Contract Damages

1
Contract Damages

• Expectancy
• Restitution
• Reliance
• LDCs

2
Contract Damages

• Expectancy
• Restitution
• Reliance

3
Expectancy (334)

• 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 with
  reasonable certainty.
• If plaintiff fails, other remedies may be
  available.
• If contract performance would have netted losses
  to plaintiff, other remedies may be available.
• If award of expectancy is economically wasteful

4
What if

• Defendant agreed to build a 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 the cost to perform, or not?
• What if plaintiff isnt going to re-build?

5
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?

6
Reliance

• General rule the nonbreaching party may recover
  expenses made in essential reliance on breaching
  party.
• Exception.

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

7
Reliance - Gruber (341)

• Plaintiff sued when defendant failed to perform
  contract for sale of xmas cards.
• Plaintiff could not prove expectancy with
  reasonable certainty due to NBR. So instead
  sought reliance damages.
• Defendant alleged that its breach saved the
  plaintiff from losing money.

• Exception
• Defendant must prove _________________.
• If so, then ______________________________________
  ______________________

8
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 benefits
  on another party, and it is unjust for defendant
  to retain them, they can be disgorged.
• How measured?...

9
Restitution - Campbell (344)

• TVA agent without authority agrees to pay 30k
  to Campbell for microfilming TVAs journals. TVA
  sends film back after 2 months. Campbell
  destroys original journals. When TVA refuses to
  pay, Campbell sues in QM.
• On appeal, TVA says it is obligated not to pay
  for the film itself, but only for the benefit
  or unjust enrichment, if any, which it received
  by having the film in the library for 2 months.

• So, is it how much it would cost to get the goods
  on the market (Plaintiffs theory) or how much
  benefit was received by having them?
• Court uses plaintiffs measure because (1) no way
  to prove benefit and (2) no market value of
  unique goods.

10
Liquidated Damages Clauses

• Am I from Your Planet?

11
What is an LDC?

• What are Liquidated, as compared to Unliquidated,
  Damages?

• Whats an LDC typically say?

12
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.

13
Southeastern Land Fund (417)

• Facts?
• If buyer defaults seller shall be entitled to
  retain 5k, to collect on the 45k note, and to
  pursue any and all other remedies including
  specific performance

• Why does the clause allowing for spec perf create
  no problem?
• Why do the other two clauses cause a problem?
• What should the drafter have done to have written
  a good LDC?

14
Does every breach trigger award to nonbreaching
party of LDC amount?
15
Whats so funny aboutFreedom of Contract?

• So long as theres no fraud, why should the law
  care about bad bargains? Isnt that all an
  invalid LDC is?
• Is it any different than B agreeing to pay 20k
  for a car that has a FMV of 5k?

16
Efficient Breach Reason to Limit LDCs?

• Bob had promised to do work for Susie. Bobs
  breach will cost Susie 12k, but would allow Bob
  to earn 20k. Social efficiency is served if we
  allow Bob to breach, pay Susie the 12k. So, and
  LDC set at 25k is socially inefficient Bob is
  forced to perform, costing society 8k.
• But Posner in Lake River questions whether this
  purpose is outweighed by the credibility LDCs
  lend to performance. See 411-12.

17
When can an LDC be Invalid at Common Law?

• 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 it is invalid, we say its unenforceable as a
  penalty.

18
LDCs Run Both Ways

• If the non-breaching party will get too little
  under the LDC in light of its actual damages, can
  the LDC be a penalty?
• Whos going to argue its invalid, the breaching
  party or the non-breaching party?

• If the non-breaching party will get too much?
• Who is going to argue its invalid?

The amount is the maximum, and minimum, that can
be awarded
19
(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?

20
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
• Semico (408)
• Checkers (408)

21
(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?

22
Boyle v. Petrie (400)

• 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

23
Other evidence relevant to validity?

• Under the majority rule, is the subjective intent
  of the parties controlling? Relevant?
• Minority (Georgia) rule
• Why could that difference matter at trial?
• 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?

24
Score sheet

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

• Invalid
• Semico
• Checkers
• Southpace
• Lake River

25
Trial Issues

• Does the party challenging the clause have to
  show its invalid or does the party relying on
  it have to show its valid?
• Who decides if LDC is valid?
• Florida, S.C. Georgia apparently a question of
  fact.
• Most other states a question of law for the
  court.

26
What if the LDC is invalid?

• Does the nonbreaching party get nothing?

27
What if the LDC is valid?

• What is the impact on other remedies?
• General rule?
• Exceptions?
• What if it says Upon breach, get 500. Can
  innocent party also get specific performance?
• When is specific performance excluded?

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

28
Mitigation and LDCsBoyle (400) Musman (404)

• As a general principle, is there a duty to
  mitigate damages?
• Whats that mean?
• Do monies earned in mitigation affect the amount
  owed under an LDC?
• Does that make any sense at all?
• Can a plaintiff ever get a portion of the LDC, as
  such?
• I.e., if its a penalty, can the court award the
  reasonable part, or is the plaintiff relegated
  to proving up damages?

29
Exclusivity LDC and SpecPerf?

• S breaches, refusing to sell land to B. Contract
  contains an LDC of 10,000 to B. Can B seek
  specific performance?
• General rule
• Exception

30
In November.

• When you are drafting a contract for a client,
  why would you include an LDC?
• What are you trying to accomplish for your
  client?
• When would you not want to include one?

31
In November

• Client comes to you with a breach of contract
  case that includes an LDC.
• Whats your investigation and discovery going to
  include?
• Suppose the LDC amount must be reasonable at the
  time of contracting.
• If the evidence shows the actuals were much
  different, how would you get that evidence in?
• What if actuals were similar to the LDC amount?

32
In November

• Truck Rent-A-Center (405)
• Facts?
• Whats the lesson from the courts discussion of
  the option clause?
• What should the breaching party have done?
• Why was the clause upheld?

33
Land Sales Contracts Buyer Breach

• General expectancy damages for breach of
  contract to convey land aggrieved buyer gets
  difference between ________ and ________ on
  _____________, plus _______ damages, less
  ____________ or __________ avoided.