I.Remedies A. EXPECTATION INTEREST (Putting the aggrieved party where they expected to be as a result of performance.) 1. DISCUSS UCC, WHEN APPLICABLE, LEASES, ETC.)& BONEBRAKE TEST?? 2. Protecting the Expectation Interest 3. Substitute Contract (Preferred) (p.49): encourages the aggrieved party to enter a substitute contract and then award damages to make up any remaining losses. Seller’s Damages (Mitigation of Losses): a. b. 2-703, In General 2-704, Identify Goods to the Contract Notwithstanding Breach or to Salvage Unfinished Goods?? c. 2-706: , Resale Including Contract for Resale: [(contract price – resale price) + incidental damages allowed - expenses saved from buyer’s breach] d. 2-708, For Non-Acceptance or Repudiation (Non-Resale) 1) 2-708(1): [(unpaid contract price – market price) + incidental damages allowed - expenses saved from buyer’s breach]. IF INADEQUATE TO PUT SELLER IN AS GOOD A POSITION AS PERFORMANCE, THEN…2-708(2) 2) 2-709, Action for the Price: when buyer fails to pay the price as it becomes due, seller can recover: [the contract price of the goods buyer accepted or the conforming goods lost or damaged + incidental damages] OR [the contract price of goods if the seller cannot resell after reasonable price and effort + incidental damages] 4. Inferior Substitute Contracts (p.50) a. b. 2-708(2): [expected profit + incidental damages allowed + due allowance + due credit] 2-710: the seller can always recover incidental damages incurred as a result of the breach Parker v. 20th Century Fox o Issue: Can [P]’s refusal of [D]’s substitute offer be used in mitigating damages? Rule: The measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon for the period of service, less the amount the employer affirmatively proves the employee has earned or with reasonable effort might have earned from other employment. (IOW, [agreed salary – proved mitigated earnings]. This rule is similar to 2706 and 2-708(1).) However, the employer must show that the other employment was comparable or substantially similar. o Retail Marine Corporation o o Issue: What are the proper measure of damages? Rules: 2-718(2). the expectation interest. respectively. Majority opinion also raised the issue but did not discuss it b/c it was not raised at trial. substance. and therefore it is an issue of triable fact. Did [P] act reasonably in refusing it? The dissent holding is. Liquidation or Limitation of Damages. the difference b/n the majority and dissenting opinions is one of procedure vs.” Also. summary judgment not appropriate b/c “reasonable minds could differ” as to the similarity of the work.66) The buyer despite her breach may have restitution subject to offset to the extent that the seller establishes a right to recover damages under the provisions (subsections 2-4??) other than subsection (1) 1) 2-718(1): Either party may liquidate damages but only to a reasonable amount in light of anticipated or actual damages resulting from the breach 2) 2-718(2): where seller justifiably withholds delivery of goods b/c of breach buyer is entitled to restitution Neri v. o Dissent: The issue is. no factual dispute was presented on the issue (IOW. at most negates. the strength of the duty is determined by the employment alternatives available. Deposits: (p. 2-708(1) and (2). we don’t know if Parker ever sought substitute employment) Take away: RULE EXCEPTION: The duty to mitigate at least limits.o Holding: [P]’s refusal to accept can’t be used to mitigate [D]’s damages b/c the offer was of employment “both different and inferior. Hence. Answering both questions. [D] didn’t present evidence to prove that the substitute was “comparable or substantially similar”). There is a duty to mitigate but not a very strong duty. The court concerned with control and same political views Also consider which facts are missing (e. however 2-718(3) limits such restitution by offsetting .g. however. required answering the same question that is subordinate within the rule: Was the offer substantially similar to the original offer? This is where the two opinions diverge in their answers. 2-718. and 2-710: 2-718(2) entitles the BB to restitution. Buyer’s Restitution (Limits on Seller’s Damages) c. 2-718(3). Jordan has not mitigated damages and there must be an evidentiary hearing on how much his claim should be reduced consistent with his duty to mitigate.89) Buyer’s Remedies a. Take away: RULE EXCEPTION: Lost Volume Seller (LVS) negates the mitigation principle. Jordan v. o Holding: Trial court correct to deny attorney’s fees incurred b/c not an expense intended by the UCC . Then burden shifts back to NBS to prove it had no duty to mitigate b/c it is a LVS. So must apply 2-708(2). and 1) 2-711(2)(b): obtain specific performance b. Trial court erred in not applying the recent statute change. recover. 