law ch 18
limitations of seeking reliance damages
The breaching party's proven loss that the injured party would've suffered if the contract was fulfilled reduces the reimbursement based on the cost of performance. Reliance damages might be the market value of the injured party's uncompensated contractual performance, not exceeding the contract price, preventing them from using reliance damages to avoid a bad deal. Besides the cost or value of their performance, the injured party can also recover other losses caused by the breach, like incidental or consequential losses.
common remedies for contract breaches
monetary damages, specific performance, injunction, and restitution
Reliance Damages
seek reimbursement for the foreseeable loss due to relying on the contract. aim to place the injured party in the position they would've been in if the contract never happened.
Restitution can be used in various contract situations
(1) for someone harmed by a breach of contract, as an option for compensation; (2) for someone who fails to meet their obligations; (3) for someone unable to enforce a contract due to legal requirements; and (4) for someone wanting to cancel an avoidable contract.
According to the Restatement of Restitution, if both parties cancel the contract:
(a) They should give back what they got from each other, if possible. (b) They should account for any extra benefits received because of the agreement and its cancellation, to prevent unfair advantage. (c) They should compensate each other for any expenses related to the agreement that caused a loss. For instance, if Samuel tricks Jessica into selling land for $160,000 and she later finds out about the trickery, she can cancel the deal and get her land back, but she must return the $160,000 to Samuel.
loss of power of avoidance
A party with a power of avoidance for lack of capacity, duress, undue influence, fraud, misrepresentation, or mistake may lose that power if (1) she affirms the contract, (2) she delays unreasonably in exercising the power of disaffirmance, or (3) the rights of third parties intervene.
Nominal Damages
A small monetary award (often one dollar) granted to a plaintiff when no actual damage was suffered from a contract breach
cost avoided
Any saved expenses or costs due to the breach. For example, if a project was delayed, resulting in a loss of $400,000 revenue but saving $60,000 in operating expenses, the recoverable amount would be $340,000.
Damages for Misrepresentation
Common law offers another remedy—suing for damages. The Code expands on this by allowing the harmed party to both cancel the contract and seek damages or any other remedy under the Code. depends on whether it was fraudulent or not.
certainty of damages
Damages can only be recovered for losses that the injured party can reasonably prove. If a particular loss element can't be proven with certainty, the injured party can still recover the portion they can establish. This requirement poses challenges for plaintiffs seeking consequential damages like lost profits from related deals, such as in contracts for events or new publications.
incidental damages
Damages that compensate for expenses directly incurred because of a breach of contract, such as those incurred to obtain performance from another source.
Choosing reliance damages over compensatory damages could happen when proving lost profits isn't feasible.
For instance, if Donald promised to sell his store to Gary, who spent $750,000 on inventory and fixtures. Donald backs out, and Gary sells the items for $735,000 without knowing the exact profit he would've made. In this case, Gary could claim damages of $15,000 (the loss from the sale) and any other contract-related costs from Donald.
non-fraudulent misrepresentation
For negligent misrepresentation, damages may include general and consequential damages, and some states might allow recovery under the benefit-of-the-bargain rule. However, when the misrepresentation isn't fraudulent or negligent, damages are typically limited to the out-of-pocket measure.
Fraudulent Misrepresentation
If fraud induced someone to enter a contract, they may claim general damages in a tort action. Some states follow the "out-of-pocket" rule, awarding damages based on the difference between what was received and what was given. Others use the "benefit-of-the-bargain" rule, awarding damages based on the difference between what was received and the represented value.
party injured by breach
If one party completely breaks the contract by not fulfilling their obligations or refusing to do so, the Restatement of Restitution says the other party can get restitution. For instance, if Benedict agrees to sell land to Beatrice for $60,000 and after Beatrice pays $15,000, Benedict refuses to transfer the title, Beatrice can get back the $15,000 instead of damages or making Benedict follow through.
voidable contracts
If someone cancels or avoids a contract due to various reasons like fraud, mistake, or undue influence, they're entitled to get back what they gave to the other person. Usually, they need to give back what they received, but not always.
delays unreasonably in exercising power of disaffirmance
If someone has the power to cancel a contract because of a problem like fraud or mistake, they might lose that power if they don't cancel within a reasonable time after the issue ends.
