Contracts Outline—Professor Roberts
Types of Remedies:
1. Expectation: In most breach of contract cases, the plaintiff will seek, and receive, protection for her “expectation interest.” Here, the court attempts to put the plaintiff in the position he would have been in had the contract been performed. In other words, the plaintiff is given the “benefit of her bargain,” including any profits she would have made from the contract.
2. Reliance: Sometimes the plaintiff receives protection for his reliance interest. Here, the court puts the plaintiff in as good a position as he was in before the contract was made. To do this, the court usually awards the plaintiff his out-of-pocket costs incurred in the performance he has already rendered (including preparation to perform). When reliance is protected, the plaintiff does not recover any part of the profits he would have made on the contract had it been completed.
When used: The reliance interest is used mainly: (1) when it is impossible to measure the plaintiff’s expectation interest accurately (e.g., when profits from a new business which the plaintiff would have been able to operate cannot be computed accurately); and (2) when the plaintiff recovers on a promissory estoppel theory
3. Restitution: Finally, courts sometimes protect the plaintiff’s “restitution interest.” That is, the court forces the defendant to pay the plaintiff an amount equal to the benefit which the defendant has received from the plaintiff’s performance. Restitution is designed to prevent unjust enrichment.
When used: The restitution measure is most commonly used where: (1) a non-breaching plaintiff has partly performed, and the restitution measure is greater than the contract price; and (2) a breaching plaintiff has not substantially performed, but is allowed to recover the benefit of what he has conferred on the defendant.
Note: In contract actions, all three of these measures are used at least some of the time. In quasi-contract actions, expectation damages are almost never awarded, but reliance and restitution damages frequently are. (For instance, reliance damages are often used in promissory estoppel cases where the suit is really in quasi-contract, and restitution is used by materially-breaching plaintiffs who are in effect suing in quasi-contract.)
Chapter 1—Remedies for Breach of Contract
Hawkins v. McGee (hairy hand)
Formula for calculating: P’s expectation damages are equal to the value of D’s promised performance (generally the contract price), minus whatever benefits P has received from not having to complete his own performance.
Groves v. Wunder (gravel case)
Cost of completion or decrease in value: Where defendant has defectively performed, plaintiff normally can recover the cost of remedying defendant’s defective performance. But if the cost of remedying defects is clearly disproportionate to the loss in market value from the defective performance, plaintiff will only recover the loss in market value.
Economic waste: This principle is often applied where the defect is minor, and remedying it would involve “economic waste,” such as the destruction of what has already been done.
Peevyhouse v. Garland Coal & Mining Co—no person can recover a greater amount of damages for breach of an obligation than he would have gained by the full performance.
Acme Mills & Elevator Co. Johnson (wheat sacs case)—this case involves an efficient breech of contract.
· Efficient breach—an intentional breach and payment of damages by a party who would have a greater economic loss by performing.
· Expectancy will not be awarded in cases where there is an efficient breach. Restitution damages may be awarded.
Estoppelàmeans to stop/bar/prevent
Louise Caroline Nursing Home, Inc. v. Dix Construction Corp (nursing home)
Court will not reward damages based on fair market value if the cost of completing is the same as the amount not paid in the contract. This is because plaintiff really didn’t suffer damages from breach and can get same results using another company.
Illinois Central R.R. Co. v. Crail—fair market value is not a rule but is convenient needs to award expectancy.
Section Two – Limitations on Expectation Damages
Rockingham County v. Luten Bridge (dumb people keep building)
Where one party refuses to perform in advanced time of fixed performance, parties may sue for damages occasioned on the breach; however, if notice is given, damages will not be awarded for expenses incurred after notice.
duty to mitigate: A nonb
ch the contract before it is time for performance.
The doctrine of anticipatory breach by repudiation is intended to aid the injured party, and any effort to convert it into a benefit to the repudiator should be resisted.
Painter is painting house…house owner refused to pay. Painter should stop painting. Can sue for value of services rendered.
Neri v. Retail Marine Corp. (boat case)
Lost volume selleràA seller of goods who, after a buyer has breached a sales contract, resells the goods to a different buyer who would have bought identical goods from the seller’s inventory even if the original buyer had not breached. * Such a seller is entitled to lost profits, rather than contract price less market price, as damages from the original buyer’s breach. UCC § 2-708(2).
Hadley v. Baxendale (crank shaft)
Foreseeability rule—where two parties have made a contract which one of them has broken, the contract should be such as may fairly and reasonably be considered either arising naturally, from such breach of contract itself, or such as may reasonably be supposed to have in the contemplation of both parties, at the time they made the contract, as probably the breach of it.
Least cost avoideràwhatever party is able to avoid the problem before it happens is the least cost avoider.
Lamkins v. International Harvestor
Defendant is not responsible for damages that were not called to his actions when contract was signed. Defendant may not have breached if circumstances were known. Notice of interest or probable actions are not enough to held seller liable for special damages.
Victoria Laundry Ltd. V. Newman Industry Ltd. (washer)
In case, plaintiff could recover because the product that was being shipped was for business use and should have been known by the defendant.
Valentine v. General American Credit, Inc.