Reliance Damages

UCC Problems:

1. Cover Damages

2. Foreseeable: Did the defendant have a reason to know

3. Under the UCC, foreseeability is measured at the time of contract.

4. In order for consequential damages to be foreseeable then they must have been foreseeable AT THE TIME OF CONTRACTING. Not after there has been a breach.

5. What do you need to consider before getting to cover damages?:

• Whether it

• Market Damages as an alternative to cover damages because OPEN Sesame might elect to pursue market damages instead.

Are market damages inadequate to compensate John?: No. They are not.

What is a jobber?: The intermediary that purchases good for resale.

Reliance Damages:

• Contract law prefers to compensate injured parties by measuring their expectation interest.

• But where that measure isn’t appropriate, contract law is also willing to protect the injured parties reliance interests and restitution interest.

• Contract law will use other measure to protect a parties reliance damages.

• What are reliance damages?: The amount necessary to compensate the injured party for expenses incurred in reasonable reliance on teh contract.

• Amounts spent in part performance, preperation for or in reliance on the K.

• Rest. section 349: Reliance Damages

  • As an alternative to the measure of damages stated in section 347, the injured party has a right to damages based on his reliane interest, including expenditures made one preparation for. performance or in performance, less any loss that the party offse the losses.

  • What is teh goal or reliance damages?:To restore the injured party to pre-transaction status.

    • Backwards NOT forward-looking.

    • Reliance Damages look to compensate the injured party for any losses incurred as a result of their reliance on the contract, rather than for potential profits that were lost due to the breach.

  • When do parties seek reliance damages?: When it is difficult or uncertain to prove expectation damages, OR the k would have been unprofitable had the parties performed

  • 349 cmt. a:

    • He may choose to do this if he cannot prove his profit with reasonable certainty. He may also choose to do this in teh case of a losing k one under which he would have had a loss rather than a profit.

    • In t hat case however, it is open to the party in breach to prove the amount of loss to the extent that he can do so with reasonable certainty under the standard.

• Offsetting losses:

  • Reliance Damages Formula:

  • Expenses incurred in reliance

  • losses breaching party can prove with/ reasonable certainty = reliance damages.

Hypo:

When there is a new business venture there cannot be reliance damages because there is nothing to rely upon for the loss of profits. You cannot prove them with reasonable certainty that there would have been damages without a profit history.

Limits on Recovery of Reliance Damages by the asserting party: (Analytical Framework)

1. Must be reasonably foreseeable to the breaching party at time of K.

2. Must be provable with reasonable certainty

3. Duty to mitigate applies

4. Causation.

5. Exception for the duty to mitigate

Case Illustration: Wartzman v. Hightower Prod:

Rule: Reliance damages are an appropriate remedy for breach of K when the injured party cannot prove expectation damages with reasonable certainty.

Potential for embarrassing and costly consequences of malpractice.

Hightower sought damages for expenses incurred for reliance on the K.

Categories of damages sought:

• Promoters initial investments,

• Shareholders’ investments

• Outsatnding liabilities

• Liability to talent consultants.

• Accrued salaries to employees.

Why didn’t hightwoer seek expectation damages?:
*There was a new business venture and as such that is also rather unique you cannot prove expectation damages with reasonable certainty and in this case that is such a high standard, almost close to impossible.

What are the issues on appeal?:

1. The ability of Hightower to recover reliance damages

2. Trial Court’s instruction to the jury on the law concerning recovery of reliance damages

3. Trial court’s refusal to instruct jury on duty to mitigate

4. Hightower’s entitlement to prejudgment interests: The court says no, Why?

An injured party is always entitled to post judgment interest, but PRE-judgment interests is only when the amount is liquidated.

Here, the damages were not reasonably ascertainable in this case.

Contract law permits recovery of post-judgment interests running from the ate of judgment at an interest rate fixed by state statute.

Can Hightower recover reliance damages?

How does the court respond?

• First the court states the rules.

  • The rules of reliance damages that were listed in the case. Rule: The court says that the breaching party is allowed to offset the nonbreaching party’s damages by any benefits that the nonbreaching party has received as a result of the breach, which may include any profits or advantages gained during the contractual period.

• The court holds that Hightower is entitled to reliance damages because they should have known.

  • Wartzman tried to argue that his mistake was minute but the court says that there was a significant mistake on behalf of Wartzman, preventing him from being the surety of production.

• Issue 3:

• Rule: An injured party ahs to use reasonable efforts to mitigate the extent of harm.

  • Unless the exception applies.

There are 4 Litigated Issues in the context of Reliance Damages:

1. Can reliance damages exceed expectation damages?

   1. Majority Rule: Reliance damages cannot exceed expectation damages. Expectation damages are a ceiling.

      1. But some disagree and permit an award of reliance damages that exceeds what expectation damage would have been.

      2. Essential Relaince v. Incidental Reliance:

      3. Essential Reliance: Expenses are those costs incurred in preparation for or in performance of the contract that was breached.

      4. Incidental Reliance: Expenses are those costs incurred that are related to collateral contracts entered into in reasonable reliance on teh contract that was breached.

   2. Whether pre-contract “reliance” expenses are recoverable: Pre contract reliance expenses are costs incurred before the k was made.

      1. Rule: Generally, not recoverable unless plaintiff can prove the expenses with reasonable certainty and that the parties had reasonable grounds.

   3. Are foregone opportunities recoverable as reliance expenses?: Foregone opportunities are gains the plaintiff would have made had she not relied on the K.

      1. Rule: Foregone opportunities are generally recoverable.

      2. Ex. Lost salary after quitting job in reliance on K or refraining from engaging in alternative Ks in reliance on the breahced K.

   4. Are Promissory estoppel plaintiffs limited to reliance damages?: Addresses whether a PE plaintiff is limited to recovery of reliance damages or may recover other types of damages including expectation damages.

      1. Rule: Remedy may be limited as justice requires. Closes the loophole on section 90. Meaning it is a matter of the court discretion.

Split Authority:

1. One view: Only reliance damages are available to a promissory estoppel plaintiff.

2. Competing view: Under Rest. 2nd 90, courts have discretion to determine the measure of damages arising out of PE claim, so the full range of K remedies is available.

Reliance Damages Problem:

Questions to contemplate for issue spotting

1. What are the essential reliance damages

2. What are the incidental reliance damages

3. Are these foreseeable?