Select Page

Contracts
University of Connecticut School of Law
Siegelman, Peter

I. Damages
a. Expectation
i. = loss in value to b/c other parties failure + incidental or consequential loss b/c of breach – cost or loss avoided for not having to perform
ii. Put promisee in condition would have been if transaction occurred
1. So return any profit ∏ got from the deal
iii. Good because encourages only efficient breaches à when one party better off and no one worse off
b. Reliance
i. = expenditures made in preparation of performance – expenses saved by breach
ii. Put promisee back in position as if had not entered K at all
iii. Used when
1. Profits too uncertain but ∏ can how expenses
2. No enforceable K, but P entitled to something under promissory estoppel
3. Failure to perform on land contract and jurisdiction does not allow expectation damages
c. Restitution
i. Damages that force promisor to give up benefits from the promise
ii. Covers any benefit conferred by ∏ on the ∆
iii. NOT available when ∏ has fully performed

d. Hawkins v McGee (p61)
i. Botched hand surgery
ii. Expectation Damages OK
1. Surgeon guaranteed a perfect hand
2. Expectation D = value of perfect hand – value of current hand + incidental costs

e. Nurse v Barnes 1664 (p69)
i. Iron mill rented for 6mo at $10. Mill values at $20 per year. Landlord breached – refused to let tenant use mill
ii. Jury awarded $500 damages
iii. Special damages
1. Cover cost of inventory etc
2. He expended $490 in anticipation of the K

iv. If Restitution à promisee back in position before promise
1. IF he could sell inventory, only get $10
v. If Expectation à promisee in position if K had been completed
1. Could collect for lost profits

f. Hooker v Roberts Cabinet Co (p71)
i. NOT a UCC case à is regarding the terms of the contract (disposal) NOT the sale of goods à Common Law case
ii. ∏ was entitled to lost profit – Expectation Damages
1. NOT entitled to storage costs (big warehouse, no added expense)
2. WAS entitled to salary of project manager – not a cost fixed on project, no evidence salary was included in lost profit estimation
iii. Lost profit is Special Damages
1. Must prove ∆ KNEW special damages to collect

g. Tongish v Thomas (p79)
i. ∏ to sell sunflower seeds to coop, price goes up, breaches K and sells seeds at higher price to ∆
ii. UCC art 2 à Contract price v market price
1. Coop owed missing profits
iii. UCC art 1 à Person who’s K breached is owed expectation damages
1. Coop would only get the handling fee
iv. Court awarded art 2 à Coop gets the full profit of the Market price – k price
1. This is more then he expected to make if the K was kept, but it is what it will now cost him to cover
v. In this case Restitution and Expectation are equal
1. both would have to give coop enough to cover
h. Statutes – p78
i. §1-103
ii. §2-02
iii. §2-105
iv. §2-106

i. Rule Application
i. Legislative Intent
1. Use most specific statute
2. Prefer Pmkt-Pk (price market – price K)
ii. Precedent

iii. Consequences/Incentives
1. Goal of system is to encourage performance of K’s
2. Enrichment – coop got enrichment b/c discourages breach

j. Type of Losses
i. Loss in value
ii. Incidental damages
iii. Consequential damages

II. Limitations on Damages

a. Remoteness or unforeseeability of harm

§351, p. 101: Unforeseeability and other limitations on damages
– not foreseeable by party in breach no damages
– foreseeable if:
i. loss follows in ordinary cause of events (consider separation in time and space between breach and consequences, customs of the trade, etc)
ii. party in breach knows of special circumstances
– exceptions to forseeability damages:
i. excluding loss of profits, paying only reliance damages
ii. if giving damages exults in overcompensation
– damages can be curtailed by excluding recovery for lost profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation

a test of foreseeability is to determine whether D would have agreed to the contract price had he known of the extent of his liability

b. special damages. Damages that are alleged to have been sustained in the circumstances of a particular wrong.
– To be awardable, special damages must be specifically claimed and proved
– Market Value Test à for delayed goods
i. usually for perishable (food).
ii. Calculate lost market value due to delay

b. Hadley v Baxendale 1854 (p86
i. Crank shaft at mill broke, ∏ asked clerk at ∆’s toexpress ship
ii. Is Baxendale liable for lost profits?
1. NO – error for judge to tell jury to consider lost profits

Hadley Rule – the promisor is responsible for foreseeable damages and foreseeable is the kind of thing you can reasonably expect to happen or have notice of

iii. Foreseeability Default– can ONLY collect on foreseeable damages
1. Can K around this if you tell someone what the damage will be if they screw up ahead of time
2. Breaching party has to be on notice of the damages
a. Actual notice – you tell them OR
b. Constructive notice – it was obvious

c. Hector Martinez v So Pacific Transportation. 1979 (p97)
i. ∏ shipped a dragline, it’s late and damaged
ii. ∏ sues for cost of repairs + rental price for time dragline late
iii. Trial – DISMISSED claim for delay
1. it’s Special Damages – ∆ not aware of cost
iv. Court held that the lost rental value WAS foreseeable
1. Special Damages OK since ∆ knew their potential
2. Rental value = sufficiently specific to calculate
i. Uncertainty of harm
§ 352, p.118: Uncertainty of loss – limitation on damages
– damages not recoverable for loss beyond an amount that evidence permits to be established with re

ses saved in breach

o all aspects of resale should be reasonable

a. Neri v Retail Marine 1972 (p140)
i. Neri broke K to buy boat, ∆ was able to resell it @ same price
ii. Neri gave deposit of $4,250
iii. ∆ profit was supposed to be $2,579 & spent $674 to store boat
iv. Did Retail mitigate?
1. NO – they would have sold 2 boats

v. Neri is owed $4,250 and Retail is owed $3,253 = $997 for Neri
vi. Under §2-708 à Pmarket – Pk = 0
1. Doesn’t apply here b/c marine is a retailer

b. Default rules and penalties
i. §2-718 – Liquidation or limitation of damages
1. Buyer can get back 20% of the value of performance or $500, whichever is less

ii. §2-708 – Seller’s damages for non-acceptance or Repudiation
1. Market Price – unpaid K price

IV. Liquidation Damages

Rule: A liquidated damages clause is contracting around the default rule of the duty to mitigate

§ 2-719,p. 147: Contractual modification or Limitation of remedy Default Rules – parties can contract around by inserting expressed clauses to the contrary unless clause is unconscionable

a. warranty clause: limits liability by providing the exclusive remedy for a breach excluding damages for other foreseeable losses
b. liquidated damages: can expand or limit damages, expressed explicitly in contract only if they are reasonable AND do not exceed the loss foreseeable by a breach, §356, p.159, applies only when actual damages cannot be ascertained and must be proportional to actual damages
Liquidated damages are good because they place a limitation on liability and sometimes offer a basis for when there’s no easy method to calculate damages in a breach however penalty liquidation damages are bad because they hinder efficient breaches.

§2-718 à Reasonableness Test: (look at factors and policies of the time)
1. Did parties intend to provide for damages for a penalty?
2. Is injury caused by breach one that is difficult or incapable of accurate estimation @ time of contract?
a. difficult of producing evidence of damage
b. difficult in determining what damages will be caused
c. difficult in determining damages contemplated
d. absence of standardized measure
e. difficulty in forecasting all damages
3. Are the stipulated damages a reasonable forecast of the harm caused by the breach?
a. time of contracting