Party in Default
If someone starts doing what they agreed to but then breaks the contract in a way that stops the other person from fulfilling their part, the Restatement of Restitution says the person who didn't follow through can claim restitution. For example, if Nathan agrees to sell land to Milly for $160,000 and Milly pays $15,000 but later cancels the deal, Nathan sells the land to someone else for $155,000. Milly can get back the $15,000 she paid, minus the $5,000 in damages caused by her breach, which equals $10,000.
mitigation example
Let's consider a scenario where a tenant leases an apartment from a landlord. Due to the landlord's negligence in maintaining the property, a leak develops in the apartment, causing water damage to the tenant's personal belongings and furniture. By taking these reasonable steps, the tenant demonstrates that they've made efforts to mitigate the damages resulting from the landlord's negligence. In a legal dispute or lawsuit seeking compensation for the damages, the court may consider these mitigation efforts. If the tenant failed to take reasonable steps to minimize the damage (for example, leaving belongings exposed to ongoing water leakage without taking protective measures), the court might limit the compensation awarded, as the tenant did not fulfill their duty to mitigate the damages.
Consequential Damages
Special damages that compensate for a loss that is not direct or immediate (for example, lost profits). The special damages must have been reasonably foreseeable at the time the breach or injury occurred in order for the plaintiff to collect them.
Statute of Frauds
The Restatement of Restitution says that if someone does work or pays money for a contract that can't be enforced because of the statute of frauds, they can claim restitution. For instance, if Wilton makes an oral agreement to work for Rochelle for more than a year, but Rochelle lets him go after three months, Wilton can get paid for the three months of work.
loss of value
The difference between the promised and actual performance. For instance, if an item was promised to be worth $24,000 but was delivered at a value of $20,000 due to defects, the compensation would be $4,000.
third parties
The intervening rights of third parties further limit the power of avoidance and the accompanying right to restitution. If A transfers property to B in a transaction that is voidable by A, and B sells the property to C (a good faith purchaser for value) before A exercises the power of avoidance, A will lose the right to recover the property.
affirmance
They lose this power of avoidance if they affirm or agree to the contract after learning about the issue
Reliance Interest
To be reimbursed for losses due to reliance on the contract.
Limitations on Damages
To ensure contract remedies serve their basic goals, limitations like foreseeability, certainty, and mitigation are placed on monetary damages. ensure damages are considered during contract-making, are compensatory, and don't involve avoidable losses.
expectation interest
To receive the benefit they expected from the contract.
restitution interest
To regain benefits given to the other party.
Foreseeability of Damages
When parties make a contract, they're expected to anticipate foreseeable risks. Recoverable compensatory or reliance damages are for losses foreseeable to the breaching party at contract inception. The breaching party isn't liable for unforeseeable losses those the breaching party should reasonably have anticipated as a probable outcome of the breach, either as an ordinary event or due to special circumstances known to them.
injunction
a formal order from a court telling someone to stop doing something or to behave in a specific way. For instance, if someone promises to give another person the first chance to buy land but offers it to someone else, the court might tell the first person not to sell the land to the second person.
restitution
a remedy in contracts where one party gives back what they received from the other party. Its aim is to return the injured party to their original position before the contract.
compensatory damages
aim to restore the injured party to the position they would've been in if the contract was fulfilled calculated by loss of value - cost avoided + incidental + consequential damages aim to make the injured party whole by considering the loss caused directly by the breach and any consequential damages arising from it
punitive damages
are extra money given to a plaintiff along with compensatory damages in certain cases involving deliberate, reckless, or malicious behavior. aim to punish the defendant and deter them, as well as others, from repeating such wrongful actions.
monetary damages
are granted only for foreseeable losses that are reasonably certain and unavoidable.
Liquidated Damages
both parties agree in advance on the amount of money to be paid if there's a breach. gets enforced if it reasonably predicts the loss from the breach. enforceable as a penalty if unreasonable A penalty aims to stop a party from breaking the contract and punish them for it, which isn't the main goal of contract remedies—it's about compensation.
specific performance
forces someone who has broken a contract to do what they promised. used when regular monetary compensation isn't enough to fix the problem. For example, when something rare or unique, like a famous painting or a one-of-a-kind item, is involved in the contract and can't be replaced with money. When it comes to land deals, courts always allow specific performance because every piece of land is seen as special. courts won't use specific performance for contracts involving personal services.
mitigation of damages
the injured party can't claim damages for losses they could have avoided reasonably. If someone breaches a contract mid-performance, the affected party can't keep incurring losses by continuing if it increases damages. Instead, they should try to minimize the loss.
equitable remedies
when damages aren't enough to make things right, courts might offer fair relief through specific actions or court orders, known as equitable remedies. might not be given if there's already a proper legal remedy available or if enforcing them is impossible, like when someone else has received the subject matter of the contract. they won't be granted if the contract terms are unfair, the agreement is seriously one-sided, there's fraud, coercion, or other unfair actions, or if granting the remedy would severely affect the defendant. Even if a contract says it doesn't allow equitable relief, a court might still grant it if not doing so would create a lot of hardship for the party that was harmed.