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Chapter 12

Chapter 12 Review- Contractual Remedies.doc

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Law and Business
LAW 122
Anita John

Chapter 12: Contractual Remedies  One or more remedies may be available if a contract is breached. Refer to Figure 12.1 pg 258. D AMAGES  In the vast majority of cases, the remedy for a breach of contract is damages. o Damages: is an award of money that is intended to cure a wrongful event, such as a breach of contract.  The nature of the remedy needs to be stressed. Expect in rare cases, the plaintiff is not entitled to receive the exact thing that it expected to get under the agreement. → Only entitled to monetary value of that thing.  E.g. if I agree to sell my car to you, but later break my promise after you have paid the price, you are probably not entitled to get the car itself, but are entitled to the monetary value of that car.  There are several reasons why courts usually award only monetary damages for a breach of contract. i. The courts of law historically did not have the power to compel a defendant to do anything other than pay money. ii. Contracts traditionally were seen as commercial arrangements b/t business people. → Today $$ is the only thing that matters in the business world. iii. Especially in the business world, it would often be inconvenient to award something other than monetary damages. Expectation Damages  There are many different measures of relief, or ways in which the courts can calculate the amount of money that the plaintiff is entitled to recover from the defendant.  The most common measure of relief in contract law is expectation damages. o Expectation Damages: represent the monetary value of the benefit that the plaintiff expected to receive under the contract.  Are forward-looking b/c they are intended to place the plaintiff in the position that it expected to be in after the contract was properly performed.  Consider the difference b/t compensatory damages; which are backward-looking (chpt3) and expectation damages:  Backward-looking damages are easily justified. They allow the plaintiff to recover the value of something. E.g. favourable reputation or a broken leg, that it previously enjoyed, but lost as a result of the defendant’s wrongful act.  Forward-looking damages go further – allows the plaintiff to recover the value of something that is never previously enjoyed, but merely expected to receive under the contract with the defendant. Expectation damages therefore provide an assurance that if a promise is not actually fulfilled, the innocent party will at least be able to recover the monetary value of the promise. Refer to Figure 12.2 Calculations of Expectation Damages pg. 259  E.g. suppose you agree to pay $5,000 for a computer that is really worth $7,000. You expect to make a profit of $2,000. However, if the vendor breaches the contract by refusing to deliver the computer, and if you have not yet paid the price you are entitled to receive $2,000. And if you paid the entire price ($5,000) before the breach, you will be entitled to $7,000 cash. In either event, you are entitled to enjoy the $2,000 profit. In some situations, however, the exercise is much more difficult. We will consider five issues: i. Difficulty of Calculation: o Expectation damages are usually available even if they are very difficult to calculate. E.g. In one famous case, the defendant breached a contract by depriving the plaintiff of an 1 of 6 Chapter 12: Contractual Remedies opportunity to win a beauty contest. While the plaintiff’s actual chance of winning the contest was highly speculative, the court awarded expectation damages based on its best guess as to how she would have fared in the competition. o In contrast, if the calculation of the plaintiff’s loss is not merely difficult, but entirely speculative, a court will not award damages – court of law not a place for wild guesses. ii. Cost of Cure or Loss of Value: o Sometimes it is difficult to decide exactly what the plaintiff expected to receive from the defendant – there may be a question as to whether the plaintiff expected to receive a service or the value of the end-product of that service. o E.g. Case Brief 12.1: Plaintiff rented a piece of land to the defendant for $105,000. The defendant operated a sand and gravel mine, but is required to level the land at the end of the least. However, the defendant left huge craters on the property – cost $60,000 to fill the holes, but the land only worth $12,000 if leveled. The plaintiff claimed expectation damages should be measured by cost of cure ($60,000 to fix the land), but defendant said it should be measured by loss of value ($12,000). The court agreed with the plaintiff – thus awarded him $60,000. o However, judges usually refuse to award damages on a “cost of cure” basis if the difference b/t the cost of cure and the benefits of the cure is reasonably large. – Swimming Pool E.g. pg 261-262. iii. Intangible Loss: o Expectation damages are difficult to calculate when the plaintiff suffers an intangible loss as a result of the defendant’s breach. o Intangible Loss: is a loss that does not have any apparent economic value. E.g. the anger, frustration, or disappointment that may occur when a promise is broken. o Historically, the courts refuse to award damages for intangible losses – the courts did not traditionally feel comfortable assigning dollar figures to personal emotions. o Recently, the courts have started to recognize that “peace of mind” is one of the things that a person may expect to receive under a contract. → Damages may be available if, contrary to the plaintiff’s expectation, the defendant performed the contract in a way that caused distress. → E.g. Awarded expectation damages for a ruined holiday → However, the courts refuse to award damages for the humiliation or dejection they may feel as a result of being unfairly fired from a job. iv. Remoteness: o The plaintiff cannot recover expectation damages for every loss that it suffers after the defendant’s breach. – The loss must be caused by the defendant’s breach, and the loss must not be remote from the breach. o Remote: a loss is remote if it would be unfair to hold the defendant legally responsible. Is a principle of fairness. o The loss is not remote if the defendant either should have known or actually did know that it was the sort of loss that might occur it the contract was breached. The test has 2 parts: a. Liability may be imposed if a reasonable person would have known that the plaintiff’s loss might result from a breach. True even if the plaintiff didn't draw the defendant’s attention to that possibility. 2 of 6 Chapter 12: Contractual Remedies b. Liability may be imposed if the defendant actually knew that the plaintiff’s loss might result from the breach. True even if a reasonable would not have normally expected such loss. v. Mitigation of Damages: o The plaintiff cannot recover damages for a loss that it unreasonably failed to mitigate. o Mitigation: occurs when the plaintiff take steps to minimize the losses flowing from the defendant’s breach. There are 4 points about mitigation: a. The plaintiff is not required to mitigate. Failing to do so is, however, a bad business decision. You are able to recover damages for losses that you have mitigated. b. The plaintiff is responsible only for taking reasonable steps to mitigate a loss. The plaintiff is not denied expectation damages simply b/c it failed to adopt an unreasonably difficult, inconvenient, or risky way of minimizing the loss that resulted from the defendant’s breach. c. Damages are denied only to the extent that the plaintiff unreasonably failed to mitigate. d. The plaintiff can recover the costs associated with mitigation. Reliance Damages  Expectation damages are the usual remedy for a breach of contract. However, other types or damages may be awarded; Reliance damages are the most common alternative. o Reliance Damages: represent the monetary value of the expenses that the plaintiff wasted under a contract.  In a sense, are the opposite of expectation damages. E.g. Expectation damages “give me what I expect to get.” Reliance damages “Give me what I lost.”  Reliance damages looks backward in an attempt to undo the effects of a contract.  The plaintiff is generally entitled to recover either expectation damages or reliance damages, not both.  Reliance damages are subject to an important limitation. They can be awarded only to the extent that a contract is non unprofitable.  Plaintiff therefore cannot claim reliance damages in order to escape the consequences of having entered into a bad bargain. Account of Profits  Occasionally, the plaintiff may prefer to complain about the defendant’s gain. As a result of breaking a promise, the defendant may have received a substantial benefit for itself. It may seem unfair to allow a party to profit from its own wrongdoing. Nevertheless, the courts traditionally rejected such claims: “The question is not one of making the defendant disgorge what he has received by committing the wrong, but one of compensating the plaintiff.”  E.g. Case Brief 12.3 – Although the gov’t could not provide that has suffered a loss. But the gov’t was entitled to the profits that George Blake received as a result of breaking his
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