Contracts – Fall 2011
I. Remedies for Breach of Promise
A. The Expectation Principle
a. Place the victim of a breach in the position he would have been in if the promise had been performed. Gives the injured party the benefit of the bargain. Often used when the broken promise is enforceable bc it was part of a bargain. Based on the K price. Incidental damages (i.e. shipping costs of good to and from buyer who has wrongfully rejected the goods, storage costs, resell costs) are normally added to expectation damages.
2. Expectation Damages Formula – Restatement §347 (Hawkins)
a. Value of the ∆’s promised performance (K price) – Benefits the ∏ received from not having to complete his own performance.
3. Two different ways of monetizing expectation principle §348(2)
a. Decrease in Value : Award based on decrease in market price caused by breach
b. Cost of Completion : Courts should not grant cost of remedying defects if cost is clearly disproportionate to probable loss in value to ∏ (Peevyhouse)
c. Expectation damages received only if non-breaching party was harmed. (Acme Mills).
4. Economic Waste argument
a. Refers to the destruction of a building or other structure. If the cost of repairs is greater than the value gained it does not make economic sense to grant relief
i Law & Economics: Economically inefficient actions should not occur
ii Right to get what one bargained for: Right to get what K promised. Moral Approach (Peevyhouse Dissent)
5. Hawkins v. McGee
a. Verbal contract found to be valid
iii Doctor promised 100% restoration of the use of plaintiff’s hand.
iv McGee’s interest in operating on the hand for years showed his eagerness to conduct surgery
v Medical procedures are usually not contracts but McGee solicited based on promise
b. Court concluded that Hawkins not entitled to damages for pain and suffering since it would have occurred even if the surgery was performed properly and as intended
c. McGee responsible for damages resulting in the difference between the promised 100% hand and the “hairy hand” as a result of the surgery
i D = 100% restored hand – Post operative hand
ii Damages = Value of the item with the warranty (if it resulted as promised) – Actual condition of the item at the time of sale + Other damages as could be reasonably anticipated as likely to be caused by lack of performance
6. Peevyhouse v. Garland Coal & Mining Company
a. Damages must be reasonable and can’t be in excess of value of land after restoration
b. Result also reached since the main purpose of the contract was not the remedial aspect
c. Dissenting judge believed that since the defendant breached the contract he should be held liable regardless of the difference in cost (policy)
7. Acme Mills & Elevator Co. v. Johnson
d. Breach of contract dealing with purchase and delivery of goods only recognized if the vendee was damaged. One can only sue if the property is worth the same or more than what was agreed to be paid.
e. No damage since Pk>Pm. (Efficient breach)
B. Equitable Remedies where Legal Remedies (i.e. Market Damages) are Inadequate
1. Granted when:
a. Damages are too speculative to be calculated; or
b. Damages are not a substitute for the performance of the contract
2. Curtice Brothers. Co. v. Catts
c. Specific Performance is sought when a party wants what was rightfully owed as a result of the contract
d. P requests court to seize tomatoes otherwise P will need to shut down factory. Tomatoes cannot be obtained elsewhere.
e. Court rules in favor of specific performance and allows an injunction (halts/stops something from being done) which forced the defendant to turn over the tomato crop and not sell it to anyone else
3. Manchester Dairy Systems v.Howard
f. Money damages not adequate because damages would be hard to calculate. Another remedy was necessary.
g. Specific performance is appropriate to keep others from breaching.
h. Court ruled in favor of negative specific performance (forcing farmer to sell milk to the plaintiff since farmer could not sell to anyone else) over affirmative specific performance
i Courts prefer negative specific performance because it is easier to enforce. Party violating specific performance order will be held in contempt
C. Limitations on Protection of Expectation Interest
1. Refusing to award avoidable damages
2. Mitigation of Damages
a. Plaintiff may recover damages that could have been avoided by reasonable efforts.(Rockingham County, Intel v. AMD)
b. Rest §350, UCC 2-709(1)(b)
3. Standard of Reasonableness
a. Requires the plaintiff to make reasonable efforts to mitigate damages. Plaintiff is not expected to assume undue risk, expense or humiliation to mitigate
b. Exception: Personal Service Contract – Where K is for personal services courts are especially lenient towards plaintiff and do not require plaintiff to accept any position that is substantially different from, or inferior to the one contracted for (Parker)
i Only applies to people who are fired under a breach of K: people hired for a definite term. Most people are employed at-will and may quit at any time
ii Most employees under contract do not get s
c. Consequential damages (UCC 2-715) are damages, above and beyond general damages, that stem as a result of defendant’s breach, taking into account non-breaching party’s circumstances.
i Carriers (airlines, fed-ex) have clauses in contracts that state they are not responsible for consequential damages.
1. Restatement § 352
a. Plaintiff may only recover for losses which he establishes with “reasonable certainty”.
b. Main application: Plaintiff who claims that he would have made profits had there been no breach must show that not only there would have been profits, but also the likely amount of these profits.
i Official Comment 4 to UCC: Burden of proving the extent of loss incurred by way of consequential damages is on the buyer. The section on liberal administration of remedies rejects any doctrine of certainty which requires almost mathematical precision in the proof of loss. Loss may be determined in any manner which is reasonable under the circumstances.
ii Official Comment to UCC: Compensatory damages are often approximate at best. They have to be proven with whatever definiteness and accuracy the facts permit, but not more.
iii Mental Distress damages are generally not recoverable
2. Chung v. Kaonohi Center Co.
c. Court allowed damages for lost profits and emotional distress due to breach of contract and rental of food court space to another vendor
d. Lost profits of new business determined by use of expert testimony, figures from restaurant occupying the rental space and figures from similar restaurant owned and operated by plaintiff
e. Decision regarding recovery for emotional injury later overruled by Hawaii Supreme Court. Since that decision, recovery for emotional injury from breach is only allowed “where the parties specifically provide from them in the contract or where the nature of the contract indicates that such damages are within the parties’ contemplation or expectation in the event of a breach”. Emotional injury now rarely claimed unless in personal contract or tort suit.
f. Reliance model is often used to recover damages when expert evidence can’t be provided