Chap 15 - REMEDIES
Purpose of Remedies in Contract Law
Not to penalize the breaching party (i.e., no punitive damages).
Aim to compensate the aggrieved party.
Objective is to restore the aggrieved party to the position they would have occupied if the contract had been performed.
Types of Damages
Types of Contractual Damages at Law
Compensatory Damages: Intended to compensate the aggrieved party.
Incidental Damages: Expenses incurred to mitigate losses or to obtain performance.
Nominal Damages: Small monetary awards (e.g., $0.06) acknowledging a breach without substantial loss.
Consequential Damages: Indirect damages that occur due to the breach but are not due to the breach directly.
Punitive Damages: Only applicable if there is also an underlying tort, meant to punish a wrongdoer.
Limitations on Damages
General Requirements for Damages
Proximate Cause: The act must substantially contribute to the damages.
Foreseeability: The damages must be foreseeable by a reasonable person at the time of the contract.
Reasonably Certain: Damages must be proven and not just speculated.
Calculating Damages at Law
Start by determining what the damaged party should have received.
Consider what the damaged party is entitled to after the breach, like compensatory, consequential, or incidental damages.
Assess how much the damaged party saved due to the breach (mitigation principle is required).
Compensatory Damages
Most typically calculated as:
Loss of Value = (Value of Promised Performance - Value of Actual Performance).
Types of Additional Damages
Incidental Damages
Could include costs to obtain performance from another source.
Nominal Damages
Minimal compensation recognizing a breach, e.g., 6 cents.
Punitive Damages
Used to punish wrongdoing; not recoverable unless there is a tort such as fraud.
Consequential Damages
Include foreseeable damages that arise not from the breach itself but from other circumstances.
Referenced case: Hadley vs. Baxendale.
Understanding Lost Profits and Avoided Costs
Formula for Profits:
Revenues - Expenses = Lost Profits.
A merchant cannot merely claim lost revenues; costs avoided are factored in to accurately determine lost profits.
Mitigation of Damages
The aggrieved party must take reasonable steps to avoid further losses.
Failure to mitigate will be held against the aggrieved party, as if they had incurred the losses.
Example: A terminated employee must seek similar job opportunities if available.
Remedies for Fraud in Contracts
Parties can sue for general damages under tort law.
In some states, 'out of pocket' damages cover the difference between contracted and received value.
In most states, damages reflect 'benefits of the bargain'—the difference between what was promised and received.
Liquidated Damages
Definition
Contractually predetermined damages owed for breach.
Types
Forfeit: such as a down payment.
Fixed Amount: like delays in construction contracts.
Enforceability Requirements
Must be a reasonable estimate of loss at the time of contract formation.
If deemed punitive, will not be enforced.
Specifics on Liquidated Damages
Valid liquidated damages clauses eliminate the need to prove actual damages.
The liquidated damages amount becomes the sole recovery if actual damages cannot be proven.
Liquidated Damages vs. Penalties
Liquidated: A fixed, agreed-upon amount enforceable at breach.
Penalties: Intended to punish, hence non-enforceable.
Equitable Remedies
General Principles
Equitable maxims guide the granting of equitable relief:
"Whoever seeks equity must do equity."
Equal equity must prevail with law.
Clean hands principle for courts.
Equity offers remedies for wrongs.
Quantum Meruit—Equitable Remedy
Meaning: “as much as he deserves.”
Applies to the reasonable value of rendered services.
Example Case
Contractor paints 2 out of 5 rooms; damages can include costs to hire someone else to complete.
Specific Performance
Enforces contract performance for unique items (like real estate).
Generally not granted for non-unique personal property or personal services.
Restitution
Recision leads to a return of consideration to parties, aiming to restore pre-contract positions.
Available in cases of total breach, fraud, or if a minor cancels a contract.
Other Equitable Remedies
Reformation
Allows courts to rewrite contracts to reflect true intentions when agreed terms are imperfectly expressed.
Election of Remedies
Multiple remedies can be sought as long as they are not inconsistent.
Example of consistent: injunction and incidental expenses.
Example of inconsistent: seeking both specific performance and restitution.
Summary of Remedies Available
Damages can vary and be calculated based on a range of factors, including types of damages, mitigation efforts, and specific remedies available based on the context of the breach.