2708(1) is inadequate to put seller in as good a position as performance. Performance Rather Than Damages (p. also cover. Worldcom o Issues: Should either motions made by both parties for summary judgment be granted? Rules: Federal Rule of Civil Procedure 56(c) allows summary judgment only when “there is no genuine issue of material fact. Then burden shifts to BB to prove [P] had duty to mitigate.g. NBS has initial burden of establishing that BB breached K. offset by (less) [D]’s right to lost profit and incidental damages. Courts award reasonable incidental damages. [P]’s are entitled to restitution of their deposit. Retail Marine) to mitigate damages. Take away: Mostly a lesson in civil procedure.it against the seller’s right to damages provided by 2-708(1) and (2). in General: the buyer may cancel and in addition to recovering damages. not 2708(1). AND 2-710 establishes NBS’s right to incidental damages.” Holding: As a matter of law. 2-716. 2-711. Impossible for a LVS with an “inexhaustible supply” (e. Buyer’s Right to Specific Performance or Replevin 1) 2-716(1): where goods are unique or in other proper circumstances 2) Official Comment #2: Specific performance is no longer limited to goods which are . o 5. so apply 2-708(2). 2) concluded that the clause was actually a penalty b/c it always assured o o . United Drug Co. California’s common law (Long Beach Drug Co v. However.Copylease Corp. v.) establishes that (1) a remedy is not necessarily inadequate merely b/c calculating damages may be difficult and (2) courts are adverse to ordering specific performance. Breach Deterrence vs. Copylease can recover only damages. Memorex Corp. Carborundum Company o Issues: 1) Does Lake River’s entitlement to damages also entitle it to assert a lien against Carborundum’s property? 2) If not valid.” AND 3) Lake River is entitled to its Illinois common law damages [unpaid contract price – expenses saved b/c of breach] Holding: 1) The court rejected Lake River’s lien claim as invalid. under 2-716(1). Holding: Absent an exception to the general rule. what are the proper damages to be assessed? Rules: 1) The court could find no rule on facts similar to the case to establish the validity of Lake River’s lien.’” If Copylease can prove 2-716(1). Copylease may be entitled to specific performance if it can prove that Memorex’s toner is unique OR that Copylease’s “inability to cover is strong evidence of “’other proper circumstances. Take away: RULE EXCEPTION: 2-716(1) courts will grant specific performance for damages in addition to damages if the NBB can prove uniqueness OR “other proper circumstances.100) Lake River Corp. then damages would require measuring the uniqueness or degree of difficulty in covering against the difficulties in enforcement which have caused courts to refrain from granting specific performance. o Issue: Is a NBB (Copylease) entitled to specific performance of K as well as damages? Rule: Contrary to Copylease’s argument. v. 2) “…Under Illinois law a liquidation of damages must be a reasonable estimate at the time of contracting of the likely damages from breach. Liquidated Damages (p.” Become sensitive to exclusivity in contracts Specific performance creates institutional problems: 1) courts don’t have the means to enforce judgments and 2) courts don’t want to force parties into arrangements and continuing relationships they don’t want o o 6. and the need for estimation at that time must be shown by reference to the likely difficulty of measuring the actual damages from a breach after the breach occurs. then is the liquidated damages clause in the contract valid? 3) If not valid. Lake River more than its actual damages. so the UCC does not apply Take away: Contrary to Judge Posner’s opinion.) It is possible for both parties to renegotiate more favorable terms in a rising market that is wealth-maximizing for both. 7. it is unlikely that it could have been an efficient breach b/c there was not a substitute deal. AND 3) Even though the clause was an invalid penalty. otherwise any gain from the breach is eaten up in the damages analysis. o o . AND 2) the profits (CLARIFICATION: the profits to be made in operating a business using the goods the BS was supposed to sell NOT the profits the BS was going to make from the sale) (is this always the NBB?? Can it be a BB??) the NBB/non-breaching party can prove it lost as a consequence of the breach b/c the beach and the profits are closely related. It is more reasonable to have liquidated damages clause if it is difficult