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MANAGING THE LAW

(4TH EDITION)

Chapter 12: Contractual Remedies


Chapter 12 Overview

Contractual damages
Expectation, reliance, account of profits, nominal,
liquidated, and punitive damages
Equitable relief
specific performance and injunctions
Exclusion clauses
Unjust enrichment

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Remedies for Breach of Contract
Other Relevant Remedies

maybe Restitution
for Unjust Enrichment

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Remedies for Breach of Contract

Discharge (discussed in Chapter 11)


Damages for Breach of Contract
Equitable Relief
Restitution for Unjust Enrichment in certain
circumstances

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Damages

Damages: money payable after wrongdoing


generally no entitlement to receive performance, only value
Type Description Example
Expectation Victim placed as if contract performed Give me what I expected to get!
Reliance Victim placed as if contract never arose Give me back what I lost!
Account of Defendant placed as if breach never Give me what you never should
Profits occurred have received!
Nominal Symbolize wrongdoing without loss Give me a small token
Liquidated Contract sets the quantum of damages Give me what we agreed Id get
on breach
Punitive Intended to punish outrageous conduct Give me enough to hurt you.

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Expectation Damages

Plaintiff receives expected benefit of contract


plaintiff does not receive performance, but instead value
of performance
Forward-looking damages
plaintiff monetarily placed as if contract performed
Give me what I expected to get!
integrity of promises protected
Calculation of expectation damages
expected benefits minus expected costs

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Issues for Expectation Damages

Complications in calculation of damages


difficulty of calculation
cost of cure or loss of value
alternative performance
intangible losses and emotional distress
remoteness
mitigation of damages

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Difficulty of Calculation

Awarded even if calculation is imprecise


eg damages for lost chance in beauty contest
Not awarded if calculation is totally speculative
eg value of treasure in supposedly sunken ship

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Cost of Cure or Loss of Value?

Difficulty in identifying expected benefit


receipt of service itself ? eg $60 000: cost of restoration
receipt of value of services end product? eg $12 000:
value added to land if restoration occurs
Cost of cure damages: cost of service
awarded if reason is legitimate for wanting restoration
Loss of value damages: value of end product
if unreasonable discrepancy between cost and value

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Alternative Performance

Expectation damages difficult to quantify if contract


allows defendant to perform in a variety of ways:
eg contract allows employer to terminate employment by:
any time, without notice, if employee acts in a manner
detrimental to companys reputation OR
any time after 18 months, by giving 3 months notice

Damages calculated on the basis of the least onerous


option the minimum acceptable performance

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Intangible Losses & Emotional
Distress
Intangible loss: no apparent economic value
disappointment, anger, frustration, sadness
Damages for emotional distress traditionally denied
rationale: difficult to assess value, and contracts are
commercial arrangements for money not feelings
Now usually available if peace of mind was expected
contractual benefit. Emotional distress treated in same
manner as other types of loss

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Limitations to Expectation
Damages
Expectation damages may be reduced by
causation and remoteness
failure to mitigate losses

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Causation and Remoteness

In order to recover losses:


loss must in fact be caused by breach
loss must not be legally remote from breach
Loss is not remote if either:
defendant knew or should have known of risk of loss
Test applied at time contract is created (no hindsight)

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Remoteness (contd)

Remoteness as a rule of fairness


contract price reflects exposure to risk
defendant not paid to accept unforeseeable risks
Risk management
before entering contract, ensure other party aware of any
unusual losses you may suffer as a result of contractual
breach UNLESS you are prepared to accept such risk
yourself

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Mitigation of Damages

Mitigation: minimization of losses


So-called duty to mitigate
plaintiff encouraged to minimize losses
eg arrange alternative supply of materials after breach
plaintiff need merely take reasonable steps
plaintiff entitled to expenses incurred in mitigation
Effect of failure to mitigate
damages reduced to extent losses not reasonably avoided

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Reliance Damages

Value of resources wasted under contract


cost of preparation for performance or forgoing other
opportunities
Backward-looking damages (similar to tort damages)
plaintiff placed as if contract never created
Give me back what I lost!
Usually must elect between expectation or reliance
Reliance denied to extent contract was unprofitable

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Account of Profits or Disgorgement

Damages traditionally limited to losses


damages reflect plaintiff s interest in contract
Account of Profits deals with wrongful gains
account reflects defendants interest in contract
defendant placed as if breach never occurred
Give me what you never should have received!
Account only in exceptional circumstances
only if legitimate reason to deprive defendant of profit

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Nominal Damages

Breach of contract is actionable per se


wrongful even if plaintiff suffers no loss
Nominal damages
symbolize wrongdoing without loss
limited to small amount (eg $10)
Risk management
avoid suing for nominal damages. May result in cost award.
Judges do not like to waste time on trivial matters

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Liquidated Damages

Genuine pre-estimate of possible losses in contract


rationale: avoid litigation and provide incentive to perform
Effect of liquidated damages
recovery of agreed amount if breach
actual size of loss (larger or smaller) irrelevant
Distinguish from penalty clause
no genuine attempt to estimate possible losses
unenforceable: damages limited to actual loss

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Punitive Damages

Intended to punish and discourage outrageous conduct


Awarded in addition to compensatory damages
Not as common or large in Canada as in USA
General requirements for punitive damages
acting in harsh, vindictive, reprehensible or malicious
manner
commission of independently actionable wrong
eg different breach of contract, tort of negligence

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Equitable Relief

Traditional distinction
court of law: order payment of money
court of equity: order actual performance
Some forms of equitable relief for breach of contract
specific performance
injunction

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Specific Performance

Court order to perform contractual action


Do what you promised to do!
Plaintiff receives actual performance of defendants
contractual obligations
Discretionary nature of equitable remedies
awarded only if appropriate in circumstances
denied if plaintiff does not have clean hands

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Requirements for
Specific Performance
Damages inadequate: cannot buy substitute
eg unique land, family heirloom, private shares
Mutuality: available to both parties
eg cannot be awarded against (or to) infant
Judicial supervision: once-and-for-all order
eg grocery store not forced to remain open
Personal services: prohibition on slavery
eg actress not required to appear in movie

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Injunction

Court order to obey contractual prohibition


Dont do what you promised not to do!
Generally wider scope of availability
specific performance: large limit on freedom
cannot do anything other than required act
injunction: small limit on freedom
can do anything other than prohibited act

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Exclusion Clauses

Contractual term limiting liability (see Chapter 9)


Exclusion clauses allowed by freedom of contract
court nevertheless protects consumer
clause should be unambiguous, read narrowly against drafter
clause must be reasonably drawn to consumers attention
must prove other party agreed to exclusion clause
exclusion clause cannot apply to fundamental breach

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Unjust Enrichment

Independent cause of action


Available only if contract does not exist (void, voidable,
unenforceable, or discharged by breach)
Requirements for unjust enrichment
enrichment to defendant
corresponding deprivation to plaintiff
absence of juristic reason for enrichment
Remedy for unjust enrichment is restitution

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Unjust Enrichment: Restitution
Remedy for unjust enrichment: restitution
reverse transfer that occurred between parties
Give back what you received from me!
defendant returns value of transferred benefit
defendant does not return actual transferred benefit

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