Expectation Damages: Most Common Measure of Damages

Goal: Put plaintiff in position he would have been in had contract been preformed,
Give plaintiff difference between what plaintiff got and what he wanted

When to use:

1) (lost profit) Damages are not too speculative, i.e. plaintiff is not in the
entertainment industry or a sporting event, (unless there is comparable example
which may serve as evidence)

Tricky shit: Ways to measure Expectation Damages

1) Cost of Completion or Diminution in Value
What the book says:

Cost of completion=Diminution in value , in most cases, however in the event of a

disparity, The rule is that when the Cost of completion is clearly disproportionate to
the diminution in value(way more expensive) or Cost of Completion will incur
economic waste then the lower diminution in value measure should be used

(Differing restatements have different views as to when to use COC or DIV.

Restatement number states that COC should only be used if there is no undue
economic waste involved. The 2nd restatement number however leaves out talk of
economic waste and instead states that COC can only be used if it’s value is not
unreasonably more then DIV)

What Krone says:

Cost of Completion-(ceiling on expectation damages), used as exception to

Diminution in Value-floor on expectations damages), when subjective value exists,
Subjective Value- hard to verify in court, reserved for unique, non fungible properties
such as homes, land, etc., Both COC and DIV are proxies for subjective value, if
subjective value exists COC is preferred measure

2)Lost Profits Consequential

What the book says:

Plaintiff must have be reasonable certain that he lost profits because of breach and
be reasonably certain to the actual number of lost profits.(R. 2d, 352), Ventures in
the Entertainment industry or in sporting events may be too speculative to be
awarded lost profits because they are based on public whim (in case of a comparable
enterprise, however, lost profits may be awarded)

What Krone says:

Lost profits are consequential damages, they are to be added up with incidentals
after computing general damages to find Expectation Damages

3) Lost Profits Lost Volume Seller

What Krone says:

When plaintiff is a seller, and not a buyer, sells goods that are neither too unique( a
picaso) or too fungible(wheat), ex: cars, boats, etc., plaintiff may receive damages
incurred when a buyer breaches in the form of lost profits for a lost sale, Plaintiff
wants amount of profit that he would have made had he made original sale to
defendant, plus the profits of the actual resale . Takes the form of the
Wholesale/Retail differential-costs saved. Markup (cost of finding another buyer,
advertising etc.) is hidden inside the differential already, subtract savings from not
having to buy another product to sell.

Forseeability of Consequential Damages

What the book says:

The rule in Hadley requires that unforeseeable damages in consequence of a

defendants’ breach must be either

1) Arise “naturally” in the usual course of things?????? (how would unforeseeable

breaches arise naturally in the usual course of things?)
2)Arise from the “special circumstances” from which the contract was made, if and
only if communicated by the plaintiff to the defendant

AKA

1)Court will allow damages a reasonable person would have foreseen

2)Unforeseeable damages will be awarded only if there was notice to the defendant

3)Risk can be contracted around by parties before actual contract is formed

4)Forseeability/notice refers to the time the contract was made, if defendant gets
notice any time after and breaches will not be held liable for the originally
unforeseeable damages

What Krone says:

Why have this Rule, forces disclosure of special circumstances

Reliance Damages:

Goal: Put plaintiff in position he was in before he made the contract, Damages are his
expenses in preparing to perform the contract, performing the contract, relying on
the contract

When to use:

1)(lost profit) Damages are too speculative, due to nature of plaintiff/plaintiff‘s

business, plaintiff is in
entertainment industry or contracting for sporting event, plaintiff is operating a new
business without any prior comparable ventures to serve as an example

Tricky shit: Different ways to view Reliance Damages

1)Reliance as a proxy for Expectation Damages
What Krone says:

Out of pocket costs before and after contract creation is a good measure of
expectation damages, Ex: A wouldn’t have spent x amount of money, if he didn’t
expect to receive at least x amount of money in profits, Reliance may be viewed as a
lower measure of expectation damages

2)What if Reliance higher then Expectation (contract a bust)?

What Krone says:

Sometimes when bad business decisions made and a breach occurs, plaintiff who
may have had zero profits and/ or debt from a venture, will still attempt to sue for
reliance in case of breach, hoping defendant/court will not know that the contract
was a bust, and expectation damages were zero. In this case the burden is on the
defendant to reduce his damages by providing evidence that the business venture
plaintiff was engaged in would have lost money, or at least that the amount plaintiff
is suing for in reliance is higher then what he would have gotten out of the venture.

