Remedies ...and Some General K Stuff

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3 Types of Breaches

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Total breach, Partial breach, Anticipatory Repudiation

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Total Breach

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• If the breach is relatively severe, it can have the effect of either suspending or discharging the non-breaching party’s obligation to perform under that K
• A total breach also has the effect of allowing the wronged party to sue immediately for damages based on the entire contract
• Usually, these damages will be such as would put the wronged party in the position he would’ve been in had the K been completed

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Partial Breach

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• Non-material breach
• Doesn’t relieved the wronged party from continuing to perform under the K
• Non-breaching party has an immediate right to sue for damages stemming from the partial breach

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Anticipatory Repudiation

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• Where a party indicates that he will later refuse to perform
o Where he indicates that he would like to perform but can’t, the other party can’t sue for breach but could probably suspend their own duties
• If it is clear that a party will eventually breach his contractual obligations, the aggrieved party may sue for breach immediately (even before the time for performance has arrived)

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DAMAGES – REMEDIES (R §344)

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R §344 – P has the right to choose the measure of damages

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Hawkins v. McGee (expectancy damages)

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Hand case!
o D promised P before operation that “I will guarantee to make a 100% perfect hand.” This was evidence that doctor was soliciting out P. Surgery made hand worse, P sued.
o HOLDING: Proper damages are expectancy. Hand as promised – hand as delivered. P shouldn’t get pain and suffering b/c that was part of the operation and he expected to pay for a perfect hand. Don’t need to look at the promisor’s intention (who claimed that he knew it was impossible to guarantee a perfect hand) but what a reasonable person would’ve understood from his promise (i.e. whether a reasonable person would’ve expected to get a perfect hand). If pain and suffering would’ve been worse than bargained for, P may be able to recover for the difference.

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Three Limitations on Expectancy

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1. Can’t recover expected benefits if profits are too uncertain
2. Damages not reasonable foreseeable as consequences of breach
3. If injured party could’ve avoided harm by mitigation, breacher doesn’t have to pay the amount that could’ve been mitigated

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UCC §2-715

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• UCC §2-715 is a liberal view of the requirement that damages be proved w/ appropriate certainty. UCC follows the expectation rule.

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Limitations on Reliance Recovery:

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o Contract Price as Limit – where D’s only obligation under the K is to pay a sum of money (the KP), reliance damages will almost always be limited to the KP
o Recovery Limited to Profits – puts the burden of proof on D to show what P’s loss would’ve been

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Two Types of Reliance Expenditures

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o Essential Reliance Costs – those made in preparing to perform a K or in actual performance
o Incidental Reliance Costs – those made in anticipation that the K be performed, not directly related to performance
• Must be reasonable and foreseeable

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Sullivan v. O’Connor (Reliance damages)

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o P entered into K w/ D surgeon. D promised to enhance P’s beauty by performing plastic surgery on her nose. Surgery failed to achieve promised result and disfigured her nose. P expected to undergo 2 operations, but had to go through 3. (Courts are usually hesitant to enforce promises by doctors).
o HOLDING: Reliance recovery works. Reliance is putting P back into the position he would’ve been in had the contract not been made. Pain and suffering not recoverable in business contracts b/c they aren’t foreseeable, but they are in doctor-patient relationships. P was entitled to out-of-pocket expenses, recovery for worsening of her condition, and for the pain and suffering and mental distress involved in the 3rd operation (these remedies were available through either the expectancy or the reliance view, but court doesn’t need to decide which one b/c P waived expectancy damages claim). P didn’t get lost earnings.

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Security Stove v. American Railways (Reliance damages)

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o D failed to get P’s stove to exhibition on time.
o HOLDING: Expectancy is general rule, but if it doesn’t serve needs of parties b/c P can’t prove lose profits, then P can sue under reliance as an alternative theory of recovery.

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When to Use Restitution:

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o Other party has breached
o Contract unenforceable under SOF
o Contract is voidable for mistake or misunderstanding

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R § 371 – Two Possible Measures of Restitution

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o If person suing in restitution is innocent victim – give a very liberal measure of recovery
• Not limited to KP b/c you are suing off the contract for the reasonable value of services conferred on the other party
• Objective
o Can sue in restitution even if you’re the first material breacher, but the measure of recovery will be less favorable than it is more an innocent victim
• Subjective – value to the owner of having work done to that point or extent to which property has increased value

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Oliver v. Campbell (Restitution damages)

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o P (lawyer) entered into a losing contract to represent D in a divorce action. P fired. P sues to get reasonable value of services under quantum meruit.
o HOLDING: Reasonable value of services inappropriate b/c performance was nearly completed. The only thing left was for D to pay fee; P only awarded balance due on K.

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Substantial Performance

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Substantial Performance → may sue for ordinary expectation damages for breach of K if the other party fails to perform. P performs substantially but not completely, D will always have a counterclaim for damages she has suffered b/c of P’s deviations (usually cost of remedial work).

