentionally and connotes an utter indifference to or conscious disregard for the rights of others

(X)

EQUITABLE REMEDIES (1)Equitable relief available if: (i) No adequate remedy at law, and (ii) Claimant would suffer irreparable harm if no relief (2)Specific Performance (i) Specific Performance --> remedy by which the court orders a party to perform the unfulfilled promises in the contract rather than ordering payment of the value of those performances a. The other party receives actual performances rather than the damages representing the value of performance (ii) Difficulty of supervision issue often comes up a. Some courts use that as the sole basis for being able to say specific performance just isn't justified (iii) Most common in real estate cases (iv) May be ordered for the purchase of rare or sentimental items, which are unique and irreplaceable (v) UCC 2-716(1) expanded the class of goods for which specific performance may be ordered, allowing the remedy in "other proper circumstances" especially when the aggrieved buyer is unable to locate substitute goods (cover) for those involved in the breach or knows that a substitute is unlikely to be available (3)Ammerman v. City Stores Co. (i) Facts a. P and D contracted to build P's store. D applied to rezone property and then passed on P as a tenant

(ii) Holding a. Court ordered specific performance - holding damages would be inadequate (iii) ROL a. General ROL - the mere fact that a contract, definite in material respects, contains some terms which are subject to further negotiation between P and D will not bar a decree for specific performance (4)Laclede Gas Co. v. Amoco Oil Co. (i) Facts a. Arab Oil Embargo - unpredictable market b. D contracted to provide gas to MO residents area would apply to P who would ask D to supply it. Gas shortage occurred and D couldn't meet supply. D sent letter repudiating contract (ii) Holding a. Specific performance ordered (iii) ROL a. Restatement 370 i. Specific enforcement will not be decreed unless the terms of the contract are so expressed that the court can determine with reasonable certainty what is the duty of each party and the conditions under which performance is due b. General ROL - To defeat specific performance, remedy at law must be as certain, prompt, complete and efficient to attain the end of justice as a specific performance decree c. Repudiation here not "termination" d. Four factors for specific performance (3 mentioned) i. Remedy of specific performance would be difficult for court to administer without constant and long-continued supervision ii. Contract is indefinite and uncertain iii. Remedy at law available is adequate