6.Expectation Damages
D.Nonrecoverable Damages 2. Emotional Distress Damages ex. Erlich v. Menezes
(family contracted to build dream home, ended up a nightmare and wanted emotional distress damages) Hard to prove and unpredictable Exceptions -Physical harm happened (I.e. a botched surgery) -Breach leads to foreseeability of emotional distress (I.e. botched disposition of a lovedone's corpse) -Here we allow emotional distress damages because of how serious it is -There are instances where breach of contract and tort can be brought together i. Instances of fraud, duress, etc --- Rule of Law:In a breach of contract claim, an injured party cannot recover damages for emotional distress if he has only suffered economic damages and there has been no breach of a legal duty in tort law. -Even when an injured party can establish that a party violated a legal duty under tort law, emotional distress damages cannot be recovered when the injured party has only suffered economic injury. - In a commercial contract, recovery for emotional distress can only be awarded when the breach also caused bodily harm or the contract or breach is of such a nature that serious emotional distress is a particularly likely result. Hold: Section 353 of the Restatement (Second) of Contracts states that a contract to build a home is not one for which serious emotion distress is a particularly likely result. o The Erlichs negligent breach of contract claim, without more, is not sufficient to allow for recovery of emotional distress damages. o Moreover, even if the Erlichs could establish that Menezes violated a legal duty, they cannot establish that they suffered anything but an economic injury. o The Erlichs have not established that they were physically injured by Menezes's negligent construction of the home. THUS: Accordingly, the Erlichs cannot recover emotional distress damages in this matter.
D.Nonrecoverable Damages
1. Attorneys' Fees A. American rule= both parties pay their own litigation expenses · Issue of access-->many worthy cases might not be brought because people can't afford it · Parties may not be made whole in terms of damages o If you are the victim party and recover damages, you're still not in the exact position you would have been in terms of your expectation because B. English rule= loser pays both parties' litigation fees · Pro: equity in terms of being able to bring an action · Con: requiring payment of attorneys' fees can seem like a punishment -so this deters contracts. Risk is that you will inhibit litigation because they're scared to lose and have to pay a lot of fees. C. CISG (Convention on Contracts for the International Sale of Goods) · Default law for international transactions/contracts=CISG o Class ex: if your contracting goods in Canada, CISG will cover this o **Unless the contract states otherwise, CISG will govern o Basically like the UCC but for international transactions/agreements o Helps create common ground between parties · Many good things about CISG, but there are drawbacks o Lots of unresolved issues o Creates a situation in which you have a relatively new body of law that's sort of a mish mash of what's out in the world and not much precedent - Courts then struggle with what to do · Unresolved question as to whether attorneys' fees are recoverable under the CISG · Zapata Hermanos o Court applied American rule and didn't allow recovery for attorneys' fees for breach of a CISG contract 2. Emotional Distress Damages -No recovery, too unpredictable -Contract damages =compensatory --> Expectation Damages: Compensatory damages in a contract action, which place the injured party in the same position he would have been in had he received the full benefit for which he contracted. Why: Damages have to be: foreseeable, caused by the breach, provable by a preponderance of the evidence, duty to mitigate, etc. Exceptions: 1.The breach also caused bodily harm, OR ·2. The breach is of such a kind that serious emotional disturbance was a particularly likely result Tortious breach of contract · The breach is accompanied by a traditional common law tort · The means to breach the contract are tortious, involving deceit or undue coercion or One party intentionally breaches the contract intending or knowing that the breach will cause severe, unmitigable harm
volume sellers
A person or company that is in the business of selling large quantities of the commodity that is subject matter of the contract. -If you have instances in which the victim of breach can perform multiple times, they don't have a duty to mitigate/they can NOTmitigate -why: company is continuously seeking profit so it's not mitigation when they enter into a contract they would've entered into regardless of breach - If they're able to perform multiple times, to put them in the place they ought to be, you have to give them recovery for where they would be if everything had gone right with the contract -Get paid for finding the lost buyer AND the additional profit -Mitigation does NOT apply if you can perform the task multiple times and simply would end up with the profits from multiple performances
Expectation Damages
A.Computing B.Expectation damages -cost of completion -diminished value -3 way split in authority C.Limitations i.foreseeability, certainty, causation ii.mitigation D.nonrecoverable damages i.attorneys fees ii. emotional distress damages E..Justification for expectation damages rule
C. Limitations on recovery ii. mitigation ex. 2. Maness v. Collins
Burden of proof -While victims of breach have to prove their initial damages -the breaching party has to prove that the victim failed to mitigate damages -have to also be foreseeable i) Employment contracts · If you have an employment contract that is not at-will and the employer breaches that contract: -The victim has a duty to make reasonable effortsto find comparable employment -If you find a job with the same compensation/find a job that's comparable, YOU MUST TAKE IT -ii)Factually-sensitive inquiry -Can still recover the cost it took to find a new job --- Sum: M sold company to C, three parties. M was to stay on and work/oversee for three years. His contract also including a non-competition agreement. Two C parties only worked part time, full time party was managerial and had a drug problem. Relationships deteriorated, M was fired for "breach of job duties in contract." Sought damages, appealed considering the mitigation of damages. Rule of Law An employer must prove, pursuant to an employment agreement, that a terminated employee failed to mitigate his damages by showing the availability of suitable and comparable employment and a lack of reasonable diligence on the part of the employee to seek and obtain work. H: judgment of the trial court is reversed as to Maness's failure to mitigate damages. The matter is remanded to the trial court for entry of judgment in favor of Maness and for calculation of Maness's damages resulting from the breach.
