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Ch. 7 Damages 1
RemediesFall 2014Ch. 7 Damage Remedies
Prof. George W. [email protected] 8-122Adjunct Professor of LawSenior Fellow, Stein Center for Law & Ethics
Ch. 7 Damages 2
Damages in tort
Compensatory damages - Reasonable expectations
honored by making injured party whole
- unreasonable conduct deterred Punitive damages - punishment and deterrence of
conscious wrongdoers
Ch. 7 Damages 3
Damages in contract and quasi contract - remedial purposes
Consensual expectations
vindicated
Gains unjustly retained by
another restored to rightful
possessor
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Contract Damages – Restatement 2d
§ 344 Purposes of RemediesJudicial remedies… serve to protect one or more of the following interests of a promisee:a) his "expectation interest," which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed
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Contract Damages – Restatement 2d
(b) his "reliance interest," which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made
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Contract Damages – Restatement 2d
(c) his "restitution interest," which is his interest in having restored to him any benefit that he has conferred on the other party.
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The conventional measure of damages
The amount necessary to make the victim whole
The award should make the plaintiff indifferent to the breach
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Efficient breach
Wasteful performance avoided Expectation vindicated Wealth maximized
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Taking Account of the time value of money
Lump sum damages Pre-judgment interest Discounting to present value Installment payment of future
losses
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For breach of warranty
Buyer’s damages
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UCC 2-714 § 2-714. Buyer's Damages for
Breach in Regard to Accepted Goods.
(1) Where the buyer has accepted goods and given notification (subsection (3) of Section 2-607) he may recover as damages for any non-conformity of tender the loss resulting in the ordinary course of events from the seller's breach as determined in any manner which is reasonable.
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UCC 2-714 – Breach of warranty (2) The measure of damages for
breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount.
(3) In a proper case any incidental and consequential damages may also be recovered.
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UCC § 2-715. Buyer's Incidental and Consequential Damages. (1) Incidental damages resulting from
the seller's breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach.
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UCC § 2-715. (2) Consequential damages resulting from the seller's breach include
(a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and
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UCC § 2-715. (2) Consequential damages resulting from the seller's breach include
(b) injury to person or
property proximately
resulting from any breach of
warranty.
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Dealers Hobby v. Marie Ann Linn Realty (IA 1977) p. 569 Plaintiff sought $193,082.23 - the
difference between the fair rental value of the premises as warranted and the fair rental value of the premises as they actually existed for the entire duration of the lease prior to the collapse.
Why shouldn’t they get retroactive rent reduction?
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Types of damages for breach of covenant to keep building in good repair 1) Consequential damage to
merchandise and business 2) Difference between rental value as
promised and as they were during occupancy
3) Punitive damages
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Dealers Hobby v. Marie Ann Linn Realty (IA 1977) p. 569
No rule of the law of damages permits the injured party to receive more than he has lost.
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Dealers Hobby v. Marie Ann Linn Realty (IA 1977) Specific rules are subordinate to the
general rule that compensatory damages are designed to put the injured party in as good a position as he would have had if performance had been rendered as promised
A given formula is improvidently invoked if it defeats a common sense solution
Ch. 7 Damages 20
Dealers Hobby v. Marie Ann Linn Realty (IA 1977) Action for damages after a partial
collapse of the roof of the leased warehouse
Proper measure of damages for the landlord's breach of an express warranty to maintain and repair the roof of a commercial warehouse was the tenant's actual loss
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Dealers Hobby v. Marie Ann Linn Realty (IA 1977) Consequential Damages Damages to merchandise and
inventory together with incidental damages which totaled $16,037.94
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Basiliko v. Pargo Corp., (D.C. 1987) p. 576 The trial judge applied the `English Rule’: the purchaser at a void foreclosure
sale, "relieved as he is of paying the purchase price . . . also loses what would otherwise be his own correlative position as an innocent purchaser for fair value,
Basiliko therefore "loses any right to sue the [sellers] for breach of contract to recover in damages the benefit of his bargain."
Doesn’t this correctly restore Buyer to status quo ante – with no loss?
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Expectancy measure of damages
Majority rule
"American rule" on breach of contract
allows the frustrated purchaser of real property the benefit of the bargain he has negotiated.
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Basiliko v. Pargo Corp., (D.C. 1987)
A seller who breaches an executory contract for sale of realty is liable for damages measured by
Difference between the sales price and the fair market value at the time the property should have been conveyed
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Basiliko v. Pargo Corp., (D.C. 1987)
On remand, the trial court must determine what that fair market value would have been…,
"the price that an owner willing but not compelled to sell ought to receive from one willing but not compelled to buy."
