Contracts and Remedies

Contracts: Remedies

Goals of Contract Remedies

  • Intended to redress injury from:
    • Wrongful acts (Torts)
    • Infringements of rights
    • Breach of contract
  • Key Objective: Put the non-breaching party in the position they would have been in had the contract been performed.

Types of Remedies

  • Legal Remedies: Often involve monetary compensation (money damages).
  • Equitable Remedies: Non-money damages where the court may require the defendant to take action or refrain from action.

Requirements for Damages

  • Reasonable Certainty: Damages must be calculable with reasonable certainty.
  • Foreseeable Losses: Must align with the outcome of the Hadley v. Baxendale case.
  • Duty to Mitigate: Plaintiff must take reasonable steps to reduce damages.

Hadley v. Baxendale Case Overview

  • Context: A flour mill in Gloucester needed its only crankshaft repaired, leading to losses due to extended downtime.
  • Decision: Court ruled that the defendant wasn't liable for lost profits since he wasn't aware of the unique circumstances (only one crankshaft).
  • Conclusion: Only foreseeable damages at the time of the contract can be compensated.

Mitigation of Losses

  • Examples:
    • A roofing contractor's failure resulted in water damage to furniture. The plaintiff's failure to mitigate damages may reduce recovery.
    • An employee claiming wrongful termination should demonstrate efforts to find alternative employment.

Types of Damages

  • Expectation Interest: Ensures the plaintiff gets the benefit of the bargain.
    • Seeks to place the plaintiff as if the contract was fulfilled.
  • Reliance Interest: Covers expenses incurred due to reliance on the contract.
    • Restores the party to their position before the contract.
  • Restitution Interest: Requires the return of benefits conferred prior to the breach.

Examples of Damages Calculation

  • Carolena's Case:
    • Contract with contractor for renovations. Paid $50,000 deposit, $3,000 for a permit. Total increased cost for replacement work: $100,000>
    • Total Damages:
    • Expectation: $100,000 (increase for renovation)
    • Reliance: $3,000 (permit)
    • Restitution: $50,000 (deposit)

Types of Damages Explained

  • Compensatory Damages: Aimed to compensate for the loss of expected benefits.
    • E.g., buyer’s loss in a contract for wine resale.
  • Consequential Damages: Cover indirect losses; must be foreseeable to be enforceable.

Other Types of Damages

  • Punitive Damages: Rarely granted in contract cases; meant to punish.
  • Nominal Damages: Awarded when there's no financial loss.
  • Liquidated Damages: Predetermined, must be reasonable, not punitive.
  • Equitable Remedies: Include specific performance or rescission.

Specific Performance**

  • Available when the subject is unique or involves specific goods.
    • Example: A unique item (e.g., Jimi Hendrix’s guitar).

Hill v. Spertus Example - Contract for Property Sale

  • Scenario:
    • Seller refuses to complete sale after price increased.
    • Non-breaching party’s potential damages: $250,000 (difference between contract price and market value) or specific performance.

Limitation of Liability Clause

  • Enforceable unless it excludes liability for fraud or intentional wrongdoing.

Summary of Damage Types:

  • Expectation: What did the plaintiff expect?
  • Reliance: What expenses were made based on the contract?
  • Restitution: What restores the plaintiff to pre-contract position?
  • Compensatory: Needed for loss compensation.
  • Consequential: Foreseeable consequences arising from the breach.
  • Punitive: Intended to punish.
  • Liquidated: Must be reasonable, predetermined.

Quiz Yourself - Construction Contract Example

  • Situation:
    • Homeowner paid $50,000 deposit; builder fails to act. New builder costs $20,000 more.

Classification of Damages Summary

  • Total due to increase in replacement costs: $20,000 (expectation) and $5,000 (reliance on permit).
  • Return benefit: $50,000 deposit.