I. Remedies for Breach of Contract
(1) Measuring Expectation
(A) Buyer’s Remedies for Breach of Contract
(1) Cover: An aggrieved buyer who covers will get the cover price plus any incidental and consequential damages (less any expenses saved)
UCC §2-712: The buyer may cover by:
(a) Making a good faith reasonable purchase,
(b) Without any unreasonable delay,
(c) Of goods in substitution of those due from the seller.
àIf cover is done in bad faith, then the court uses the market price formula.
UCC §2-715: For Buyers Only
(1) Incidental Damages: resulting from the seller’s breach include:
(a) Expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, and
(b) Any commercially reasonable charges, expenses or commissions in connection with effecting cover, and
(c) Any other reasonable expense incident to the delay or other breach.
(2) Consequential Damages: from the seller’s breach include:
(a) Any loss resulting from general or particular requirements and need of which the seller at the time of contracting ‘had reason to know’ and which could not reasonably be prevented by cover or otherwise; [inability to cover must be foreseeable also]
(b) Injury to person or property proximately resulting from any breach of warranty.
Cover Damages: Three Options for Damages.
(1) If the cover price is less than the K price à then no damages.
àThe COURTS ARE SPLIT as for allowing incidental and consequential here.
(a) Some courts say no damages at all.
(b) Some courts will allow for any incidental and consequential damages.
(2) If the cover price is the same as the K price à then only get the incidental and consequential damages.
(3) If the cover price is higher than the K price à then you get the difference between the two prices and you get incidental and consequential damages.
àIf no cover available, cover requirements are not met, or if it is a bad faith cover, then you just get the Market Price Formula.
àCover must be w/o unreasonable delay [6 years to sue, much much less to cover].
àThe purchase must be reasonable; the same quality of goods contracted for.
(2) Market Price Formula:
This can be used when:
(1) You do not cover, or
(2) You cover in bad faith, or
(3) Your cover does not follow the requirements of cover. [Laredo dicta allows this for when you don’t cover.]
àThis market price formula treats the buyer as if he covered within a reasonable time from the occurrence of the breach.
UCC §2-713: Damages for Non-delivery of Repudiation:
(1) The difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages [but less expenses saved in consequence of the seller’s breach.]
àActually, the UCC allows for a reasonable time after breach to determine ‘market price at the time when the buyer learned of the breach.’
(2) Market price is to be determined as of the place and time for tender or, in cases of rejection, after arrival or revocation of acceptance.
(B) Seller’s Remedies for Breach of Contract
àThe seller can choose to resell (Cover) or he can choose not to resell (Market Price Formula).
Out of Code: The buyers of services are treated the same as the buyers of goods, except we do not call it cover.
àSubstitute Performance: Can be either “Resell Formula” or “Market Price Formula.”
(1) “Resell Price Formula” AKA “Cover” (A seller who resells): The seller may resell, and if he gets less then the original K price he may get damages.
§2-706: The seller can get the difference between the K price and the resell price, but the resale must:
(1) Be made in good faith, and
(2) In a commercially reasonable manner and time, and
(3) The seller can get the difference between the K price and the resale price
(a) Plus any Incidental Damages [No consequential damages hereL]
àA purchaser who buys in good faith at resale, takes the goods free of any rights of the original owner, even if the seller fails to comply with the requirements in this section.
(2) “Market Price Formula” (A seller who does not resell): The seller does not have to resell and can still get damages.
àNo damages if K price is higher than the market price.
§2-708:
(1) The seller can get the difference between the K price and the market price at the time and place of tender,
(2) Plus any Incidental Damages. [No consequential damages here L],
(3) Less any expenses saved in the consequence of the buyer’s breach.
§2-710: Seller’s Incidental Damages
(1) Incidental Damages to an aggrieved seller include:
(a) Any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation, care and custody of goods after the buyer’s breach,
(b) In connection with return or resale of the goods, or
(c) Otherwise resulting from the breach.
(C) Differences Between Buyer’s and Seller’s Remedies:
(1) The aggrieved seller that resells can use either: (To use both, he must resell!)
(a) market price, or
(b) cover price
· The
ether it is a losing K or a non-losing K, the same remedies are available.
(i) Lost Profits for Partial Performance of a Non-Losing K:Can use either Formula A, B, or C depending on the jurisdiction and the facts of the case.
Hypo: A K to build a house for 1,000,000 dollars. The builder spent 400K and expected a profit of 100K.
(1) Formula “A”: Damages = Contract Price – Cost Avoided (Loss Avoided)
Damages = 1 million – 500K = 500K
àSame amount of damages using either formula. This gives the builder what he spent and the expected profit. The builder gets his expectations but does not get a “windfall.”
(2) Formula “B”: Damages = Money Expended + Expected Profit + Other Loss Damages = 400K + 100K = 500K
àThis is the formula that is used most often.
(3) Formula “C” AKA Pro Rata: (Minority View)
Look at the job itself and the total expenditures.
àGet the percentage of the K price equal to the percentage of the job completed. This may be unfair because if K is to pave the road, there may be many start-up costs before the 1st foot of road is even paid.
Hypo: Tommy buys a speedboat and dies the next day. The estate does not want the speedboat, so they breach.
Estate: Showed same exact boat actually sold to another customer a week later. The estate says the P made a substitute sale; they sold “that” boat.
Boat Store: The boat store says so what? Whether or not the first boat was breached, they still would have sold the 2nd boat irregardless. So the 2nd sale was not a replacement of the 1st sale. The store had the ability to get more boats.
Hypo: Antique store to sell a one-of-a-kind 200-year old mirror; buyer breached, and store sold “that” mirror to another. In this case, the 2nd sale was a substitute sale. Seller did not have the ability to get more frames.
(4) Restitution: When all 4 requirements are met, you can get restitution for a Non-Losing K. However, expectancy damages will probably give more money here.