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Net “actual loss” is measure
• Offset expenses saved:• closing costs• brokerage commissions• incidental expenses
Ch. 7 Damages 27
Basiliko v. Pargo Corp., (D.C. 1987)
The trial court may consider as evidence the price at which Basiliko had agreed to resell the property to Pargo Corporation.
A resale contract provides sufficient evidence of fair market value on which to base an award of damages for breach of the initial sales contract
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ChatlosSystems v. NCR (3rd Cir) 1982, p. 580 Warranty exceeded capability of
machine Damages: Contract price: $46k FMV $207,826 Value as delivered: $6k Net: $201,826 Plus interest Is UCC 2-714 correctly applied?
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N.J. Stat. § 12A:2-714 (2) The measure of damages for
breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount.
Ch. 7 Damages 30
Chatlos Systems Is the dissent correct? Isn’t the result
a windfall? “There is no probative evidence to
support the district court's award of damages for the breach of warranty in a sum amounting to almost five times the purchase price of the goods.”
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9 elements of fraud cause of action (1) a representation of an existing
fact, (2) materiality (3) falsity (4) speaker's knowledge of falsity or ignorance of truth, (5) intent that representation be acted on by the person to whom it is made (6) ignorance of falsity by the person to whom it is made (7) reliance on the truth of the representation 8) right to rely upon it, and (9) consequent damage.
Was Sanders defrauded? What was her loss?
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Liberty National (ALA 2000) p. 584 Fraud cause of action Knowing material misrepresentation
of fact Justifiable reliance Loss Measure of damages: value as
represented vs. value in reality
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TERRA-PRODUCTS v. KRAFT GEN. FOODS, INC., (Ind. Ct. App. 1995), p. 588 Terra demands: Lost land value: Appraised value
absent contamination minus auction price
Cost of two week shutdown during relocation
$3M stigma damages
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TERRA-PRODUCTS v. KRAFT GEN. FOODS, INC., (Ind. Ct. App. 1995), p. 588 Hybrid measure of recovery The fundamental measure of
Terra's damages is any reduction in the fair market value of Terra Site caused by Kraft.
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TERRA-PRODUCTS v. KRAFT GEN. FOODS, INC., (Ind. Ct. App. 1995) Temporary vs. Permanent Injury
The measure of damages in a case of injury to real property depends first upon a determination of whether the injury is "permanent" or "temporary."
Permanent injury to unimproved land occurs where "the cost of restoration exceeds the market value . . . prior to injury."
Ch. 7 Damages 36
TERRA-PRODUCTS v. KRAFT GEN. FOODS “total loss”
If the injury is permanent, the measure of damages is limited to the difference between the fair market value of the property before and after the injury
Rationale: "economic waste" results when restoration costs exceed the economic benefit.
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TERRA-PRODUCTS v. KRAFT GEN. FOODS, INC., (Ind. Ct. App. 1995) p. 514
Temporary injury Cost of repair is less than value of
damaged property
For a temporary injury the proper measure of damages is the cost of restoration.
Ch. 7 Damages 38
TERRA-PRODUCTS v. KRAFT GEN. FOODS,
If ... the value of Terra Site after remediation was less than its value before discovery of PCB contamination, the property was permanently damaged.
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TERRA-PRODUCTS v. KRAFT GEN. FOODS,
Hybrid theory: Prove reduction in fair market
value “by a combination of cost of repair and evidence of FMV before the causative event and FMV after repair
If repair will not restore value P is entitled to the reduction in value
Ch. 7 Damages 40
TERRA-PRODUCTS v. KRAFT GEN. FOODS, Stigma? Terra would be entitled to
compensation for any "remaining loss" in the property's fair market value after remediation in that, under such circumstances, remediation would be inadequate to compensate Terra fully for its loss.
Ch. 7 Damages 41
the market value of chattels
Actual Cash Value
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O'Brien Bros., Inc. v. The Helen B. Moran, 160 F.2d 502, 505 (2d Cir. 1947) p. 595
Pound, Ch. J., in the New York Court of Appeals, discussed the principles involved where an automobile was injured in a collision and the repairs were found to cost more than the vehicle was worth:
Ch. 7 Damages 43
O'Brien Bros., Inc. v. The Helen B. Moran 'The damages sustained by an
automobile in a collision may be established by showing the reasonable cost of the repairs necessary to restore it to its former condition, although the general rule is that the measure of damages to personal property is the difference between its market value immediately before and immediately after the injury.’
