Common Law & Equitable Remedies: Understanding Contract Remedies and Damages, Study Guides, Projects, Research of Remedies

Download Common Law & Equitable Remedies: Understanding Contract Remedies and Damages and more Study Guides, Projects, Research Remedies in PDF only on Docsity! Rowley/Common Law & Equitable Remedies Spring 2012 1 Contracts Professor Keith A. Rowley William S. Boyd School of Law University of Nevada Las Vegas Spring 2012 Common Law & Equitable Remedies I. Theories of Contract Remedies A. “Expectations” Remedies: putting the aggrieved party in as good a position (ex post) as it would have reasonably expected to be in had both parties fully performed as promised. B. “Reliance” Remedies: putting the aggrieved party in as good a position (ex ante) as it would have been in had it never contracted with the breaching party. C. “Restitutionary” Remedies: restoring to the aggrieved party any unpaid- for/unearned benefit it conferred to the breaching party prior to the latter’s breach; or, put another way, forcing the breaching party to disgorge any unpaid- for/unearned benefit it received from the aggrieved party. II. Non-Monetary Remedies A. Rescission: Undoing the contract. 1. The idea is to return the parties to the positions (ex ante) they were in before they entered into the contract. 2. It is of no use if the non-breaching party has fully performed or if the effect of the breaching party’s performance cannot be undone. 3. Think of Hawkins v. McGee (the “hairy hand” case). Hawkins having already subjected himself to the operation and Dr. McGee being unable to undo his handiwork (pun intended), rescission would be a meaningless remedy for Hawkins because there is no way to put the parties back into the position they were in before they entered into the contract. B. Specific Performance: Doing the contract. Make the breaching party perform. 1. The idea is to put the parties in the positions (ex post) they would be in if they had performed the contract. 2. This remedy holds the parties to the contract they made – and, therefore, seems to most fully vindicate their expectations interest. Nonetheless, courts generally will not award specific performance in Rowley/Common Law & Equitable Remedies Spring 2012 2 a. contracts for personal services (although some courts recognize an exception when the breaching party’s skills are so rare that she may be the only one to perform the contract as bargained), and b. contracts for the payment of money (this is the same as awarding damages, and thus would be redundant). 3. Courts also frown upon forcing buyers to buy things that they do not want. For example, you contract for a sculpture of your wife, but before it is finished, she leaves you for another. The buyer may not have to buy the sculpture, but may be liable to the sculptor for damages. 4. Courts are more willing to award specific performance of a. contracts to sell – though generally not buy – real property (on the theory that no two pieces of realty are the same), b. contracts for very unique personal property, and c. contracts for specially manufactured goods. 5. Specific performance is a matter of judicial discretion. R2 § 357(1). 6. A court should not grant specific performance unless the terms of the contract are clear enough to enable a court to fashion an appropriate order. R2 § 362. 7. A court should not grant specific performance where there exists an adequate remedy at law. R2 § 359. 8. The party seeking specific performance must show an attempt to tender its own full performance, unless such tender would be futile. 9. Ordering specific performance must not be fundamentally unfair to the breaching party. R2 § 364. C. Injunctive Relief (“Specific Nonperformance”): Order from the court telling someone to refrain from doing something. Only makes sense if this remedy is sought before breach or if it’s sought to compel someone to perform a condition precedent. R2 § 357(2). D. Declaratory Judgment: Asking a court to declare the rights and responsibilities of the parties. Rowley/Common Law & Equitable Remedies Spring 2012 5 a. When the special circumstances are known and communicated, the measure of damages is the amount of injury that would ordinarily follow from a breach of contract. b. If such special circumstances are not known, then damages must be limited to those foreseeable at the time of formation, since it is presumed that the parties factored only the general measure into their negotiations (and the price to be paid). c. The type of loss must be reasonably foreseeable, not the manner in which it occurs nor the extent of the loss. 3. Causation: The defendant’s breach must proximately cause the damages the plaintiff seeks to recover; that is, the damages must be directly traceable to the breach, not remote or the result of other intervening causes. 4. Certainty: The damages must be reasonably ascertainable following the breach. a. Although the aggrieved party’s damages need not be susceptible to exact calculation, they must be provable with reasonable certainty. b. When expectations damages are not sufficiently ascertainable, a court should permit recovery of reliance damages or restitutionary damages as an alternative. c. If the breaching party can show that her breach did not cause any damages, she should not be liable for the reliance expenses. In which case, the aggrieved party should be entitled to seek restitutionary damages, provided it can show that it conferred some benefit on the breaching party. D. Reliance Damages: Reimbursing the P his out-of-pocket loss caused by reliance on the contract (or even the prospect of a contract), thus putting P in as good a position as he would have been in had he never made the contract. E. Restitutionary Damages: Restoring to the P any benefit that he has conferred on D, so as to avoid unjustly enriching D. 1. Key: The purpose of restitutionary damages is preventing unjust enrichment of either the nonbreaching party or the breaching party. 2. Parties resort to restitutionary damages in one of three basic cases: Rowley/Common Law & Equitable Remedies Spring 2012 6 a. the other party has breached, but expectations damages are too hard to prove or would result in a losing contract for the party seeking relief, R2 § 373(1); ♦ Restitution is unavailable in this case if the party seeking restitution has already fully performed and all the breaching party has to do is pay a definite sum of money. See R2 § 373(2). b. the breach is not actionable as a breach (e.g., promissory estoppel) or there’s a defense to the breach (e.g., changed circumstances), R2 §§ 375-377; or c. the party seeking relief is, itself, in breach of the contract, but nonetheless conferred a benefit on the nonbreaching party that it wants to recover or at least receive an offset for, R2 § 374. 3. Mechanics a. R2 § 344 recognizes the “restitutionary interest” as one worth protecting by giving a remedy to restore to the aggrieved party any (uncompensated) benefit he has conferred ion the other party. b. R2 § 345 empowers courts to prevent unjust enrichment by i. requiring restoration of a specific thing, R2 § 345(c); or ii. if the P has conferred on D a measurable benefit, A). requiring D to pay P the fair market value of the benefit that P conferred, R2 §§ 345(d) & 371(a), or B). requiring D to disgorge any increase in the value of his interests as a result of P’s (partial) performance, R2 §§ 345(d) & 371(b). c. R2 § 370: In order to be eligible for restitutionary relief, the aggrieved party must have “conferred a benefit on the other party by way of part performance or reliance.” Rowley/Common Law & Equitable Remedies Spring 2012 7 F. Expectation, Reliance, and Restitutionary Damages Compared Hypo: A agrees to build a building for B for $500,000. A calculates that its costs will be $450,000, so that it expects to make a $50,000 profit on the project. After A has completed 10% of the work, B repudiates, not having paid A anything. At the time of the repudiation, A’s labor and materials expenditures totaled $75,000, including $30,000 worth of unused materials, which A can resell for $20,000. So, Contract price = $500,000 Expected cost = $450,000 Expected profit = $50,000 10% into completion when B repudiates Unreimbursed expenses for work performed and materials purchased = $75,000 Salvage value of unused materials= $20,000 1. Expectation Damages = $105,000 a. Basic Formula loss in value + other losses - cost avoided - loss avoided $500,000 + $0 - $375,000 - $20,000 b. Lost Profits Formula = $105,000 expected profit + unreimbursed expenses - loss avoided $50,000 + $75,000 - $20,000 2. Reliance Damages = $55,000 Unreimbursed expenses = $75,000 - Salvage = $20,000 Reliance Damages = $55,000 3. Restitutionary Damages = $50,000 value of 10% of the job - amount already paid by other party (10% x $500,000) - $0 = $50K