Common Law Contract: Remedies

transcript

RemediesJune 22, 2012

Common Law of Contract

Remedies

Damages and RestitutionTo date we have discussed remedies in the context of defenses to formation.

Fraud, duress, mistake, etc.

This lecture deals only with remedies for breach of contract.

This discussion presupposes that there is an enforceable contract and there has been a material breach.

QuasiContractThe prevention of unjust enrichment

Really not a contract at all, but an obligation imposed by law.

Theory is employed to allow for remedy where technically no contract exists.

Restitution v. DamagesRestitution – goal is to place both parties in the position they had PRIOR to entering into transaction.

Damages – goal is to place the aggrieved party in the same economic position s/he would have obtained if the contract had been performed.

3 Questions Concerning RemediesWhat is the nature and extent of the plaintiff's compensable loss?

look at harm and extent that law allows to recompense for it.

What remedy is most efficient to address loss?

sometimes there is more than one way to address loss.

Are there policies or principles that limit defendant's liability?

Basic GoalValid K justifies future expectations.

Goal = cure disappointment by giving victim what was promised and expected under K.

Judged objectively

Commonly the remedy is money, not specific performance.

Why not Specific Performance?Practicality and policy

See next slide for example

Traditional dichotomy between law and equity

Traditionally, common law courts could only grant money damages.

Equitable relief like specific performance could only be granted by the equity courts.

Equity courts could only grant remedy when there was no common law remedy available.

ExampleSarah Nade hires famous signing coach Mel Odey to help her win the Superstar contest. The K called for Mel to give Sarah a week's worth of four hours per day lessons in return for $1,500.

At the last minute Mel gets an offer to go on tour with the Rolling Stones as a backup singer. He must leave immediately.

Sarah sues. Why not grant her specific performance?

Monetary Award IllustrationLet's say Sarah was able to find another coach who could give equivalent lessons for $1,800.

Sarah expected to get the lessons for $1,500, so this is $300 more than she expected.

To put her close to her expectations, court would award Sarah $300 in damages.

Principles of Expectation ReliefMeeting Plaintiff's expectation is rarely totally satisfied.

Sarah didn't really get exactly what she bargained for, which were lessons from Mel.

Contract law normally compensates only for economic injury.

Principles of Expectation ReliefContractual promise means nothing more than a commitment to either perform or to pay compensation for lack of performance.

However, there is a quasimoral element. The more D is to blame, the more damages a court can award

Calculation of Expectation DamagesDamages =

Plaintiff's loss in value (promised – received = loss)

Any other loss (consequential and incidental damages)

text gives examples such as shipping or storage costs.

Cost or loss Plaintiff avoided by not having to perform.

Substitution Example

Training received = Spent $1,500

Training received = Spent $1,800

Position if K performed Position after breach

Spent $300 beyond expectation

Payment of this amountachieves expectation

Loss with no Available Substitution

Give Lessons= Earns $1,500

Give no lessons = Earns $0

Position if K performed Position after breach

Received $1,500 below expectation

Payment of this amountachieves financialexpectation

Loss in Income but Saving in Cost

Position if K preformed Position after breach

Work + payout $600

No work +pay out $0

Earns $1,500 Earns $0

= profit $900 = profit $0

Received $900 below expectation

Payment of thisamount achievesexpectation

ExampleK said Sarah had to buy Mel's music book (which she did) and drive across town to Mel's studio.

Damages =

$300 (what it cost her to get replacement) Plus

$50 already spent on Mel's book Less

$75 she would have spent to drive to Mel's studio.

Damages = $275

LimitationsForeseeability – damages should be consistent with what was reasonably contemplated by the parties.

Certainty – must show breach resulted in financial loss.

Mitigation – victim cannot worsen the loss.

ForeseeabilityDamages are foreseeable when:

at the time of the making the contract

party who breached reasonably should have realized

that those damages would be a likely consequence of the breach.

Rule of HadleyCan only recover for breach those damages that:

arise naturally, according to the usual course of things, from such a breach OR

may reasonably be supposed to have been in the contemplation of both parties at the time they make the K, as the probably result of the breach.

Damages that Arise NaturallyCalled “general damages”

include imaginable and obvious consequential damages

Tree falls on roof, damaging it. Homeowner contracts roofer to fix immediately that day. If roofer breaches:

He must surely contemplate the probability of direct damages—homeowner gets another roofer

but also must realize there could be further damages if it rains (consequential damages)

Special DamagesSame facts but let's say there is a piece of equipment bolted to the floor underneath where the roof now has a hole.

If roofer breaches, he will not be responsible for damages rain might do to it unless he was told prior to forming the K about it.

Thus, the damages must be reasonably contemplated by the breaching party.

The Heron II Case

MitigationDuty to Mitigate If the plaintiff has, through bad faith or unreasonable action (or inaction) aggravated her damages, the defendant is not held responsible for the increase in loss.

must be dishonest, opportunistic, vindictive, or deviate from what would be expected from reasonable person.

By finding another coach, Sarah mitigated.Let's say she hired Michael Jackson at $30,000 a week. This would be unreasonable.

Reasonable CertaintyPlaintiff must prove injury and amount of loss.

As a general rule, the more clearly Plaintiff shows injury, the greater effort the factfinder will put into finding a compensation figure.

Text notes difference between lost profits of existing business and lost profits of new business.

Specific PerformanceCourt order commanding defendant to perform the contract.

Commonly awarded if real property is at issue.

No specific performance remedy available for personal service contracts.

Only awarded when damages are not adequate remedy.

Court can combine part performance remedy with award of damages.

Van Wagner Example

Equitable RemediesSpecific Performance – compels affirmative action

Injunction

prohibits D from doing some particular act.

must demonstrate that damages remedy is not available

Restitution

Common Law Contract: Remedies

Education