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University of North Carolina School of Law
Burk, Bernard A.

Burk—Remedies—Fall 2014

I. Compensatory Damages: Paying for the Harm

a. Basic Principle: Restoring Plaintiffs to Their Rightful Position

i. Plaintiffs should be restored to their original position—before the wrong occurred—as nearly as possible

1. Must first determine what the specific wrong was

2. Then identify the monetary value of the loss

ii. One-Satisfaction Rule

1. Plaintiff can recover only once—only one bite at the apple

iii. U.S. v Hatahley

1. Federal government seized and sold/destroyed Navajo horses that were grazing on federal land

a. Were specially raise and trained

2. Gov’t did not give proper notice—due process

3. District Court gave them $3,500 for mental anguish and $395 per horse

a. Basically, an arbitrary valuation

4. Tort damages must place the plaintiff back in their rightful position, had the tort not occurred

5. Identifying damages—must be particularized harm—cannot compensate for past atrocities committed against the Navajo

a. Loss of animals

b. Loss of use/profits

c. Mental anguish

b. Value as a Measure of the Rightful Position

i. Lesser of Two Rule

1. Market value or replacement value—plaintiff is entitled to the lesser of the two

a. Special property exception

i. Usually applies to non-profits—like churches

ii. For things that are seldom traded or have no market value

1. Unique improvements, for a specific purpose;

2. Specific use for improvement and is so specially used;

3. No market for this type of property/sales of property for that use; AND

4. Improvement must have been appropriate and feasible to replace

b. Trinity Church v. John Hancock Mutual

i. Historic church’s foundation is damaged with construction next door

1. Cracks in foundation—can’t be fixed without tearing the whole thing down and replacing—but not yet necessary

a. Can’t determine what the actual diminution of property value is

ii. Special property exception applies to lesser of two rule—church should be entitled to reasonable replacement value

iii. Takedown theory of damage assessment

1. When it becomes necessary to take the building down and reassemble

2. Trinity calculated reproduction cost less current physical depreciation

2. In Re September 11th Litigation

a. Man negotiated a 99-year lease for the twin towers just a few months before they went down

i. Lease required him to rebuild

b. Sues the airlines for negligence

c. Diminution of property’s value—about $2.8 billion

d. But would cost closer to $16.2 billion to replace them

e. Fair Market Valuation

i. Price a willing buyer would pay & reasonable seller would accept—with full knowledge of all relevant facts—and without any compulsion to buy or sell

ii. Recent sale price negotiated between the parties is good evidence of market value

iii. If sale is recent, can serve as a rebuttable presumption of the market value

c. Contract v. Tort Damages

i. Tort/Property

1. Wrong = harm to plaintiff/property

2. Measured by what was taken away—diminution of property value

3. Reliance damages—whatever

ii. Contract

1. Wrong = breach of contract

2. Expectation interests

3. Remedy = what it would take to put the plaintiff into the position they expected to be in once the contract was performed

4. Reliance Interest

a. Restore the plaintiff to where she would be had the deal never been made

b. Plus incidentals

5. Expectation Interest

a. Restore plaintiff to where she would have been had the deal been performed as bargained for

b. Eg. Profit

6. Restitutionary Interest

a. Take away the benefits the defendant wrongfully gained by breaching the contract

d. Expectancy or Reliance as Measures of the Rightful Position

i. Benefit of the Bargain—Expectation Interest—default for contract recovery is to put the plaintiff into the position she would have been in had the contract been performed satisfactorily

ii. Expectancy damages only recoverable for contract cases, not tort cases

1. Smith v. Bolles

a. Smith represented to Bolles that stock was worth way more than it actually was

b. But because it was a tort case, he was only allowed to recover his actual losses

c. Not entitled to recover the value of the stock that Smith had represented—just the difference between the FMV and what he paid

2. Chatlos v. National Cash Register

a. Breach of warranty

b. NCR represented that one of their computers could do all these various things that Chatlos needed

c. The machine they got was cheap, but it didn’t do most of those things

d. Chatlos was entitled to recover the difference between what was promised and what they received

iii. Neri v. Retail Marine Corp.

1. Neri special ordered a boat and put down a deposit

2. He backed out, but the dealer was able to sell the boat to someone else

3. Seller shows difference between what he got and what he had expected to make off the Neri + incidental storage costs

4. UCC 2-708

a. When buyer doesn’t accept or repudiates, damages are the difference between the market price and contract price + incidentals reasonably incurred

i. FMV is what other buyer paid + incidentals (storage costs)

b. If that’s not enough, then seller could also be entitled to profits + incidentals

5. Buyer can have back his deposit after the offset to the seller

6. Seller must take reasonable steps to mitigate damages

a. If seller keeps the goods, ge

amages unless it’s unconscionable

1. Must still have limited adequate remedies available (repair & replace)

2. Essential purpose

a. Repair & replace fails essential purpose when seller is unwilling or unable to repair or replace in a reasonable amount of time

3. Unconscionable

a. Per se unconscionable to disclaim liability for personal injury

4. Kearney v. Master Engraving

a. Bought an expensive engraving machine that was largely inoperable (50% of the time)—in constant need of repair

b. Warranty only provided for repair & replacement (no incidental nor consequential damages)

ii. If limited remedy provide fails essential purpose, then the limitation clause is invalidated as well

4. Liquidated Damages Clauses

a. Must bear a reasonable proportion to the probable loss AND amount of actual loss if difficult or impossible to calculate

i. Was the liquidated damages clause a reasonable approximation of the actual damages?

ii. Or was it WAY off when compared with actual damages?

iii. If your expectation was reasonable, but that wasn’t what ended up happening, then your liquidated damages clause might still be considered reasonable in some jurisdictions, like NY

iv. Room for advocacy

b. Over-liquidated Damages

i. When the liquidated damages specified in a contract bear no relationship to actual loss

ii. TWA

1. TWA defaulted on payments on a lease of a few planes—near the end of the lease

2. The liquidated damages clause meant TWA had to pay a crazy large amount of money—way more than the last few months of that lease were worth

3. Not enforceable—bears no relation to actual damages

c. Under-liquidated Damages

i. Are liquidated damages clauses exclusive?

1. Yes, unless unconscionable (UCC 2-718)

ii. Northern Illinois Gas

1. NIG had contracted to buy napththa from Energy Coop to convert into natural gas

2. But then the gov’t eased price controls, and NIG stopped buying. Energy Coop sued for breach of contract

3. Non-breaching party did not want to use the liquidated damages clause—wanted more damages

a. District court said the liquidated damages clause gave the non-breaching party a choice of remedies—but it doesn’t