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

1. Forfeit: such as a down payment.

2. 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.