3) Salvage Value

What Krone says:

It is possible that even if breach occurs, something is salvageable. If this is the case
reliance may be too high

Restitution Damages:

Goal: Bring defendant back to zero, prevention of unjust enrichment

When to use:

1) )(lost profit) Damages are too speculative, expectation damages cannot be

estimated with reasonable certainty

2) Plaintiff is breaching party, only part preformed/ would have lost money had
contract been fully preformed

3) Contract is legally unenforceable(statute of frauds), but benefit was conferred to

defendant

Tricky shit: how to calculate

What books says:

Restitution not limited to contract price, if benefit conveyed more then what contract
stipulated, damages in that amount may still be awarded, however certain
jurisdictions are exceptions to this rule mainly because they don’t wish the plaintiff to
benefit and hope for a breach

Measure is market value of the performance/ benefit conferred and not its subjective
value
Liquidation Damages:

Goal: An negotiated agreement as to what damages will be if a party breaches

When enforced:

1) If general? damages are difficult to prove after a breach

2) Amount stipulated is either reasonable as to a) Anticipated loss at the time of
contract, or b) Actual damages which occurred through the breach

3) Clause is not a penalty, A clause which penalizes breaching party for an amount
far beyond what damages plaintiff actually suffered, Intent of parties irrelevant, even
if parties agreed that clause was for liquidated damages and not a penalty the clause
will still be unenforceable in the event that the amount is unreasonable, language in
the contract referring to liquated damages and penalties is also not taken into
account.

Tricky shit: Policy rationale for Liquidated Damages/ Penalty clauses, Strange
situations

1)why can’t we enforce them

What Krone says:

Protect un-sophisticated parties

2) good reasons for including them in a contract?

What Krone says:

Parties may be worried courts will underestimate damages

May be good for new business to include penalty clauses to attract new customers

Dominos EX: 30 minutes or Free Pizza

Sometimes clauses honored anyway, businesses to not want bad publicity by taking
customers to court

3) No loss at all

What the book says:

Reasonable Liquidated damages clause will still be enforced even if there were not
actual damages as a result of Defendant’s Breach

Mitigation/Duty to Mitigate
Goal: Avoid unreasonable damages in case of a breach, plaintiff has a duty to
minimize his own damages prior to suit for damages with reasonable effort; treat
breaching party fairly, avoid economic waste, Plaintiff not required to incur
considerable expense, enter into dubious contracts, hurt his own reputation, breach
other contract in order to mitigate damages

When to use:

1) Seller repudiates contract; buyer can avoid additional damages, reasonably

feasibly i.e.: doing so will not cause harm to himself or his business

2)Buyer repudiates contract; “ “ “ “

Tricky shit: Buyer’s/ Sellers Remedies

1)Personal Service Contracts

Personal service contracts do not typically warrant the same level of reasonable
mitigation as normal business contracts, Duty for plaintiff to mitigate by finding a job
lessened, Job must be incredibly similar to job originally contracted for

UCC Buyer’s Remedies/ Duty to Cover

2-712(1) if buyer covers

2-712(2)Measure of damages is difference between cover and contract price (+
incedentals and consequentials)(-Costs Saved)

2-715(2)(a)but this says that plaintiff will not receive consequential damages which
could have been reasonably avoidable had buyer covered (still will receive general
damages)

– P Must Cover in Good Faith and Without Unreasonable Delay

– Cover Purchase or K Must Be Reasonable
– Buyer is Not Obligated to Cover and May Seek Other Damages

2-713 – Straight Breach(Non-Cover) Damages, Difference between market price (At

time of Tender) and Contract price (+ incidentals and consequentials) (- Costs
Saved )

Anticipatory: Market Price at Expiration of Commercially Reasonable

Time After Buyer Learned of Breach (But No Later than Tender)

Anticipatory breach: If defendant breaches contract ahead of time, plaintiff may wait
a reasonable amount of time to file suit, including before or after time of performance
stipulated in the contract. At notice impending breach plaintiff has no more
obligations to breach and may act immediately to cover or convey a new contract
without hurting his case against the breaching party

2-714 – Accepted Goods Damages, P May Elect to Accept “Non-Conforming” Goods,

Damages for Any
– Damages for Breach of Warranty = Difference between Value of goods warranted
and Value of goods delivered
•C
Party Receiving Anticipatory Repudiation
– Await Performance for Commercially Reasonable Time
– Resort to Any Available Remedy Under § 2-703 (Buyer) or 2-711
(Seller)
– Both (i.e., Seek Remedies While Encouraging Performance)
àP Can Wait Commercially Reasonable Time (But No Longer)
and Preserve All Rights and Remedies
________________________________
Holmes “Bad Man” Theory of Contract Damages
“The duty to keep a contract at common law means a prediction that you
must pay
damages if you do not keep it – and nothing else. If you commit a tort, you
are liable to pay
a compensatory sum. If you commit a contract, you are liable to pay a
compensatory
sum unless the promised event comes to pass, and that is all the
difference.”