C. Limitations on recovery i.forseeability, certainty, and causation ex.2 Florafax International, Inc. v. GTE Market Resources, Inc.
Certainty -Parties must prove (even foreseeable) damages by a preponderance of the evidence (requires certainty) · Lost profits typically are recoverable (so long as proven through preponderance of the evidence) because they are part of the expectations of the contract · But, there is a debate about whether new businesses can recover lost profits -Split in authority 1. No= lost profits recoverable at all for a new business · Hard to predict what type of profits they will have · There is also a Q of (what is a new business) 2. More modern rule= is that some jurisdictions will entertain the idea of a new business recovering for lost profits - As long as they can prove it through preponderance of the evidence Florafax ex. · Even though the parties didn't foresee the additional contract, there was enough proof to show that the third-party contract would have yielded certain profits · Recovery for lost profits allowed SUM:P entered into a contract with Bellerose in which the parties agreed that P would handle a certain amount of floral orders for Bellerose. This contract contained a clause stating that either party could terminate the contract upon sixty days written notice. Shortly thereafter, P entered into another contract with D stating that the D was to operate a call answering center on behalf of the P. This contract contained a termination clause provided that GTE would pay Florafax consequential damages and lost profits should it breach the contract or provide notice of termination of the contract for any reason. GTE had difficulties fulfilling its obligations under the contract. Bellarose terminated its agreement with Florafax. Florafax terminated its agreement with GTE. Florafax filed suit, seeking lost profits from the termination of the Bellarose contract from GTE. HOLD: · Florafax has provided sufficient evidence to establish with reasonable certainty that it would have made profits from the Bellarose contract had the GTE contract not been terminated and that those profits were not speculative. · Additionally, as GTE was aware, Bellarose received 100,000 to 200,000 orders annually, a number that was increasing. This evidence is sufficient to establish both causation and that the amount of profits Florafax claims it lost were not speculative. Accordingly, the jury's award of lost profit damages was appropriate given all the evidence.
Expectation Damages
Default Measure: Want to try to put the victim party where they would have been if the contract had gone well expectation damages=Compensatory damages in a contract action, which place the injured party in the same position he would have been in had he received the full benefit for which he contracted. Formula: general measure = loss in value + other loss - cost avoided - loss avoided 3 approaches: · Ethical approach: cost of completion · Economic approach: diminished value -Intended purposes (middle ground)
E. Justifications for expectation damages rule
Expectation damages: are the preferred measure -want to put person at the time of performance had the contract gone well Monetary damages: are not the same as getting what you contracted for. MD=A type of relief that awards money as compensation for some injury. -->are economic damages, non-economic damages, and punitive damages Limitations for damages (recap): 1-have to foreseeable 2-can't get attorneys fees 3-have to prove damages 4-don't award emotional distress damages except in extraordinary circumstances 5-have to mitigate damages Nominal Damages: This occurs in situations where legal fault is determined, but there is little or no actual loss. Small damages that show that one party won and the other lost but does not fully compensate for the loss. (could be $1). 1)pros: -If your client is the victim, they may feel vindicated -Communicate wrongdoing -Useful for developing the law -Nice to get paid
B.Expectation damages ex. American Standard, Inc. v. Schectman
Facts: -Schectman miscarried to grade the property as specified in the contract. -So, American Standard (AS) brought an action against Schectman for breach of contract. -Schectman argued AS had not suffered any loss from breach bc AS was able to sell the property for only $32K less than fair market value. Rule of Law: In a construction contract, the injured party may recover the cost of completing unfinished work even if the value of the property as a whole is not diminished by the unfinished work. Issue:Was the proper measure of damage the difference in value of American Standard's property with and without the promised performance or the cost of completion? Analysis: · (should it have been this) the diminution-in-value rule will also be applied if the breach concerns a contract provision that is merely incidental to the main purpose of the contract and completion of work would be disproportionately costly. o In this case, grading and removal of the structures as specified concerns the main purpose of the contract, by which American Standard sought to achieve an attractive plot of land to resell. -The failure to grade the property was not incidental to the purpose of clearing the plot for resale. Hold: The damages sought by American Standard flow naturally from Schectman's failure to do the specified work, and the damages thus were reasonably within the parties' contemplation when the contract was made. -Accordingly, American Standard can recover all damages sought.Where the contractor's performance has been defective or incomplete, the measure of damage is the reasonable cost of replacement or completion, unless the correction of the defects would result in economic waste.
