Contract Damages

1
Contract Damages

• Expectancy
• Restitution
• Reliance

2
Expectancy

• Goal of Contract Damages Give nonbreaching
  party its expectancy interest i.e., put
  nonbreaching party in as good a position as it
  would have been in with performance.
• Burden on plaintiff to prove amount w/reasonable
  certainty.
• If plaintiff fails, other remedies may be
  available.
• If contract performance would have netted loss to
  plaintiff, other remedies may be available.
• If award of expectancy is economically wasteful

3
What if

• Defendant agreed to build house that faced due
  north instead, it is a mirror image and faces
  south.
• Rebuilding the house is cost prohibitive and the
  houses value to another person is fine.
• Should plaintiff get cost to perform to
  expectation, or not?
• What if plaintiff isnt going to re-build?

4
Cost Rule Value Rule

• Plaintiff should be awarded amount to
  repair/complete the work as promised.
• Preferred rule because gives the nonbreaching
  party benefit of bargain
• But, if cost greatly disproportionate to benefit
  conferred, then waste issues arise.

• Plaintiff should be awarded difference in value
  between what was promised and what was delivered
• Plaintiff often wont want because it allows
  breaching party to deliver less than promised.
• If minor problems, works well, but if what is
  delivered is substantially different?

5
Reliance

• General rule the nonbreaching party may recover
  expenses made in essential reliance on breaching
  party.
• Minus, though, any monies that the breach saved
  the plaintiff!

• Goal make breaching party pay out-of-pocket
  costs of nonbreaching party.
• Measure plaintiffs out-of-pockets, not its
  expected profits.

6
Mitigation

• If breach occurs before P has performed, it has a
  duty to mitigate by taking other similar
  jobs/work.
• D can reduce award by amount that reasonable care
  by P post breach could have avoided.

• Costs incurred by P in mitigation are
  recoverable, themselves, as damages.
• More later.

7
A Problem

• You own a pizza business and Bob agrees to pay
  you 3,000 to deliver 100 pizzas. You spend
  1000 to get them made, deliver them on time, and
  theyre great. Bob refuses to pay.

• What are your reliance damages?
• Whats your expectation? (Do you get 4,000 or
  3,000 from Bob?)
• If you have a choice, which do you want?

8
Another One

• You own a pizza business and Bob agrees to pay
  you 3,000 to deliver 100 pizzas. Bob pays you
  1,500 up front, and then you spend 1000 to get
  them made. You deliver them on time, and theyre
  great. Bob refuses to pay the remaining 1500.

• What are your damages?

9
And still one more!

• You own a pizza business and Bob agrees to pay
  you 3,000 to deliver 100 pizzas. Before
  anything happens, Bob breaches and says he wont
  buy them.

• What are your damages?

10
Woah, Another One!

• You own a pizza business and Bob agrees to pay
  you 3,000 to deliver 100 pizzas. You spend
  1,000 in reliance, and then he breaches. But, it
  would have cost you 2,500 to finish the job due
  to rising costs.

• Reliance?
• Expectancy?

11
Restitution

• Goal Put the breaching party in the position it
  would have been in had it performed.
• Take away unearned benefits.

• General rule where plaintiff confers benefit on
  defendant, and it is unjust for defendant to
  retain benefit, it can be disgorged.
• Generally its cost to P, not benefit to D, that
  matters.

12
Liquidated Damages Clauses

• Am I from Your Planet?

13
What is an LDC?

• What makes a clause that mentions or limits
  damages an LDC?

• Whats an LDC typically say?

14
Are any of these an LDC?

• If buyer breaches this agreement, he shall not
  be responsible for any consequential damages.
• If buyer breaches this agreement, he shall
  forfeit his deposit as partial liquidated
  damages.

• If buyer breaches this agreement, he shall pay
  500 as liquidated damages.
• If buyer breaches this agreement, he shall pay
  no more than 500 as liquidated damages.

15
Every breach does not trigger award to
nonbreaching party of LDC. Instead, it must be
a ______ breach.
16
When can an LDC be Invalid at Common Law (436)?

• Whether, at the time ______________________
• (1) damages resulting from a breach would be
  ________________________________, and
• (2) the stipulated amount had a _________________
  to the ____________________________ if a breach
  occurred.
• If the plaintiff incurs no actual damages
• If the amount specified is disproportionate to
  actual damages
• Bar/Our rule (1) damages must have been
  difficult to ascertain at time K was formed and
  (2) the amount agreed on was reasonable forecast.
• - Irrelevant if no actual money damages no
  consideration of actual damages in determining
  reasonableness
• If it is invalid, its unenforceable as a
  penalty.

17
(1) Difficult to Determine

• The greater the difficulty either of proving
  that loss has occurred or of establishing its
  amount with the requisite certainty, the easier
  it is to show that the amount fixed is
  reasonable.
• So, the harder it is to prove that a loss
  happened or how much, the more likely it is that
  the number the parties wrote down is right? Huh?

• If its difficult to determine damages, why on
  earth do courts enforce contracts written by
  fools for a specific amount by holding that the
  amount they picked is reasonable?

18
How do Courts Determine Whether its Difficult to
Determine Damages?

• Is it
• Viewed objectively or
• Subjectively?
• Whats got to be difficult about it?
• Breach could cause all sorts of harm?
• Proving causation is hard?

• Examples of whats not difficult
• If you can figure it out with a calculator. See
  Semico Checkers (445).

19
(2) Reasonable Estimate

• At common law, must it be reasonable compared
  to
• (A) Expected harm (ex ante)?
• (B) Actual harm (ex post)?
• Either (cualquiere)?
• Both (los dos)?
• (E) None of the above (nada)?
• Objectively or subjectively reasonable?

20
Boyle v. Petrie (437)

• Wrongful discharge case by Boyle, who wants LDC
  amount.
• Where was Boyle before Petrie?
• How was the LDC negotiated?
• Whos Petrie Cos Daddy?
• How did he show that to Boyle?

• What did the LDC in Boyles employment contract
  say Boyle should get?
• Facts court relies on in upholding it

21
Label Control?

• Under the majority rule, if the contract says
  This amount is a reasonable estimate of possible
  damages, and not a penalty does/does not that
  the inquiry?
• Is the language entitled to any weight?

22
Score sheet

• Valid
• Boyle
• DiNardo
• Truck Rent-A-Center
• In re Lion

• Invalid
• Semico
• Checkers
• Southpace
• Lake River

23
What if the LDC is invalid?

• Does the nonbreaching party get nothing?

24
What if the LDC is valid?

• What if the nonbreaching party loses 100 as a
  result of the breach and the LDC is 100. Does
  she get 200?

25
Mitigation and LDCsBoyle Musman (442)

• As a general principle, is there a duty to
  mitigate damages?
• Why is duty in quotes?
• Do monies earned in mitigation affect the amount
  owed under an LDC?
• Why does that make sense?
• Can a plaintiff ever get a portion of the LDC, as
  such?
• E.g.., if its the court holds that its a
  penalty, can the court award the reasonable
  part, or is the plaintiff relegated to proving up
  damages?