Equitable Remedies/Specific Performance and Injunctions

Goal: Compensate non breaching party when money damages are not a substitute
for the contracted performance or where damages could not be collected

When to use:

1) Money damages are inadequate to the non breaching party, subjective value may
be involved which makes typical market value insufficient, money may not be able to
purchase a substitute in the case of unique goods(especially one of kind items like
paintings, pieces of land, homes)

2) Enforcing the relief must not be unduly difficult, i.e. no specific performance in
construction or personal service contracts

3)Contract involved a forbearance, stating that defendant will not compete with
plaintiff

4)Contracts for sale of a specific Business

Tricky Shit: Why use Equitable relief, why appropriate/ inappropriate in some cases

Subjective Value, possibility of negotiations

1)Likely negotiations will follow and subjective value of the plaintiff will be smoked
out. Though it may be over compensatory it will make the plaintiff whole

Land Sale Contracts

1)Most Common situation in which specific performance is used, does not pose
difficulties in enforcement, conveyance can be completed without defendant(court
also will do order specific performances in instances when a prospective buyer of
land breaches)

Construction Contracts

1)Specific Performance not usually used in Construction, too difficult to supervise

defendant’s completion

Personal Service Contracts

1)court will never use specific performance in the case of a personal service contract
for either employees or employers for very practical reasons, but will enforce an
injunction in the following cases

a)employee must have had unique skills and/or special knowledge of employer’s
business

b)employee must have other way to make living if injuction in in fact served,
doesn’t count if the only work they can do is preform the contract

c)there must be somewhat of a willingness to perform if injunction served

Consideration (R2d § 71)

Goal: Determine whether promise is enforceable under a contract theory(NOT ALL

CONTRACTS/PROMISES REQUIRE CONSIDERATION TO BE ENFORCED) provide
objective evidence that parties intended for a binding agreement, provide a
cautionary function to inform parties that they should act more carefully while
negotiating if they know contract will be enforced, or negotiate more quickly if they
know it cannot be enforced

When does it exist?

1) Contract meets two conditions

a)Promisee gives something up or circumscribes his liberty in some way, suffers a

detriment
b)Promisor makes his promise as part of a bargain in exchange for the promise’s
detriment

Tricky Shit

1)Bargain(important aspect when there is a promise to give a gift, doesn’t come up

much in business deals)

a)gifts are not typically bargained for, nor does the promisee suffer a detriment

b)Bargain vs. Conditional Gifts -in some cases of gifts a promisee does indeed
undergo a detriment and the promise lacks consideration only because there is no
bargain, this occurs when a promisee must meet some sort of condition in order to
receive the gift, but compelling the promisee to meet the condition is not the reason
the promise of initially made. If there is a gift in which the promise was made clearly
to compel the promisee to suffer a detriment then it is indeed bargained for and
consideration exists

c)sham consideration- in the case where a promise is made in return for things
like $1, the court may find there was in fact no bargain at all and that the stated
consideration was fraudulent

d)Past Consideration-a promise in return for some performance in the past is not
bargained for and not considered as actual consideration, may be enforceable
despite this in certain cases (good Samaritan issue “payment promised by father for
saving his child”, moral obligation)

2)Detriment

a)Promise or Performance- Detriment can be either a promise or performance on

the part of the promisee, but if a promise, must be to do something which actually is
a detriment, detriment which is a performance is Unilateral, promise is Bilateral
b)Adequacy of Detriment- Court will not seek to look into whether the detriment
was adequate

3)Mutuality of Consideration(issue arises in bilateral contracts)

a) choice of promises- where consideration of a party is a choice of multiple

promises, at least one of which is not actually a detriment, there is no consideration

b)illusory promise- no consideration if there appears to be a promise, but does not

commit promisor to anything at all ex: “you’ve got a deal”

c)right to terminate-courts split on acceptable consideration when contract allows

party right to terminate contract
4)Requirement(I’ll buy all my requirements from you) and Output Contracts(“I’ll sell
you all my output”)

a)split in courts past/present- courts usual hold this as acceptable today even
though it lacks definiteness

b)good faith requirement- parties must act according to traditional practices of

their respective trade

Promissory Estoppel (R2d § 90)

Goal: enforce a typically unenforceable promise because plaintiff has relied on

promise to his detriment, Will be used if injustice cannot be avoided except for
enforcement of the promise

When does it exist

1)Promisee has actually relied on promise unsupported by consideration

2)Fact that Promisee has relied on promise was reasonably foreseeable by

Promisor(form the reliance actually took also has to have been foreseeable)
Tricky Shit

Typically used in cases regarding gifts

Also used in charitable giving cases, even where there is no reliance

Sub-Contractors bids viewed as temporarily irrevocable(for the amount of time

needed for contractor to accept job and hire sub contractor)