B.Expectation damages
Introduces that sometimes there are multiple values that go towards the computation of expectation damages cost of completion: -they can complete the contract w/ that money diminished value: -puts them in the same position financially 3 way split in authority: 1.ethical approach: -if you give your word, you should keep it even if it is hard or expensive -cost of completion damages rules 2.economic approach: -don't like wast so all breaching party is required to pay is the diminishment of the value -give the amount that the property was diminished in value (if no real diminishment then get nominal damages) 3.middle ground approach: -whether or not the victim of the breach will use the awarded damages to complete the contract i.if someone uses it for cost of completion, they'll get what they bargain for ii. if they don't, there could be over compensation
A.Computing ex 2. Handicapped Children's Education Board v. Lukaszewski
Issue: Did Lukaszewski breach her employment contract and if she did, was the Board entitled to damages resulting from the breach? Rule: Resignation prior to expiration of a contract must be justified to avoid a breach.A non-breaching party is entitled to full compensation for the loss of the benefit of the bargain. The measure of damages for breach of an employment contract is the cost of obtaining other services equivalent to that promised but not performed, plus any foreseeable consequential damages. Analysis:The Board neither expected nor wanted a more experience teacher, so they were entitled in receiving damages in the amount of extra compensation they had to pay.. Hold: court here says even if a better replacement had to be obtained, the breaching party still owes the difference.
C. Limitations on recovery ii. mitigation & volume sellers ex.Jetz Service Co. v. Salina Properties
Rule of Law A lost-volume seller is not required to mitigate damages. Facts Jetz Service Co. (Jetz) (plaintiff) entered into a lease with Salina Properties (Salina) (defendant), whereby Salina agreed to lease coin-operated laundry equipment from Jetz. Jetz has several warehouses in which there are about 1,500 washers and dryers available for lease. Jetz is constantly looking for new locations to install its machines. When there were 16 months remaining on the lease with Jetz, Salina disconnected all of Jetz's equipment and replaced it with its own. Jetz removed its equipment and returned it to the warehouse. Some, but not all, of the equipment was re-leased to Kansas City. Jetz brought suit to recover its lost profits. Salina argued that Jetz was required and failed to mitigate its damages. The trial court held that Jetz was a lost-volume seller and entered judgment in Jetz's favor. Salina appealed to the Kansas Court of Appeals. Issue Is a lost-volume seller required to mitigate damages? Holding and Reasoning (Larson, J.) No. When awarding damages, the injured party should be placed in the same position that he would have occupied had the contract been performed. Lost profits are recoverable if (1) they can be proved within reasonable certainty and (2) they were within the contemplation of the parties. Fixed expenses and overhead will not be deducted from a lost-profits award. Because Jetz was a lost-volume seller, Jetz was not required to mitigate damages. Additionally, regarding lost profits, though the parties did not discuss lost profits when entering into the lease, the contract shows that Salina's lease payments were based upon expected profits. An award of lost profits was appropriate in this case and, despite Salina's arguments to the contrary, Jetz's fixed expenses and overhead will not be deducted from the award. Accordingly, the decision of the trial court is affirmed.
C. Limitations on recovery i.forseeability, certainty, and causation ex.Hadley v. Baxendale
Sum: · Hadley (P) contracted with Baxendale (D) to transport a broken crankshaft to Greenwhich for repair. The delivery of the crankshaft was delayed by some neglect and the plaintiff's mill had to remain closed for several extra days. Hadley (P) sued Badendale (D) for the lost profits from the extra days the mill had to be closed due to the delay. Anal: · Hadley never told Pickford that delay in shipping the shaft would result in Hadley's lost profits, and thus Baxendale is not liable for the consequences of these "special circumstances" that were not reasonably foreseeable at contract formation. · When one party breaches a contract, the other party may recover all damages that are reasonably foreseeable to both parties at the time of making the contract. o The non-breaching party may also recover damages stemming from any special circumstances, provided those circumstances were communicated (foreseeable) to and known by all parties at contract formation.