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O'Brien Bros., Inc. v. The Helen B. Moran Windfalls not permitted
This rule is subject to the limitation, first, that the cost of repairs must be less than the diminution in market value due to the injury, and secondly, that the repairs must never exceed the value of the automobile itself as it was before the injury.
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O'Brien Bros., Inc. v. The Helen B. Moran Total loss Where the automobile is totally
destroyed, the measure of damages is its reasonable market value immediately before destruction.
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Semenza v. Bowman (MT 1994) p. 599
Damage to crops by improper spraying
Date for measuring loss: 1) Date of injury 2) Date of harvest 3) Date of sale Why does the court pick the date of
sale?
Ch. 7 Damages 47
Fukida v. Hon/Hawaii (2001) p. 609 Where a person is deprived of the
use of his or her property due to the tortious conduct of another, he or she may recover loss of use damages…for the period of time reasonably necessary to
- effect repairs - obtain a replacement - recover possession
The value itself is not determinative
Ch. 7 Damages 48
Fukida v. Hon/Hawaii (2001) p. 609
Why doesn’t Fukida need to show he actually rented a substitute vehicle?
Should damages be capped at the value of the chattel?
What is a “reasonable period of loss of use”? Suppose owner has bad credit and no cash?
Ch. 7 Damages 49
UCC § 2-715. Buyer's Incidental Damages. (1) Incidental damages resulting from
the seller's breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach.
(2) Consequential damages resulting from the seller's breach include
Ch. 7 Damages 50
United Truck Rental v. Kleenco (HW 1996) p. 602 Two kinds of loss Loss of chattel - ACV Loss of use 1) Rental value – reasonable period of time - must deduct costs saved 2) Cost of renting a substitute 3) Net profits that could have been
made from use
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Heirlooms and Unique Objects
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Three approaches to value (O’Brien)
1) Market value of similar property 2) Replacement cost 3) Capitalization of earnings Less depreciation of the damaged
chattel
Which is most appropriate for Amorita?
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Capitalization of net earnings
To produce a 1 year income stream of $15,000 @ 6% discount rate how much do you need today?
Year 1 $15,000 x 1/1.06 = PV $14,150.94
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Restat 2d of Torts, § 911 Value (1) As used in this Chapter,
value means exchange value or the value to the owner if this is greater than the exchange value.
Since Amorita is “an undying love” should the owner recover the rebuilding cost which exceeds the price of another boat of the same type?
Ch. 7 Damages 55
Restat 2d of Torts, § 911 Value (2) The exchange value of
property or services is the amount of money for which the subject matter could be exchanged or procured if there is a market continually resorted to by traders, or if no market exists, the amount that could be obtained in the usual course of finding a purchaser or hirer of similar property or services.
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Duty to mitigate damages
Claimant must take reasonable measures to limit its losses
A matter of proximate cause, not duty
Burden may be on breaching party – e.g. lessee in NY
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Hadley v. Baxendale lives
Consequential damages under the UCC
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Miss. Chem. Corp. v. Dresser-Rand Co. (5th Cir. Miss. 2002) p. 618
In the event of a breach of warranty, a buyer may seek direct, incidental, and consequential damages.
MISS. CODE ANN. § 75-2-714.
Ch. 7 Damages 59
Miss. Chem. Corp. v. Dresser-Rand Co. (5th Cir. Miss. 2002)
Under the Mississippi UCC 2-715, "consequential damages" include:
(a) Any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and
(b) Injury to person or property proximately resulting from any breach of warranty.
Ch. 7 Damages 60
Miss. Chem. Corp. v. Dresser-Rand Co. (5th Cir. Miss. 2002)
Lost profits are recoverable as consequential damages if :
(1) the seller had reason to know at the time of contracting that if he breached the contract, the buyer would be deprived of those profits -- i.e., the lost profits were foreseeable;
(2) the lost profits are reasonably ascertainable; and
(3) the lost profits could not have been reasonably prevented.
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Miss. Chem. Corp. v. Dresser-Rand Co. (5th Cir. Miss. 2002)
MCC's damage : 1) MCC computed the profit per unit of
ammonia during each of the three malfunctioning periods.
2) It estimated the quantity of ammonia lost in each malfunctioning period because of the reduction in the speed of the compressor train.
3) It multiplied the profit per unit by the number of units lost to come up with the total amount of damages (i.e., lost profits) caused by the malfunctioning compressor train.
