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Law Outlines Contracts Outlines

Contract Remedies Outline

Updated Contract Remedies Notes

Contracts Outlines

Contracts

Approximately 48 pages

Contracts Outline...

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Contract Remedies

A. The Principles of Remediation: Expectation, Reliance, and Restitution

1. Expectation damages – THE DEFAULT MEASURE

a) Used to put the injured party in the position he would have been in had the contract been performed

(1) Must know what position the promisee currently occupies following the breach

(2) Then must know the position the promisee would have been in had the contract been performed

b) Limited to reasonably foreseeable damages

2. Reliance damages

a) Used to return the injured party to the position he was in before the contract was made, when a promise or agreement causes the injured party to expend resources regardless of expectancy. Includes both out of pocket expenses and all expenses that flow naturally from breach of contract.

b) Reliance Awarded; Expectancy too Uncertain: Sullivan v. O’Connor -- Where plaintiff had a contract with defendant doctor to receive a nose surgery that would entail two surgeries to enhance her beauty, but she ended up requiring three operations and her appearance was irreparably worsened, the court held that reliance damages that would put the plaintiff back in the position she occupied just before entering the agreement were appropriate because of the difficulty in assessing the value of the difference in the promised condition (an improved nose) and the condition before the operation; plaintiff was awarded out of pocket expenditures for the third surgery (she waived her claims for the first two), the pain and suffering for the third surgery (she waived her claims for the first two), and would have been awarded lost wages except that she did not charge any; she waived an difference in value between her present condition and promised condition.

Note: If she had been able to produce concrete evidence that the botched nose job had actually caused her financial detriment (like, for example, it had caused her to lose a movie role), she might have been able to get expectancy damages.

Note: Court worried that expectancy damages had potential to be wildly out of proportion to the cost of the service.

3. Restitution damages

a) Awarded to prevent unjust enrichment, returns promisee to market value of benefit already conferred—in the surgery case, out of pocket expenses.

b) This is looked at from the perspective of the breacher – what did they gain?

4. Injunctive relief (specific performance) is unusual as a contract remedy.

5. Freund v. Washington Square Press -- Where plaintiff granted defendant publisher exclusive rights to publish manuscripts and was given a $2000 advance and the defendant did not exercise his 60 day right to terminate and failed to publish the book the court held that the trial court wrongfully awarded expectancy damages of $10,000 for the cost of publication because damages are NOT measured by what the defaulting party saved by the breach but by the natural and probable consequences of breach to the plaintiff; the court also held that the plaintiff should not recover more for the breach than performance and that here the contract was not for books but for royalties but in this case the royalties were too speculative so nominal damages alone were awarded.

(1) The court also could have considered the prestige and/or loss or delay in promotion but the plaintiff did not place a monetary value on this at trial.

(2) If the plaintiff had sought reliance he probably would have received the cost of publishing the manuscript himself

B. Expectation-Based Recovery as an Exercise in Contract Interpretation

1. Cost of Completion or Diminution in Value

a) Cost of Completing Damages: American Standard v. Schectman -- Where plaintiffs made a contract in which they agreed to give buildings and other structures and most of the equipment to defendant contractor in exchange for defendants’ payment of $275,000 and his promise to remove structures and grade the property 1ft below the surface as specified, the court upheld jury verdict that awarded $90,000 for the cost of completion as opposed to the relatively small difference between the value of P’s property with and without the promised completion. The court stated that the diminution in value measure of damages is only appropriate when the defects are irremediable or may not be repaired without substantial tearing down, or when the breach is only incidental to the main purpose of the contract. In this case, D did not have to tear down existing structure. It just needed to finish the job. And the breach was central to the purpose of the contract. Furthermore, the breach was believed to be intentional, which generally precludes value-based damages.

(1) The court relies on Groves v. Wunder Co. where the cost to complete the grading was 60,000 but the value of the property graded was only 12,160 and the court found that an owner’s right to improve his property is not trampled by its small value.

Counter: It is unlikely that P would have paid D $90,000 for something that would have increased the value of the land by only $3,000.

b) Diminution in Value: Peevyhouse v. Garland Coal & Mining Co. - Garland Coal (D) contracted for the right to strip mine coal on Peevyhouse’s (P) property for five years. The contract provided that D would perform restoration work on the property at the end of the lease period. P sued for $25,000 when D refused to perform the restoration. D and P argued over whether diminution or cost of performance was an appropriate measure of damages. Court ruled in favor of D, holding that if breach pertains to a matter only incidental to the main purpose of the contract, and performance would be disproportionately costly, the proper measure of damages is diminution. However, if performance is a main or principal purpose of the contract, the cost of performance is an appropriate measure.

Note: The court noted the strangeness of this scenario in which P could gain much more from non-performance than from performance.

C. Limitations on the Expectation Remedy

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