Contracts – Winter 2013
Damages for Breach of Contract (56-70, 75-95, 102-172)
A. Why Study Remedies?
B. The 3 Damage Interests
Two Types of Remedies
· Substitutionary Relief
a. Damages
· Specific Relief
a. Specific performance
b. Injunctions
c. Etc.
3 Types of Substitutionary Relief (Damages)
§346 – Availability of Damages
· Injured party has right to damages for any breach, unless there is no loss, then court may award nominal damages
1) Expectation Interest
a. Amount of money necessary to put the NON-Breaching party in the position he would have been in had the contract been properly performed/there was no breach (puts victim where they expected to be)
2) Reliance Interest
a. Put promisee back in the position in which the promisee would have been had the promise not been made
b. $ necessary to put the non-breaching party in the position he was in before the K was entered into
c. Incurred expenses in performing/preparing to perform
d. Less generous than expectation
e. Comes into Play
i. When Expectation Damages are Uncertain (DEMPSEY)
ii. Losing Contracts (MISTLETOE)
3) Restitution Interest
a. If promisee conferred a benefit on the promisor/improved promisor’s property
b. Deprives promisor of benefit
c. Amount necessary to put the breaching party in a position where they don’t benefit from the transaction
d. Puts promisor back in the position in which the promisor would have been had the promise not been made
e. Least generous
*** Expectation Interest ***
Calculating the Expectation Interest : Restatement 2d § 347
§347 – Measure of Damages in General
Subject to the limitations stated in §§350-353, the injured party has a right to damages based on his expectation interest as measured by
a. The lost in the value to him of the other party’s performance caused by its failure or deficiency, plus
b. Any other loss including incidental or consequential loss, caused by the breach, less
c. Any cost or other loss that he has avoided by not having to perform
Amount of money necessary to put the NON-BREACHING party in the position he would have been had the Contract been property performed/had there been no breach. (Puts victim where they expected to be)
General Damages = Loss in Value + Other Loss – Cost Avoided – Loss Avoided
Hawkins v. McGee [61] – Expectation interest
o Facts: P sued D for not making his hand perfect after an operation.
o Rule: True measure of a buyer’s damages is the difference between the value of the good as they should have been (PERFECT HAND) and the actual value at the time of sale [hand after operation] (including incidental consequences within contemplation at time of K)
o Holding: Perfect value hand – value of hand in present condition
o This does not include pain and suffering BECAUSE it was the price he was willing to pay for a good hand RST 347
J.O. Hooker & Sons v. Roberts Cabinet Co. [76] – Expectation Interest
o Facts: P subcontracted with D to tear out/furnish/install cabinets. A disagreement arose about who was to dispose of old cabinets. D claimed K was null and void. Jury fixed damages for net loss of cabinets, storage and administrative costs and lost profits.
o Rule: A party is only entitled to recover damages for expenses in storing goods that it would not otherwise have incurred without a breach.
§ The purpose in awarding damages it to put the injured party in as good a position as he would have been in had the contract been properly performed. (Expectation Interest)
o Holding: P didn’t actually incur storage damages because they had storage space.
Case of Trinity Church
o P was supposed to last 300 years but crappy roof job by D cut off 30 years.
o D should pay 1/10th of take down costs
UCC§1-103 If UCC doesn’t speak to the issue, apply general contract principles (UCC doesn’t have rules for everything.
UCC§2-102 UCC applies to sale of goods only.
UCC§2-105 Goods are moveable objects, not real estate or services
UCC§ 2-106 Contracts also include future promises à Agreement to exchange things LATER
UCC §1-106: Remedies to be Liberally Administered
1) The remedies provided by this Act shall be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed but neither consequential or special nor penal damages may be had except as specifically provided in this Act or by other rule of law… **In UCC cases the victim of the breach gets his expectation interests**
UCC Sections Regarding Seller Breach
§2-712 “Cover;” Buyer’s Procurement of Substitute Goods
Buyer’s purchased from seller [cover]. If there is a breach the buyer can cover (buy from another seller) and if does this he can use §2-712. If not, he can use §2-713.
1) After a breach within the preceding section the buyer may “cover” by making in good faith and without unreasonably delay any reasonable purchase of or contracts to purchase goods in substitution for those due from the seller.
2) The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages as hereinafter defined (§2-715), but less expenses saved in consequence of the seller’s breach.
3) Failure of the buyer to effect cover within this Section does not bar him from any other remedy.
Cover = Buyer’s equivalent of seller’s right to re-sell. Lets buyer get what he needs.
§2-713 – Buyer does not purchase from another seller
Buyer’s damages for Non-Delivery of Repudiation à Buyer does not purchase from seller breach
1) Subject to the provisions of this Article with respect to proof of market price (§2-723) the measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the K price together with any incidental and consequential damages provided in this article (§2-715) but less expenses saved in consequence of the seller’s breach.
2) Market price is to be determined as of the place for tender or, in cases of rejection after arrival or revocation or acceptance, as of the place of arrival.
§2-715: Buyer’s Incidental and Consequential Damages
1) Incidental damages resu
d with sufficient certainty, he may recover damages based on:
(a) the diminution in the market price of the property caused by the breach, or
(b) the reasonable cost of completing performance or of remedying the defect if that cost is not clearly disproportionate to the probable loss of value to him.
Groves v. John Wunder Co. [912] – Cost of Performance
o Facts: P bought land from D. D had equipment on it and promised to make land as good as it was before. D left land in shambles.
o Rule: Where a contractor willfully and fraudulently varies from the terms of a construction K, he cannot sue and have the benefit of the equitable doctrine of substantial performance.
o Holding: for P. Giving the difference between market value in condition it was at time of K and current value is not good enough when contractor purposely was a douche. P gets damages equivalent to how much it would cost to fix problem.
Peevyhouse v. Garland Coal Mining Co. [917] – Diminution of Value
o Facts: D leased land from P to mine coal. K said that at end of lease D would restore land and estimated cost was $29,000. At end of lease, D did not restore land properly arguing that cost would equal out to more than what farm was worth.
o Holding: for D. If cost of full performance is grossly disproportionate to economic benefit then damages should be diminution of value of the property resulting from nonperformance. Damages should be reasonable and not contrary to justice.
o Dissent: Ct should enforce K/specific performance. D willingly entered K.
Smith v. Red Barn, Inc. 2002 WL 31999468
o Facts: D did a really crap paint job TWICE on car
o Rule: The measure of damages for defective performance is the reasonable cost of making the work performed conform to the contract. This is most widely accepted and generally applied measure of expectancy damages. The repair rule is preferred over damages measured by the diminution in the market price of the property caused by the breach because it is easier to apply. Where the performance is DEFECTIVE as distinguished from incomplete, it may not be possible to prove the loss in value to the injured party due with reasonable certainty.
o Damages on the cost of repairs will be awarded unless the cost of repairs is disproportionate to the probable loss in value to the P due to D’s defective performance. (§348(2)(B)
o Holding: Costs of labor/replacement parts are substantial. They are the direct result of the D’s failure to prepare car for painting. P gets benefit of his bargain/putting him in as good as a position as he would have been in had the K been performed.
Courts don’t like 347(2) à Constantly don’t follow it. Page 42