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Mississippi Chemical v. Dresser “Cover”
Duty to mitigate damages
Causal relationship between breach and loss
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The time value of money
Interest & Discounting
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Lump sum damages The norm in tort and breach of
contract Statutory exceptions: Oil
Pollution Act, workers compensation
Past damages - interest Future damages - discounted
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Interest as Consequential damages for loss of use of money or to vindicate contractual expectations Prejudgment interest from day of
filing complaint to verdict is commonly allowed
May be discretionary with judge or other fact-finder
Contractual rate of interest in event of breach often the measure
Or courts may employ the “legal” or prevailing rate of interest
Ch. 7 Damages 66
Prejudgment interestSemenza v. Bowman (Mont. 1994)p. 599
Section 27-1-212, MCA: "in an action for the breach of an
obligation not arising from contract and in every case of oppression, fraud, or malice, interest may be given, in the discretion of the jury.“
This also applies where the judge is the
fact finder
Ch. 7 Damages 67
Interest – Wrongful death - NY Interest Is Recoverable In Wrongful Death
Actions
EPTL § 5-4.3 provides that ''[i]nterest upon the principal sum recovered by the plaintiff from the date of the decedent's death shall be added to and be a part of the total sum awarded.''
4-242 Warren's Negligence in the New York Courts § 242.03
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Incommensurability and estimation
Personal Injury Damages
Ch. 7 Damages 69
The cardinal principle "The cardinal principle of damages in
Anglo-American law is that of compensation for the injury caused to the plaintiff by defendant's breach of duty" where compensation consists of "repairing plaintiff's injury or ... making him whole as nearly as that may be done by an award of money."
Harper & James, The Law of Torts
Ch. 7 Damages 70
Compensatory damages irrelevant considerations?
- punishment - deterrence - spreading the wealth - helping those less fortunate than
we
Ch. 7 Damages 71
Limits on damages Caps on damages- constitutional vulnerability* Charitable immunity (partial/whole) Limits on governmental liability- no prejudgment interest- credit for payments by collateral
sources The American Rule on counsel fees Litigation costs
Ch. 7 Damages 72
Special problems in PI damages Full compensation or fair
compensation? Measurement of non-economic
loss damages Incommensurability of money
with personal injury losses and death
Evidence of collateral sources excluded
Lump sum damages
Ch. 7 Damages 73
Elements of damage
Special Damages
Property damage (actual cash value)
Lost income - past and future
Medical bills and other repair costs (including job training)
Ch. 7 Damages 74
Elements of damage
Non-economic damages- pain, suffering, disability and
impairment- (including hedonic damages)
Ch. 7 Damages 75
Elements of damage
Spousal damages
per quod - spouse’s medical expenses, gratuitous care rendered to the spouse, the impact on the marital relationship, loss of companionship, loss or diminishment in quality of sexual relationship
Ch. 7 Damages 76
Seffert v. Los Angeles Transit Lines p. 556 (CA 1961)
Non-economic: $134,000 Special damages:Medicals: $10,330
Drugs: $2,273Future medicals $25,800 Lost earnings
to time of trial $5,500
Possible future lost earnings $ 10,000
Total pecuniary loss $53,903
Ch. 7 Damages 77
Medical expenses – “reasonable and necessary”
charges for medical expenses must be reasonable and recovery is limited to necessary (medically warranted, etc.) expenses.
statutory or regulatory controls on charges may define the outer limit of reasonableness. E.G.:
In New York service charges for the health services listed are limited to the amounts permissible under Workers' Compensation Law schedules for industrial accidents.
Ch. 7 Damages 78
The collateral source rule Bryant v. New York City Health &
Hosps. Corp., (N.Y. 1999):
Evidence of compensation received from a source other than the tortfeasor is inadmissible
Ch. 7 Damages 79
Tort `reform’ NY CLS CPLR § 4545 Admissibility of collateral source of payment
If … any such cost or expense was or will be replaced or indemnified from any collateral source, it shall reduce the amount of the award by such finding, minus an amount equal to the premiums paid by the plaintiff for the two-year period immediately preceding the accrual of such action and minus an amount equal to the projected future cost to the plaintiff of maintaining such benefits.
Ch. 7 Damages 80
Exceptions to tort-reform limit on collateral source exclusionary rule Union/Mgt welfare funds Workers comp benefits FELA – health insurance
payments FTCA – US does not repay liens Medicare - 42 USC 1395y Medicaid