CONTRACTS B- PROFESSOR LUND SPRING 2011
1. Damages for Breach of Contract
There are two branches of remedies for breaches of contracts: specific performance (nonmonetary) and substitutionary (monetary). The most frequently sought remedy for breach of contract is an action at law for damages, a substitutionary remedy. The types of damages are compensatory (puts the nonbreaching party where she would have been had the promise been performed), punitive (generally not awarded in contract cases), nominal (awarded were a breach is shown but no actual loss is proven), and liquidated (parties stipulate what damages are to be paid in the event of a breach).
a. Three Compensatory Damage Interests
The three types of compensatory damages interests are expectation – the amount necessary to put the non-breaching party in the position they would have been in had there been no breach, reliance – the amount necessary to put the non-breaching party in the position they would have been in before the contract, and restitution – the amount necessary to put the breaching party in the position they would have been in before the contract. The standard measure of damages is the expectation interest, which results with the largest amount of money, followed by reliance, and then restitution, which provides the lowest amount of money.
§347. Measure of Damages in General (Expectation Interest): Subject to the limitations in §350-353, the injured party has a right to damages based on his expectation interest as measured by (a) The loss 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.
Incidental damages include any expenses reasonably incurred by the buyer in inspection, receipt, transportation, care, and custody of goods rightfully rejected and other expenses reasonably incident to the seller’s breach, and by the seller in storing, shipping, returning, and reselling the goods as a result of the buyer’s breach.
Consequential damages consist of losses that any reasonable person would have foreseen would occur from a breach at the time of entry into the contract. In a contract for the sale of goods, only a buyer may recover consequential damages.
Hawkins v. McGee: Damages are determined for a breach of contract by the expectancy damages plus incidental losses resulting from the breach. Expectancy damages are damages sufficient to put the plaintiff in the position he would have been if the contract had been performed. Hawkins underwent surgery to repair scar tissue on his hand and Dr. McGee gave him a 100% guarantee that he could repair the scar tissue but the surgery was unsuccessful and Hawkins was left with a hairy hand. Hawkins sued for breach and also pain and suffering. Hawkins could not bring a tort claim because there was no provable negligence; normally a doctor’s claims regarding treatment do not form a contract, but the 100% guarantee amounted to a contract here. The court gave Hawkins the difference between his expected perfect hand and what his received hairy hand. The court did not grant pain and suffering damages because the same pain and suffering would have been incurred to get a perfect hand.
McGee v. United States Fidelity and Guaranty Co.: An insurance company will not cover a special contract as a special contract is not the same as “malpractice, error or mistake”. McGee’s insurance company notified him that they would not cover the damages paid to Hawkins because Dr. McGee made a special contract to cure or guarantee the results of his treatment.
*Another way to calculate the expectation interest is lost net profit + reliance interest.
J.O. Hooker & Sons v. Roberts Cabinet Co.: The Uniform Commercial Code (UCC) does not govern a contract for the installation of cabinets. A party is entitled to lost profits on a claim for breach of contract. Hooker was a general contractor to remove and install cabinets and hired Roberts to remove the cabinets and install new ones but a dispute arose over the required disposition of the removed cabinets. Hooker sent Roberts a fax considering the contract void and offered to buy cabinets that Roberts had already installed. Roberts is entitled to lost profits if he had performed the contract, but not those profits lost as a result of his factory being shut down for a few days. An award of administrative costs was proper but not for the storage of the cabinets as that was a fixed cost and Roberts did not have to rent new or additional space as a result of the contract performance.
Trinity Church v. John Hancock Mutual Life Insurance Co.: The church was a special purpose property and is entitled to how many years were lost over the total lifespan of the church. Therefore, the church was entitled to 1/10 of the takedown cost. The church was going to have to be taken down anyways so the court needed to compensate for an earlier takedown than anticipated.
Sales Contracts: The Uniform Commercial Code
§1-103. Supplementary General Principles of Contract Law Applicable: Unless displaced by the particular provisions of this Act, the principles of law and equity…shall supplement its provisions.
§2-102. Scope; Certain Security and Other Transactions Excluded from This Article:…[T]he Article applies to transaction in goods…
§2-105. Definitions: Transferability; “Goods”…: “Goods” means all things which are movable…”Goods” also includes the unborn young of animals and growing crops…
§2-106. Definitions: “Contract”; “Agreement”; “Contract for Sale”; “Sale”; “Present Sale”…: …“Contract” and “agreement” are limited to those relating to the present or future sale of goods…
§1-106. Remedies to be Liberally Administered: The remedies…shall be liberally administered to the end that the aggrieved party may be put in as a position as if the other party had fully performed but neither consequential nor special nor penal damages may be had…
*Generally, the contract breacher is the seller when market prices go up and the buyer when market prices go down.
§2-712. “Cover”; Buyer’s Procurement of Substitute Goods (when seller breaches): (1) After a breach, the buyer may cover by making in good faith any reasonable purchase of 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, but less expenses saved in consequence of the sell
w days earlier. If it is not reasonable to assume that the party would have implicitly agreed to be bound by more than the ordinary damages, then no agreement has been made. The tacit agreement test is only upheld in Arkansas.
ii. Certainty of Harm
§346. Availability of Damages: (1) The injured party has a right to damages for any breach by a party against whom the contract is enforceable unless the claim for damages has been suspended or discharged. (2) If the breach caused no loss or if the amount of the loss is not proved under the rules, a small sum fixed without regard to the amount of loss will be awarded as nominal damages.
§349. Damages Based on Reliance Interest: As an alternative to expectation damages (§347), the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty would have been suffered by the injured party if the contract had been performed.
In cases of losing contracts (a contract where the actual value of the services or goods to be provided under the contract is higher than contract price), the victim gets his reliance interest, but if a breaching party can prove exactly how much the victim would have lost overall, that loss will be deducted from the victim’s recovery. This will mean that the victim’s recovery will be reduced from a reliance interest to an expectation interest.
*A party cannot always get reliance in cases of losing contracts but a party may be able to get the restitution interest. A restitution interest will not be reduced.
§352. Uncertainty as a Limitation on Damages: Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty.
Chicago Coliseum Club v. Dempsey: Compensation for damages must be established by evidence such that there is a reasonable degree of certainty as to the existence of the damages being claimed. The Coliseum Club made a contract with Dempsey to promote Dempsey’s fight and Dempsey agreed not to engage in any boxing matches after and prior to the date of the fight. Dempsey later claimed there was no agreement and that he was scheduled to fight someone else. The Club is entitled only to expenses incurred in furtherance of the performance such as extra secretary fees and architect fees (who had to build a special domain for the fight). The lost profits were not provable by the Club based on uncertainty in the ability of the promoters, weather conditions, the possibility of counter attractions, etc.