E. Justifications for expectation damages rule ex. Roth v. Speck
Sum: · Plaintiff hair salon wasn't able to prove lost wages when defendant hairdresser breached contract · Lower court awarded nominal damages · higher court calculated damages by figuring out the cost it would have been to obtain a hairdresser of equal value to the breacher Rule of Law: An employer may recover damages for an employee's breach of an employment contract even though the employer has provided no expert proof of the cost of replacing the employee. Facts: Roth (plaintiff) possessed a hair salon and agreed to employ Speck (defendant) as a hairdresser for one year. Speck was compensated with a salary.Speck was an exceptional hairdresser who maintained a large customer base. After six and a half months, Speck stopped working for Roth. Speck immediately began working for another salon for a better salary. Roth attempted to find a replacement for Speck, but was unable to do so without suffering a loss. · Roth filed suit for breach of contract. Hold: -P in breach of contract= entitled to recover damages if they can establish a breach · if they do not prove actual damages OR if their proof is too vague =they are only entitled to nominal damages Employment agreement context · employer is entitled to recover as damages the cost to replace the employee services for the duration of the contract. o Causation** (caused by particularly breach of contract) · an employer may recover additional consequential damages if it was foreseeable to the employee that a breach would cause such injury when the contract was executed: 1. foreseeability*** 2.provable by the preponderance of the evidence 3.duty to mitigate 4.no attorneys fees 5.no ED damages Conc: -Roth's evidence was too speculative to support a claim for lost profits -Roth had adduced sufficient evidence on the replacement cost of Speck's services, -however, under the party's employment contract Roth agreed to pay Speck $75 per week for his services -Speck's new employer paid him $100 H: -Speck's new salary was evidence of both THE VALUE of Speck's services and what it would cost Roth to replace them. -Accoridngly, the court found that the difference between Speck's old and new salaries for the remainder of the contract period, was presumptive evidence of Roth's damage
D.Nonrecoverable Damages 1. Attorneys Fees and CISG ex. Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Company, Inc.
Sum: Court applied American rule and didn't allow recovery for attorneys' fees for breach of a CISG contract F: Zapata Hermanos Sucesores, S.A. (Zapata) (plaintiff), a Mexican corporation, supplied cookie tins to Lennell (defendant), a U.S. wholesale cooker baker. • Lennell failed to pay 110 invoices, amounting to almost $900,000. Zapata filed suit under the Convention on Contracts for the International Sale of Goods (CISG),seeking the $900,000, prejudgment interest and attorney's fees Rule of Law Attorney's fees are not automatically recoverable as a "loss" under the Convention on Contracts for the International Sale of Goods. Hold: An award of attorney's fees may not be used as a punitive award. o In the current matter, the applicable international law to be applied is that of the United States and, more specifically, the common law of Illinois. - Because the common law of Illinois does not permit recovery of attorney's fees in these circumstances, Zapata is unable to recover the attorney's fees. -** Moreover, the trial judge's award of attorney's fees as a punitive measure is condemned. -His several statements regarding Lennell's actions in this matter reveal that he intended to punish Lennell for breaching the contract. • However, attorney's fees are not to be awarded as punishment. -Accordingly, the decision of the trial court is reversed with regard to its award of attorney's fees.
C. Limitations on recovery ii. mitigation ex. Rockingham County v. Luten Bridge Co.
Sum:Wasteful for P to continue to build a bridge and rack up damages/spending even after D told P they no longer wanted the bridge. P had a duty to mitigate Facts:R entered contract with L to build bridge. After decision makers within R had disagreements, they breached contract with L to build bridge prior to start of building. L built bridge anyway. L seeing damages, but did not mitigate damages. Hold: · After Luten received notice of the County's refusal to go forward with the contract, it did not have the right to continue performance and pile up additional damages and then sue to recover for the price of full performance. · When a non-breaching party in a contract for services receives notice of another party's breach, the non-breaching party must treat the contract as broken when notice is received, cease performance, and sue for any losses sustained from the breach as well as profits that would have been realized upon performance. · The non-breaching party may not incur additional costs after notice is provided and then hold the breaching party for damages which did not need to be incurred. -Thus, once Luten received notice of the County's breach, it had a duty to cease performance and seek only compensatory damages for the labor and materials expended and expense incurred in the part performance of the contract prior to the County's repudiation, as well as profits that might have been realized from full performance. But nothing more. Rule of Law:When a non-breaching party in a contract for services receives notice of another party's breach, the non-breaching party must treat the contract as broken when notice is received, cease performance, and sue for any losses sustained from the breach as well as profits that would have been realized upon performance.