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Diminution of Value vs. Cost of Performance --R § 348(2

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Diminution of Value vs. Cost of Performance
• R § 348(2) – the court shouldn’t grant the cost of remedying defects “if the cost is clearly disproportionate to the probable loss in value” to P.
o Economic Waste – unlikely to warrant the cost of completion where the defect is minor and involves an economic waste
• Ex: destruction of what has already been done
• If D’s breach is willful and intentional, the Court will tend to award cost of completion rather that diminution in value

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Peevyhouse v. Garland Coal

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o P leased farm w/ coal deposits to D for mining purposes. D failed to do restorative work as promised in the K. P wants recovery for cost of performance and D wants to pay only diminution in value. Work would’ve added only a few hundred dollars value to the farm, but would’ve cost thousands of dollars.
o Two factors for when court applies either diminution of value or cost of performance. Diminution in value is value is granted when cost of performance results in economic waste. Economic waste – usually defined as the destruction of a substantially completed building. Only weighs economic values, not economic values. Diminution in value is awarded where the term is incidental.
o HOLDING: where the K provision breach was merely incidental to the main purpose in view, and where the economic benefit which would result from full performance is grossly disproportionate to the cost of performance, the damages are limited to the diminution in value resulting to the premises b/c of non-performance.

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Parker v. 20th Century Fox {Rule about mitigation in employment}

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o P contracted to do a musical w/ D. D only obligated to pay her, not use her services. D decided not to produce musical and told P (breach by anticipatory repudiation). D offered her a dramatic western picture instead (a less creative role). Rule about mitigation in employment context → employee must make reasonable efforts to obtain other employment that isn’t different or inferior. Discharged employees (under a K, not at-will) get the amount they would’ve earned under the K minus money they could’ve earned w/ reasonable effort from substitute employment.
o HOLDING: P’s failure to mitigate damages by accepting other movie doesn’t matter b/c the 2nd movie was different and inferior employment.

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Hadley v. Baxendale {Rule of Disclosure}

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o P (millers) took a broken crank shaft to D to be delivered. P didn’t tell D that their mill was shut down until the shaft was return. D’s clerk was told that a special entry should be made to hasten delivery. Delivery delayed by D’s neglect, mill work was delayed – lost profits.
o HOLDING: D was clearly negligent (but that doesn’t matter b/c contracts are strict liability – you breach, you pay). P is suing for consequential losses (ripple effect damages) for failure to deliver on time. To recover these, the damages must be foreseeable (a) they have to occur in the ordinary course of things, or (b) may be reasonably w/in the contemplation of both parties at the time they made the K, as the probable result of the breach. No lost profits here b/c lost profits weren’t a foreseeable damage. The Hadley Rule is about disclosure of risk – if you want the special damages, you must disclose the special circumstances.

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Types of Equitable Relief (issue when there is an inadequacy of monetary damages)

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• Temporary Restraining Order
• Injunction
• Specific Performance
• Can require a party to do a certain act or refrain from doing a certain act

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UCC §2-716 – Buyer’s Right to Specific Performance

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• When goods are unique or in “other proper circumstances”
• Buyer must make a reasonable effort to cover

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Adequacy of Damages
R § 359 and 360

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• Specific performance awarded when other damages would be inadequate
• Other damages are considered inadequate when
o Difficult to prove damages
o Difficult to get substitutes
o Unlikely that damages could be calculated

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Common Law Requirements for Specific Performance

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• No adequate remedy at law
• Peculiar, sentimental, and/or unique value of thing being contracted for
• Item not obtainable elsewhere

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Copylease v. Memorex

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• D breached K w/ P for sale of toner. P given exclusive territory (exclusive rights to sell in a certain territory). P argues for specific performance b/c of inability to obtain cover.
• HOLDING: Need direct analysis to weigh §2-716 willingness to grant specific performance in “other proper circumstances.” If D breaches it would be difficult to estimate damages. The court concluded it needed specific performance without further testimony.

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Quasi-Contract Damages

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• Both reliance and restitution damages are frequently awarded in quasi-contract suits. His damages will normally be based on the actual value of the performance he has rendered, regardless of KP.
• By Breach Plaintiff
o He can recover w/ an allowance to D for the damages resulting from his breach.
• Quantum meruit
o Use in employer cases where EE partly performs and then quits, recover reasonable value of services rendered
o Use in construction cases – builder has constructed something that fails to constitute substantial performance but which is still valuable to owner
o Breach can’t be willful

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Damages in Sales Contracts

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1. Expectancy
2. Lost Profits (consequential damages)
3. Needs of which seller at the time of K had reason to know and which couldn’t reasonably be prevented by cover or otherwise
a. Can recover for difference in price if cover is more expensive
4. Injury to person or property proximately resulting for breach of warranty
5. Have to show lost profits in terms of reasonable certainty
6. Incidental damages – cost of mitigation
a. Expenses reasonable incurred in care and custody of goods that are rightly rejected
i. Ex: seller delivers goods but buyer rejects them b/c they don’t comply w/ the K. Buyer has to put them in a cooler b/c its produce that will otherwise rot. Buyer can recover expenses in care of produce.
b. Also, expenses incurred in cover
7. Consequential loses/ripple effect – losses flowing from breach
a. Any loss resulting from general or particular requirements and needs that seller had reason to know which couldn’t have reasonably been prevented by cover or otherwise