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Contracts
Rutgers University, Newark School of Law
Hyde, Alan

Contracts Outline

Professor Alan Hyde

Fall 2014

REMEDIES FOR BREACH

EXPECTATION DAMAGES

General

– the normal remedy for breach of contract is a monetary award designed to put the aggrieved party in the same economic position that full performance of the contract would have put them it

o no person can recover a greater amount in damages for the breach of an obligation, than he would have gained by the full performance thereof

o damages must, in all cases, be reasonable, and where an obligation of any kind appears to create a right to unconscionable and grossly oppressive damages, contrary to substantial justice, no more than reasonable damages can be recovered

Calculating Expectation Damages

Value

– D = Vpromised – Vactual

– the measure of damages is the difference between the actual value and the value promised

Cost of Performance

– federal courts generally uphold contract and award cost of performance

– D = cost of performance

Market Damages (Loss of Bargain)

– market damages are the difference between the contract price and the market price, without a difference in these prices there is no basis for remedy

– D(buyer) = Pm – Pk

– D(seller) = Pk – Pm

Lost Profits

– must be shown with reasonable certainty which is difficult but not impossible for new businesses

Limitations on Expectation Damages

Mitigation/Avoidable Damages

– The general rule is that 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 proves the employee earned or with reasonable effort might have earned from other employment

o Before projected earnings from other employment not sought/accepted can be applied to mitigation, employer must show the other employment was comparable or substantially similar

– Mitigation defense is affirmative defense for which defendant must show specific opportunities that were available to this plaintiff at this time that requires the plaintiff’s specific skills

Foreseeability

– general rule: damages should be those that may be fairly and reasonably be considered as arising naturally (according to the usual course of things) or such as may reasonably be supposed to have been contemplated by both parties at the time they made the contract (set forth in Hadley v. Baxendale)

– plaintiff has the burden of showing that the special circumstances/damages were foreseeable by the defendant at the time the contract was entered into

Certainty

– replaces “new business rule” which said that new businesses couldn’t get lost profits because they would be too speculative

– for damages to be awarded they must be shown with reasonable certainty

Emotional Distress

– can be granted in cases of breach of commercial contracts when the breach is wanton and reckless (Chung case)

Punitive

– punitive damages are not available for breach of contract actions but may be rewarded if there’s a tort in there too

Cases

– Hawkins v. McGee (p.210) Hairy Hand Case

o Court uses value rule as proper measure of damages

o Pain and suffering not valid measure of damages, neither is negative effects the surgery had on the hand

– Peevyhouse v. Garland Coal (p.196) Strip Mining Case

o Plaintiffs argue the measure of damages should be the cost of performance (29,000), defendant argue damages is the cost of performance but limited to the total difference in market value before and after the work was performed (300)

o Holding: If 1) contract calls for restorative work 2) grossly disproportionate in cost compared to value added 3) and incidental to main purpose of contract, then damages are calculated as difference between the promised value and the present value

– Acme Mills v. Johnson (BB 1) Wheat Case

o No basis for market damages because the buyer didn’t lose a bargain, all they got is the money for the wheat sacks they provided (restitution damages)

– Curtice Brothers v. Catts (BB 4) NJ Tomatoes Case

o Plaintiff seeks and awarded specific performance because buyer can’t get tomatoes of the same quality anywhere else

o If this case was a legal damages case they would have been awarded market damages

– Manchester Dairy System v. Hayward (BB 7) Dairy Association Case

o Contract included two remedies in case of breach by association member, specific performance and money damages of $5/cow

o Court said equitable remedy can’t be enforced by contract because contracts can’t create jurisdiction but the court can impose it anyway

o Farmer argues specific performance is improper because money damages were included in the contract so must be sufficient

§ Court rejects this argument and says money damages are insufficient because a breach by one member effects all other members of the association

o Court says lower court decision denying specific performance was proper because supervision would be cumbersome but negative specific performance may be proper (relying on farmers personal interest to induce him to perform)

– Rockingham County v. Luten Bridge (BB 8) Bridge Case

o Bridge had duty to mitigate damages, can’t recover for costs expended after they were told to stop constructio

· quantum meruit (for services)

o a performed services I was paid for, pay me for them

§ you can sue on the contract and get the amount agreed to in the contract or

§ you can sue off the contract claiming the contract was breached and you don’t have to be held to the price quoted (Oliver v. Campbell)

· only if you haven’t completed the services agreed to in the contract

· quantum valebant (reasonable value of services)

o I delivered goods, you didn’t pay for them, pay for them

· Money had and received

· These are all limited to restitution claims

§ Alternative remedy for breach of contract (Oliver v. Campbell)

– Different from reliance damages because restitution is limited to those expenses given to defendant, while reliance allows for expenses given third parties

Reliance Damages

– Restatement § 349, no reliance damages under the UCC (but they may fall under consequential or incidental damages)

– limited to out of pocket expenses expended in reliance on promise/contract, damages suffered in contemplation of performance

– reliance interest can be protected under expectation damages formulas as consequential or incidental damages

– Expectation damages are generally higher than reliance damages but reliance damages are useful when

o Lost profits are too difficult to prove

o The contract would have been a loss if it had actually been performed

– When plaintiff seeks reliance damages in a losing contract, their damages can be reduced by the amount they would have lost had the contract been fulfilled

Liquidated Damages

– Restatement § 356 and UCC §2-718

– Damages may be liquidated and included in the original contract when the amount is a reasonable estimation of the anticipated/actual harm caused by breach or loss would be difficult to prove after breach

o other remedies would be inconvenient or infeasible (UCC only)

o Illinois requires both conditions be satisfied, not just one or the other

– any clause fixing unreasonably large liquidated damages is void as a penalty (UCC) or as a matter of public policy (Restatement)