to estimate damages. Lost Anticipated Profits & Consequential Damages (p.113) Buyer’s Damages a. Judges want to retain determination of punitive (penalty) issues b/c it will keep contracts free from emotions Carborundum never gives up ownership of the goods. b. Baxendale (THE FORESEEABILITY TEST) o Issue: Can [P] recover the lost profits it would have otherwise earned from performance? The Hadley Rule: The non-breaching party (usually the NBB) is entitled to: 1) damages that arise “naturally” from the breach OR “special terms” damages both parties agreed to when they reasonably anticipated (foresaw) and communicated to each other the consequential damages arising from “special circumstances” at the time of making the contract. 2-713. (Efficient breach makes most sense when BS has a special deal that beats the market price. Buyer’s Damages for Non-delivery or Repudiation: [(contract price – market price@breach) + incidental damages – expenses saved from seller’s breach] 2-715: Buyer’s Incidental (subsection 1) and Consequential (subsection 2) Damages 2-715(2): grants the buyer consequential damages as defined by (a) and (b) Hadley v. c. Lake River is still entitled to damages and the case was returned to the lower court to re-determine both parties’ damages. Consequently. RULE NISI?? Why important to this case? Take away: Rule absolute is important to this case b/c the courts want to protect the breaching seller from damages that they could not foresee. Rule absolute is a court order “to show cause. the causation element of the Hadley Rule is omitted. the NBB can recover lost profits. Contracts. Omitting the causation element takes the discretion away from juries in deciding the strength in relationship b/n lost profits and the breach. there might be other reasons for the loss of profits besides the delay. However. In 2-715(2).o Holding: No. Otherwise damages may be measured by the rental value of the property. This forces the buyer to be more specific about the terms needed for the seller to perform the contract. a buyer must foresee “special circumstances” and communicate these to a seller so that in the case of a breach. Evergreen Amusement Corporation v. Holding: A new business’ claim for loss of profits is too speculative b/c it does not have an established operating history to provide a sufficient o o . Per both rules. d. Milstead (PROOF OF DAMAGES WITH REASONABLE CERTAINTY) o Issue: Can a new. must prove that profits are closely related to the breach and were lost b/c of the breach. 2-715(2) offers more protection than the Hadley Rule to the NBB b/c omitting makes it easier to hold the BS liable.”affirms the party asking for the order. loss of profits for a non-established business cannot be recovered b/c they are only speculative and cannot be determined with the requisite degree of certainty. to recover lost profits. 331: Damages are recoverable for lost profits only if the evidence showing the loss provides a sufficient basis for estimating their monetary amount with reasonable certainty. The loss of profits cannot reasonably be considered as resulting from the delay (breach). this is difficult to prove. Official Comment of 2-715: the buyer (NBB) has the burden of proving consequential damages (loss of profit) and the liberal administration of remedies will allow the NBB to calculate damages in any way that is reasonable under the circumstances. unestablished business submit evidence to prove loss of profits? Rules: Restatement. In the Hadley Rule. Take away: B. If damages are too speculative : use reliance .” 2) There was sufficient evidence presented to base an awarding of loss of profits. Chunng v. Two types of reliance loss (p. reckless nature of the breach. witnesses must be qualified. Take away: The best argument that the Court of Appeals got it right was that loss of profits was too speculative. It is uncertain if Evergreen’s “proffered” witness was an expert witness. Although Voronaeff’s income stream analysis figures for estimating the loss of profits were not based on a history of profit. 1) Buyer makes expenditures to unlock the value of Seller’s performance. Outrigger Hotel: “Where a contract is breached in a wanton or reckless manner as to result in a tortuous injury. RELIANCE INTEREST (Compensating the non-breacher for out-of-pocket expenses made. Holding: 1) Yes??. the [D] failed in their crossexamination to prove that it was merely speculative. and held with prior precedent.” but “the wanton.” 