Meeting of the Minds

Goal: Both parties must have a mutual understanding of the major provisions within
an agreement for there to be a contract, comes up when a contract’s terms are
ambiguous

no contract will be formed when All three of this exist:

1) the parties have different subjective understandings of the contract

2)the misunderstanding between them is regarding a material part of the section, not
a minor issue

3)neither party suspects the other’s misunderstanding

Tricky Shit

If parties have same subjective understanding even if terms are ambiguous (two
peerless) then there is no problem with the contract

If one party is aware of the misunderstanding, a contract will be formed based on the
understanding of the innocent party’

Offeree’s misunderstanding :

1)If offeree misunderstands due to his own negligence, then he is bound by the
contract

2)If there is misrepresentation by the offerer then the contract will be enforced as the
offered understood the terms

Minor Misunderstandings:

Contract will most likely still be formed

Objective theory of Contracts

Test: (“I Promise That Tom Miles Will Mow Your Lawn”)
• Holmes Test (with Respect to Proper Names): Objective Meaning is the
“Tom Miles” That is Known to the Person Using the Name – If Listener
Knows of More Than “Tom Miles”, Burden on Listener to Figure Out
Which One Speaker Knows
• UCC Rule: Speaker Held to Refer to the Tom Miles That Someone
Knowledgeable in the Lawn Mowing Business Would Objectively Think
That Speaker Meant

Trade Usage
‒ Rule Could Be That Everyone is Held to Trade Usage (Even If That
is Not What At Least One of the Parties Intended)
‒ Rule Works If Trade Usage is Clear AND Parties Know the Rule

Distinguishing Misrepresentation and Innocent Non-Disclosure

• An Outright Lie (Amounting to Fraud) is Never Allowed
• But Withholding Information is a Trickier Business – You Can Mislead
Through Nondisclosure as Well as Disclosure
‒ Negotiations Typically Involve an Element of Nondisclosure
• Seller’s and Buyer’s Don’t Disclose Their “Reservation Price”
• Certain Points are Used as Negotiating Chips
‒ Full Disclosure Can Often Be Cumbersome and Expensive
• More Information is Not Always a Good Thing
• Too Much Trivia May Hide the Most Pertinent Information

Offer and Acceptance

Goal: needed for creation of a contract(not really), offer creates the power of
acceptance, it represents the willingness to enter into a bargain, acceptance is the
assent to the terms of the offer

Tricky SHIT

What are the roles of the Offeror and Offeree:

1)Offeror is master of the offer, dictates terms of acceptance

2)Offeree Extinguishes the Power to Accept By Rejecting or Making a Counter-

Offer (R2d § 39)

3)Counter-Offer Resets the Process and Original Offeror Becomes the Offeree
with the Power to Bind

Duration of Acceptance:

Offeror may revoke offer at anytime before acceptance however contract may be
Irrevocable such as under UCC § 2-205: Firm Offer(Good for No More Than 3 Months)
if 1) offer by a merchant who deals in said goods 2) it was signed in writing 3) gives
assurance that offer will be held open, or Under the restatement sect 87 Substantial
Reliance Substantial and Reasonably Foreseeable Reliance for Offeror to Keep the
Offer Includes Mere Preparations to Perform which again requires writing, language
about the payment of consideration, to avoid injustice

Mailbox Rule:

Offer by mail can be revoked at anytime before acceptance, but an acceptance

cannot be revoked once it is placed in the mail

Bilateral vs. Unilateral:

1)Return promise, “verbal acceptance” needed for a Bilateral contract
2)Performance required for a unilateral contract, Once Offeree Begins Performance,
Must Be Given
Reasonable Opportunity to Complete It and Accept, Offeree can back out but not
Offeror

Valid Offers:

Offers made in Jest: Not Valid offers if Offeree knows or should have known offer was
made in jest

Advertisements: Most are not valid offers unless there are highly specific terms, and
words of commitment

Promissory Estoppel Remains Vital – R2d § 90

• (1) A promise which the promisor should reasonably
expect to induce action or forbearance on the part of
the promisee or a third person and which does
induce such action or forbearance is binding if
injustice can be avoided only by enforcement of
the promise. The remedy granted for breach may be
limited as justice requires.

• Performance or Return Promise That is Bargained For –

Sought By the Promisor in Exchange for Her Promise,
and Given By the Promisee in Exchange for the Promise;
The Performance May Consist of Any Act or Forbearance
from an Act. (R2d § 71)

• Flower City: Unpaid K Price - Costs Saved (- Mitigation?)

• General: “Cover” Price - K Price

Expectation = Lost Revenue - Expenses Saved

Out-of-Pocket Costs (Incurred Before and After K)

Wholesale-Retail Differential (Less Seller’s Saved Costs)