Remedies

1. CHAPTER 18 Remedies

2. Breaching the Contract • Someone breaches a contract when he fails to perform a duty without a valid excuse. • A remedy is the method a court uses to compensate an injured party. • An order forcing someone to do something, or refrain from doing something, is an injunction.

3. Identifying the “Interest” • Expectation Interest • Designed to put the injured party in the position she would have been in had both sides fully performed their obligations. • Reliance Interest • Designed to put the injured party in the position he would have been in had the parties never entered into a contract.

4. Identifying the “Interest” (cont’d) • Restitution Interest • Designed to return to the injured party a benefit that he has conferred on the other party, which it would be unjust to leave with that person. • Equitable Interest • When money is not sufficient to help the injured party, a court may order a transfer of property or may issue an injunction to prevent a particular action from continuing.

5. Expectation Interest • This is the most common interest identified in a breach of contract case. • The court tries to give the injured party what he would have received if the contract had not been breached. • Expectation damages generally fall into these categories: (1) compensatory (“direct”) damages, which represent harm that flowed directly from the contract’s breach; (2) consequential (“special”) damages, which represent harm caused by the injured party’s unique situation; and (3) incidental damages, which are minor costs such as storing or returning defective goods, advertising for alternative goods, etc.

6. Compensatory Damages • Compensatory damages are the most common monetary awards. • They generally flow directly from the contract, such as an order to pay what was promised or to pay for expenses caused by the breach. • The injured party must prove the breach caused damages that can be quantified with reasonable certainty.

7. Consequential Damages • Consequential damages are those resulting from the unique circumstances of this injured party. • Because damage calculation can be complex, there are companies that specialize in doing the work on behalf of litigants or other interested parties.

8. Incidental Damages • Incidental damages are the relatively minor costs incurred when the injured party responds to the breach (obtaining cover), such as the extra cost of buying replacement goods. Big Bob can recover incidental damages of the extra $250 from Acme. Acme agrees to sell 1000 widgets to Big Bob’s for $1 each, but fails to deliver. Big Bob has to buy 1000 widgets from ConCo for $1.25 each.

9. Seller’s Remedies • If she acts in good faith, she will be awarded the difference between the original contract price and the price she was able to obtain in the open market. • Under the proposed Code revisions, a seller would be allowed to recover consequential damages, but only in a non-consumer case. A consumer-buyer would still be immune from this remedy.

10. Buyer’s Remedies • She will be awarded the difference between the original contract and her cover (replacement) price. • Under the UCC, the buyer is entitled to consequential damages provided that the seller could reasonably have foreseen them.

11. Reliance Interest • Designed to put the injured party in the position he would have been in had the parties never entered into a contract. • May be difficult to quantify. • In some cases, may recover without a valid contract under the principle of promissory estoppel.

12. Law and Equity • The restitution interest is designed to return to the injured party a benefit that he has conferred on the party, which would be unjust to leave with that person. • Restitution in Cases of a Valid Contract • Restitution is a common remedy in contracts involving fraud, misrepresentation, mistake, and duress. • Restitution in Cases of Quasi-Contract • A court may award restitution, even in the absence of a contract, where one party has conferred a benefit on another and it would be unjust for the other party to retain the benefit.

13. Other Equitable Interests • Specific Performance • A court will order the parties to perform the contract only in cases involving the sale of land or some other asset that is unique. • Injunction • An injunction is a court order that requires someone to do something or refrain from doing something. • Reformation • Reformation is a process in which a court will partially “re-write” a contract.

14. Special Issues of Damages • Mitigation of Damages • A party may not recover for damages that could be avoided with reasonable efforts. • Nominal Damages • Nominal damages are a token sum, such as $1, given to a plaintiff who demonstrates that the defendant breached the contract but cannot prove damages.

15. Liquidated Damages • A liquidated damages clause, is a provision stating in advance how much a party must pay it if it breaches. • A court will generally enforce a liquidated damages clause if : • (1) at the time of creating the contract it was very difficult to estimate actual damages, and • (2) the liquidated amount is reasonable.

16. Punitive Damages • Designed not to compensate the injured party, but to punish the breaching party. • In awarding punitive damages, a court must consider three “guideposts”: • The reprehensibility of the conduct, • The ratio between the harm suffered and the award; and • The difference between the punitive award and any civil or criminal penalties used in similar cases.