2) The Court of Appeals rejected the harsh “per se” rule and instead adopted a rule allowing the awarding of damages for a new or unestablished business where a [P] can prove lost future profits with reasonable certainty. The trial court was right to base damages on fair rental value and actual monetary losses incurred.139): a. the analysis was reasonably certain enough. Chung offered Voronaeff as an expert witness. Furthermore. 2) Buyer discontinues seeking contracts from other sellers (reliance of lost opportunities—no recovery for damages) 2-715(2): grants the buyer consequential damages as defined by (a) and (b) o o b.) 1. no operating track record.basis for estimating damages. Kaonohi o Issues: 1) Can damages for emotional distress resulting from a breach be awarded in a commercial contract? 2) Can an unestablished business be awarded damages for loss of anticipated profits? Rules: 1) Dold v. 2. Evergreen “proffered a witness” as evidence for loss of profits but the court dismissed it. the aggrieved person is entitled to recover in tort. the “dispositive factor” is not “the nature of the contract. Reliance damages are never greater than expectation damages b/c if they are then the difference must be deducted (aka the Hand Limitation). May have mistakenly been a torts case b/c it dealt with duty. the court still awarded damages b/c it was concerned about negligence and “but for” causation (i. THIS IS THE DIFFERENCE B/N TORTS & CONTRACTS: in torts. both cannot be used at the same time. but for the breach. Reliance damages are o o . 2) and 3) “Where there is a breach…the party suffering the loss can recover only that which he would have had had the contract not been broken…But…In some instances.e. Therefore… … RULE EXCEPTION: Reliance is an exception to the expectation interest. notice. Even though Security Stove was in a better position b/c of the breach. the injured party may recover expenses incurred in relying upon the contract. This rule is similar to 2-715(2). American Railway o Issues: 1) Can [P] sue for an unenforceable breach of promise to deliver shipment on time? 2) Can [P] recover expenses as damages or 3) is [P] limited to recovering only loss of profits? Rules: 1) Delivery within a reasonable time was necessary to comply with the agreement. the shipment had to be delivered on time and [D] was advised of the importance of the shipment.[If damages are inadequate to put in as good a position : use 2-708(2)] Security Stove v. ??? Take away: Reliance doesn’t penalize b/c unlike in Lake River where Judge Posner said there was not a strong enough connection b/n the breach and loss of profits. If he was going to sell the stove. Holding: The damages [P] suffered were a consequence of the breach b/c in order for the [P] to benefit from the contract. damages are explicitly b/c of the breach. there would be no damages). and negligence. in reliance. the proper damages would have been expectation. not reliance. These reliance damages are consequential not incidental b/c they are a consequence of (closely caused by) the breach not a consequence of performing the contract. b/c it would involve the loss of profits. Out-of-pocket expenses are not speculative b/c can be proven with reasonable certainty. RESTITUTION (Giving back to the non-breacher who has not yet fully performed that portion which they [unjustly] enriched the breacher . Take away: RULE LIMITATION: the breaching party has the right to limit the non-breacher’s damages by meeting its burden of proof to deduct the amount that the non-breacher would have lost had the contract been performed. the promisor may deduct whatever he can prove the promise would have lost. Armstrong’s damages would have been difficult to calculate b/c they were unforeseeable. not built into incidental damages (subsection 1).” Therefore. New York & New England Ry. 2) A promisee’s damages for breach of contract are [the value of the promised performance – outlay. o o o C. Albert & Son v. Reliance (and restitution) acts as though the contract was never formed. “We will not…put the [P] in a better position than…had the contract been fully performed.” interest should be covered.) 1. if the contract had been fully performed. Three requirements of restitution: a. Co.built into subsection 2. which includes the payment to the promisor and any expenses needed to prepare for the performance] Rules Adopted: Restatement of Contracts 333(d): The promise can recover its outlay…for the performance subject to limitations such as. The burden of proof applied in reliance damages is a control measure and makes reliance damages approximate that of the expectation interest. Fallon: When the value of goods can be “ascertained with reasonable certainty as of a definite time. There must be a breach . and Healy v. Holding: 1) The seller should have been awarded interest. Armstrong Rubber o Issues: 1) Did the judge incorrectly deny the breaching seller interest for the value of the motor? 