Outline: Contracts - X - Damages (Legal Remedy)

Contracts (Spring 2006, Hull)

X. DAMAGES (LEGAL REMEDY)

1. Expectancy vs. Reliance
   1. Monetary damages
      1. Reliance – Out-of-pocket expenditure; restore plaintiff to original position
      2. Restitution – Make breaching party disgorge any benefit conferred; prevents unjust enrichment
      3. Expectation – Put injured party in position it would have been in if contract had been performed
   2. R.2d 347 – Measure of Damages in General
      1. loss in value to injured party of breaching party’s performance, plus
      2. any other loss, including incidental or consequential loss, caused by the breach, less
      3. any cost or other loss that injured party has avoided by not having to perform
   3. R.2d 349 – Reliance Damages – As an alternative to R.2d 347, injured party has right to damages based on reliance, including expenditures made in preparation for performance or in performance, less loss that breaching party can prove with reasonable certainty injured party would have suffered had the contract been performed
   4. Sullivan v. O’Connor – Victim of botched nose job entitled to out-of-pocket expenditures, worsening of condition, and pain and suffering beyond that "contracted for" (which she had waived).
      1. "Values"
         1. Promised nose = $15
         2. Original nose = $5
         3. Botched nose = $4
         4. "Contracted for" pain and suffering = $3
         5. Additional pain and suffering = $2
         6. Doctor's fees = $1
      2. Expectation = ($15 - $4) + $2
      3. Reliance = ($5 - $4) + $2 + $3 + $1
      4. Restitution = $1
      5. Court = ($5 - $4) + $2 + $1
   5. Role of Certainty [Gruber v. S-M News Co. - Card manufacturer whose distributor did not exercise "diligence" (contract term) in distribution entitled to difference between actual payment and payment given reasonable "diligence" (which manufacturer must prove); distributor has burden to prove actual payments would have resulted in loss]
2. Time of Measuring Value - Measure of damages for breach of land sale contracts is increased value, if any, of land at time of breach, in excess of contract price. [Bachewicz v. American Nat. Bank & Trust Co. – Where date of breach and date originally contracted for performance are close, market value of property not likely to have been far off contract price, so damages are nominal.]
3. Right to Sue for Payments Not Yet Due
   1. If duties remain on both sides, injured party can sue for everything now, as long as damages are foreseeable and terms are certain
   2. If the only duty on part of repudiating party is to pay money, injured party must wait until money is due before suit (majority). [R.2d 243] [Greguhn v. Mutual of Omaha Insurance Co. – Although insurance company is not relieved of payment obligations, insured may continue to file disability claims, but only as they are breached by insurance company]
4. Limitations on Damage Recovery
   1. General limitations
      1. No emotional distress damages (R.2d 353)
      2. No punitive damages (needs tort) (R.2d 355)
      3. Must be reasonably certain (R.2d 352 – factor willfulness)
      4. Must be foreseeable (R.2d 351)
      5. No disproportionate compensation (R.2d 351)
      6. Mitigation (R.2d 350)
      7. "Economic waste" (R.2d 348)
      8. Prejudgment interest (generally limited to liquidated sums) (R.2d 354)
      9. Lawyer’s fees (Cal. Civil Code 1717)
   2. Foreseeability – Where there are special circumstances, defendant only liable for foreseeable losses unless informed of those circumstances by plaintiff. [Hadley v. Baxendale – Carrier who could not have known of production stoppage at miller due to broken shaft not responsible for lost profits]
   3. Mitigation
      1. R.2d 350 – Avoidability as Limitation on Damages – No recovery for loss injured party could have avoided without undue risk, burden or humiliation, except to the extent he has made reasonable but unsuccessful efforts at avoidance.
      2. George v. School District No. 8R – Teacher/coach who was unaware he could not be reinstated did not fail to mitigate when he declined full-time job at another district.
   4. "Economic Waste"
      1. Possible damages
         1. value as promised to plaintiff less value as performed to plaintiff (preferred; closest to placing plaintiff in position he would have been in had contract been performed)
         2. cost of repair to make as promised
         3. cost of repair to make of same value as promised
         4. diminution in market value caused by breach
      2. R.2d 348 – Alternatives to Loss in Value of Performance
         1. Uncertain loss of value from delay of property use: recovery based on rental value or interest on value of property
         2. Uncertain loss of value from defective or unfinished construction: recovery based on a) diminution in market price caused by breach; b) reasonable cost of completing performance or remedying defects if not clearly disproportionate to probable loss in value
         3. Breach of promise conditioned on fortuitous event which was not certain to have occurred in absence of breach: recovery based on value of conditional right at time of breach
      3. County of Maricopa v. Walsh & Oberg Architects, Inc. – Where defects in completed structure could not be physically remedied without tearing down and rebuilding at imprudent and unreasonable cost, damages may be awarded for difference in value of building completed in accordance with contract and value of building actually erected, rather than for reasonable cost of completion.
5. Liquidation of Damages Provisions
   1. Analysis
      1. Reasonable alternative performance?
      2. If liquidated damages, is amount reasonable?
      3. At what point to examine reasonableness?
         1. time of contract?
         2. after the breach?
   2. Ridgley v. Topa Thrift and Loan Association – Liquidated damages clause conditioned on prepayment conditioned on late interest payments unenforceable because charge unrelated to purported function as alternative performance.
   3. Blank v. Borden – Withdrawal-from-sale clause stipulating 6% of “price of property” set elsewhere in exclusive-right-to-sell contract valid where parties freely negotiated, and contract reserved to homeowner power to make realistic and rational choice.
   4. Schrenko v. Regnante – Sellers who profited on sale of property after first buyer defaulted, and who retained first buyer’s deposit but demanded more costs, have made deposit into minimum charge rather than liquidated damages, and are not entitled to retain deposit.