Nominal Damages
a token award to symbolize vindication of the wrong done to the plaintiff, generally the award is $1.00 -A small monetary award
A.Computing
default: contract damages are monetary in nature compensatory: -very strong preference to compensate only what is necessary general measure= loss in value + other loss - cost avoided - loss avoided -want to put person in the financial position had the contract went right -want to give people the benefit of the bargain -preferred measure: is expectation damages -not really punitive damages in contract law (rare) [Punitive damages, or exemplary damages, are damages assessed in order to punish the defendant for outrageous conduct. awarded in addition to actual damages] -why: contracts are good thing and we want people to contract. Less contracts would be used if they were punishable. No mental state required for damages: -award the difference, plus cost of finding new buyer, plus consequential damages
C. Limitations on recovery i.forseeability, certainty, and causation
forseeability: a)-damages claimed have to be foreseeable at the time of contract -have to be in the contemplation of the parties at the time of contract -unforseeable damages won't be able to be recovered causation: b)-contract damages come from contracts themselves -private ordering: contracts have t be contracted for directly or indirectly at the time of contract --what the parties were thinking of at the time of contract is all that matters. -* a millisecond later is not enough notice for something to be foreseeable, even if performance is years later certainty: c)-Parties must prove (even foreseeable) damages by a preponderance of the evidence (requires certainty) · Lost profits typically are recoverable (so long as proven through preponderance of the evidence)
C. Limitations on recovery ii. mitigation
mitigation of damages: -requires the victim of the breach try and limit damages as much as possible -avoids waste -don't want people racking up damages -contracts are good and mitigation allows people to comfortably enter contracts and know that the other party can't rack up damages if there is breach i)Employment contracts & Burden of proof -While victims of breach have to prove their initial damages -the breaching party has to prove that the victim failed to mitigate damages -have to also be foreseeable -mitigation is looking for a new job. (ie. if you find comparable employment, you have to take it) -breach of an employment contract still entitles you to get whatever amount you would have received that is impossible to mitigate -you also get the fees to get a new job Exceptions** 1.*clear cases where jobs are not comparable -not always clear -and one should not have to take a job that is not comparable. 2.volume sellers -A lost-volume seller is not required to mitigate damages
A.Computing ex. Crabby's Inc. v. Hamilton
this case: awarded difference in price (expectation) PLUS incidental damages (the amount it costs to maintain the property after their initial sale date before it could sell to other buyers) F:· Buyer was going to purchase Sellers' restaurant for 290K. · The contract included a contingent clause that required B to make reasonable diligences to obtain a loan of "232K redeemable over a period of not less than 15 years and bearing interest at a rate of not more than 5.5% per annum" to be closed within 30 days. · The bank agreed to loan B 225K with slightly different requirements. · B did not attempt to find another loan, nor provided S with paperwork about loan. · Closing date was moved back two weeks, a credit was allocated to B. · Closing date extended again, B was permitted to take possession of property prior to closing date, given key, all documents indicated a transfer of ownership were concluded, o but B cancelled contract two days prior to closing date. · S sold 11 months later at 235K. · S sued for damages for difference in price sold and cost for building upkeep. Rule of Law: In Missouri, a seller's measure of damages for breach of a contract for the sale of land with a structure on it is the difference between the purchase price and the fair market value of the property on the date of breach. Hold: (RC: Plaintiffs filed suit against Defendants for breach of contract and claimed as damages the difference between the contract price and the sale price. After a bench trial, the court held for Plaintiffs, and Defendants appealed.) trial court affirmed. · 290K-235K= what D owes P
more notes on Handicapped Children's Education Board v. Lukaszewski
· Court focuses on the fact that the better therapist, and, therefore, the higher salary, were imposed upon the Board as a result of Lukaszewski's breach. This was not what P wanted. -The burden of proof here, was on D, was on Lukaszewski to prove justification of non-performance · Case on questions of damages (this case explicates that even in good faith reasons, a defecit is a defecit: · Opportunity for justification of non-performance-->teacher is defending that she is justified in not performing because of impractibility -okay but, if she walks off the job, does this encourage others to avoid their contractual damages and do so? possibly. -^this is what contracts wants to avoid (justifications for non-performance are hard to argue) (broad doctrine) · Damages -Innocent breach of contract it does sometimes, make sense to let someone breach and exit contractual duties -Could have been possible here. But you need to bear the brunt of breaching -Nonetheless, breaching erodes contractual foundations -Times for nominal damages= ·