2) Were NBB’s out-of-pocket reliance expenses closely caused by the BS’s delay (breach) such that the buyer is entitled to reliance damages? Rules Considered: 1) Reagan v. 2) There is insufficient proof of the causation to award reliance damages. the buyer is entitled to $3K (an offset against the seller’s recovery of interest) less whatever the seller can prove the buyer would have lost had the Refiners been delivered. a bonus). he would only be entitled to the contract price of $850. Restitution can put the aggrieved party in a better position than had the contract been performed. c. if [P] had sued for breach. may sue upon a quantum meruit…and may recover the reasonable value of the services performed. (The Supreme Court reversed the trial court’s decision.b. The non-breacher must rescind the contract (RISK: if the person did not in fact breach. therefore discouraging efficient breaches. which led to differently results.g. But restitution may be available to an employee who has fully performed if the outstanding payment owed to them is something other than a liquidated debt. This rule is aka “The Full Performance Rule???” and is similar to UCC ???. So he claimed “the reasonable value of services.” Holding: No. Oliver had a duty to advise Campbell during their disagreement that he was committing a breach and would need a new lawyer. “The Full Performance Rule” was interpreted differently by the trial court (midstream) and Supreme Court (fully performed = can’t rescind = no restitution). [P] can recover only the full sum ($850) specified in the contract b/c he had completely performed. Take away: RULE LIMITATIONS: 1) The [P] cannot elect restitution if [P] has fully or substantially performed and is entitled to the contract sum (p. Gibbons: “One who is wrongfully discharged and “prevented from further performance” …may elect…to treat the contract as rescinded.” not breach of contract. The courts are wary of saving the sophisticated from their own bad contracts. This case was not about a breach of contract. Campbell o o Issue: Is [P] entitled to “the reasonable value of his services?” Rules: 1) Restatement of Contracts 350: Restitution is not available for an employee who has fully performed if they have been paid in full for their services except for a liquidated debt in the contract (e. then the rescinder may or may be found to be in breach) The non-breacher must elect restitution as an alternative Oliver v. o .186) AND 2) There must be a benefit conferred.) There were two versions of this contract: 1) what the lawyer claimed and 2) what the administratrix as [D] claimed. 2) Lessing v. unjust enrichment). MEASURING DAMAGES FOR SUBJECTIVE LOSSES . o o D. restitution fails to limit/control the breached party’s damages so that they are not in a better position than if the contract had been performed. The defaulting buyer was also awarded reliance-related architect’s fees because the NBS never contested it. Take away: LIMITATION: Restitution is not neat or mathematically precise b/c it is an equitable remedy and concerned with fairness (i. Restitution for the Plantiff in Default (p.e.” 2. Rule Exception: Lipscombv. (understand principal-agency. It is possible to get restitution that exceeds the NBS’s expectation interest. Therefore. p. then there must be restitution. the majority rule would have been unfair b/c it penalizes the buyer for trying to perform AND overcompensates the non-breacher beyond its expectation damages. At times. Aldrete o o Issue: Does the defaulting buyer forfeit his payments or have a right to? Rule: The Majority/Forfeiture Rule: A defaulting buyer cannot recover any money she pays even though the seller has abandoned performance and keeps the money.’ The foregoing statement is neither supported factually by the record nor legally by the authorities cited…The discharge amounts to a clear repudiation…in which case [P] is entitled to recover the reasonable value of the service performed ($5. Fuqua: If it would be inequitable for there not to be restitution. From the buyer’s perspective. the defaulting buyer ended up in a better position than had the contract been performed.This advice would have created a conflict of interest for Oliver and the courts may have been concerned about Oliver’s failure to advise. Holding: The [P] (defaulting buyer) was awarded restitution for payments plus interest.188.000). looking at it from the other side) De Leon v.177) o Dissent: “This court misapplies the very rules it cites…This court errs when it says ‘there being no dispute as to the amount…the services having been in effect fully performed. Peevyhouse v. Garland would have to restore the coal to the land. Garland Coal & Mining o Issue: Is the proper measure of damages what it will cost to obtain performance of the work that [D] defaulted on or is it the expectation interest of the difference b/n the market value before and after the work was performed? Rules: 1) O. Judgment of $300 for [P]. the parties would likely renegotiate more favorable terms.S. and where the economic benefit of full performance is grossly disproportionate to the cost of performance. the cost of performance could be reasonably approximated when the contract was negotiated and there is nothing existing that could not have been reasonably anticipated. therefore [D] knew the cost of performance would be disproportionate when it agreed to the contract. If restitution was granted. what are the proper damages? . 1961. where the portion of the contract that was breached was only incidental to the main purpose of the contract. are the damages arising from the breach of the incidental portion of the contract also incidental? Even if the court had issued specific performance. the lessor may recover the diminution in value resulting from the non-performance. The court’s decision upholds the expectation interest. [P] would not have agreed to the contract without the included clause. the value of the benefits the breaching party received should also be considered. o o o Dissent: [D]’s breach was willful and not in good faith. Holding: In a coal mining lease. if the value of performance should be considered in determining the measure of damages . Hawkins v. Subsection 96: one cannot recover a greater amount in damages for breach than one would have gained by full performance and 2) Subsection 97: where there may be an obligation creating “unconscionable and grossly oppressive damages. If the remedial work is incidental. Take away: PROBLEM: The Supreme Court’s use of the “main purpose” analysis to come to its decision overlooks the fact that there would not have been a contract without the remedial work clause. McGee o Issue: Is a warranty a contract? If so. The court’s interpretation had the effect of “rewriting” the contract by seeing the remedial work as incidental.” only reasonable damages may be recovered. The [P] is entitled to recover out-of-pocket expenses. [P] waived her right to an expectation claim and by default was awarded by applying the reliance interest. pain and suffering)]. Holding: The true measure of damages is the difference b/n the value to him of a perfect/good hand and the value of his hand in its present condition. psychological and physical injury may be expected… Suffering or distress resulting from the breach going beyond what was anticipated by the agreed treatment should be compensable. An offer and an acceptance makes a special contract via assent. McGee’s mistake. and disfigurement] of damage…When the contract calls for an operation. the opinion was relegated to dicta and therefore not binding. By withdrawing her appeal. Holding: Reliance Interest: [expenditures made b/c of contract + other foreseeable damages closely caused by the breach]. Take away: If Hawkins had had additional surgeries to fix Dr. o Sullivan v. Take away: Judge Caplan says that reliance may be the most appropriate remedy and pain and suffering incurred in a failed operation may be awarded b/c it is analogous to “wasted” out-of-pocket expenses due to the breach. Hawkins would not be awarded pain and suffering. Connor o Issue: Is the [P] limited to recovering out-of-pocket expenses or can she also recover for pain and suffering for and/or disfigurement and associated mental distress? Rule: There is no general rule barring such items [pain and suffering. for the expectation or reliance interest for the worsening of her condition.the value of the goods at the time of sale) + gains prevented and losses sustained + other damages reasonably anticipated by the parties (i. mental distress.o Rule: Expectation Interest: [(the value of the goods as they would have been if the warranty as to the quality had been true . including any incidental damages contemplated by the parties (i. he would be able to recover incidental damages for those surgeries. and for the pain and suffering and mental distress incurred from the third operation.e. A warranty is a special promise about the quality of the service or good.e. pain and suffering). But under the current contract with Dr. Also b/c of her withdrawal. McGee. o o . The expectation measure may not be the most appropriate damages to award in a non-commercial contract but reliance may be an appropriate alternative. .