Contracts Law In Action

Expectation Damages & Seller’s UCC Remedies (student outline)

EXPECTATION DAMAGES & SELLERS’ UCC REMEDIES

• RST §347 Expectation [Goal is to put the non-breaching party in the same position they would have been in had the K been performed] : Subject to the limitations in §§350-53, the injured party has a right to damages based on his expectation interest as measured by:
  • (a) (KP-Cost of Performance) + (b) (incidental & consequential damages due to breach) – (c) (costs avoided due to non-performance)
• Expectation damages compensate the injured party for the benefit he would have received had the K not been breached, minus any amount he would have spent in performance of the K.
• Such damages must be proven with reasonable certainty, and may be measured by the K price, loss in value, or lost profits.
• IMP. POINT TO REMEMBER RE: EXPECTATI ON DAMAGES:
  • The goal, again, is to place the non-breaching party in the position they would have been in had the K been fully performed, but what happens if the non-breaching party would have lost money under the K?
    • As the non-breaching party comes in with "clean hands," or at least "cleaner hands" they may strategically seek Restitution Damages [the fair value of what was conferred by the non-breacher on the breacher], which may turn a bad deal into at least a break-even deal.
    • RST §371 Restitution : Value conferred on the other party [e.g. Quantum Meruit , i.e. "reasonable value for services rendered."].
      • If a sum of money is awarded to protect a party’s restitution interest, it may as justice requires be measured by either:
        • (a) the reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant’s position, or;
        • (b) the extent to which the other party’s property has been increased in value or his interests advanced.
      • Oliver v. Campbell , 43 Cal. 2d 298 (1954) : No quantum meruit where K fully performed & all that remains to perform is money payment.
• RST Ks §351 Consequential Damages Must Be Foreseeable:
  • Consequential damages – which may be general or special – must be foreseeable at the time the K was formed.
  • Hadley v. Baxendale, 156 Eng. Rep. 145 (1845). General consequential damages are the natural and probable consequence of a breach and are therefore assumed to have been within the contemplation of the breaching party.
  • A party seeking general damages need not offer further proof that the damages were foreseeable.
  • Special consequential  damages arise from the special facts and circumstances of the non-breaching party and are not deemed to be within the contemplation of the breaching party unless he was made aware of such specific facts and circumstances.

Remedies Outline (by 1 student)

• Damages:

• Duty to Mitigate RST §350:
  • Shirley Macla ine Parker v. 20th Century Fox , 474 P.2d 689 (Cal. 1970) p. 40: The measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon for the period of service, less the amount which the employer affirmatively proves the employee has earned or with reasonable effort might have earned from other employment, not of an inferior or different kind .
• Valid K?:
  • If there is a valid K à damages are likely expectational, restitutional (if the innocent party would have lost money under expectational damages they may strategically seek restitution instead), or equitable (if the remedy at law is inadequate, e.g. the subject of the K is unique).
  • If there is not a valid K à Ct. may write a K (K-at-law, sometimes called a "quasi-K.") If there is no K, the party cannot be put in the position they would have been had the K been performed (i.e. no expectation damages).
  • Unjust enrichment must be avoided, so a party that has materially relied on the agreement may recover their reliance costs, & even a party who is in breach may sue to recover restitution, subject to an offset for any damages they have caused to the innocent party.
• Nature of Acceptable Consequential Damages [i.e. damages proximately cause by breach]:
  • Hadley v. Baxendale , 156 Eng. Rep. 145 (1854) p. 80: The proper damages for breach of K are those that:
    • (1) naturally flow from the breach, or;
    • (2) were contemplated by both parties at the time of K’ing, or were specified at the time of K’ing.
  • Sec. Stove & Mfg. Co. v. Am. Rys . Express Co. , 51 S.W. 2d 572 (1932) : Hadley still applies, however, where the carrier has notice of peculiar circumstances under which the shipment is made, which will result in an unusual loss by the shipper in case of delay in delivery, the carrier is responsible for the real damage sustained from such delay if the notice given is of such character , & goes to such extent, in informing the carrier of the shipper’s situation, that the carrier will be presumed to have Ked with reference thereto.
• Measures of Damages:
  • RST §347 Expectation : (a) (KP-Cost of Performance) + (b) (incidental & consequential damages due to breach) – (c) (costs avoided due to non-performance)
  • RST §349 Reliance : (reliance costs due to preparation or performance) – (costs avoided due to breach)
    • Sec. Stove & Mfg. Co. v. Am. Rys. Express Co. , 51 S.W. 2d 572 (1932) : Where there is a breach of K, the party suffering the loss can recover only that which he would have had, had the K not been broken, however, in some instances, the injured party may recover expenses incurred in relying upon the K, although such expenses would have been incurred had the K not been breached.
  • RST §371 Restitution : Value conferred on the other party [e.g. Quantum Meruit ].
    • Oliver v. Campbell , 43 Cal. 2d 298 (1954) : No quantum meruit where K fully performed.
• UCC Seller 2-703 – 2-710 :
  • A buyer breaches a K for the sale of goods by:
    • wrongfully rejecting the goods
    • wrongfully revoking acceptance of goods
    • failing to make a payment when due
    • wrongful repudiation
  • In the case of a buyer’s breach, the seller may :
    • identify goods to the K despite buyer’s breach [2-704 ]
    • withhold or stop delivery of goods [2-705 ]
    • resell the goods and recover damages for the breach [2-706 ]
      • KP- Resale price + Incidental Damages – Money Saved As A Result Of Buyer’s Breach = Seller’s Resale Damages
    • recover damages for non-acceptance or repudiation/lost profits [2-708 ]
      • (1) KP – MP At The Time And Place Of Tender + Incidental Damages – Expenses Saved Due To Buyer’s Breach
      • (2) Profit Seller Would Have Made W/Full Performance + Incidental Damages + Costs + Proceeds From Resale [only awarded where seller is a "volume seller" e.g. a car dealer]
    • recover the K price [2-709 ] – a variety of specific performance
      • Buyer has accepted the goods and wrongfully revoked or goods are Id’ed to the K;
      • Goods have been destroyed either by the buyer, or were destroyed after the risk of loss had passed to the buyer.
      • The seller has made a reasonable effort to resell under 2-706, but has been unable to do so or reselling would be futile.
    • recover liquidated damages [2-718 ]
    • reclaim the goods [2-703 ]
• UCC Buyer 2-711 – 2-717 :
  • A seller breaches a K for the sale of goods by:
    • wrongfully failing to make delivery
    • wrongfully failing to perform a K obligation
    • making a non-conforming tender of goods
    • repudiation
  • Remedies available to a buyer for a selle r’s breach include:
    • recovery of price paid [2-711 ]
    • deduction of damages from outstanding payments due [2-717 ]
    • recover damages for seller’s non-delivery or repudiation [2-713]
      • MP At Time Buyer Learned Of Breach – KP + Incidental & Consequential Damages – Expenses Saved Due To Seller’s Breach
    • "cover" [2-712]
      • Cost Of Cover – K Price + Incidental & Consequential Damages – Expense Saved As The Result Of Seller’s Breach
    • specific performance and replevin [2-716]
      • Where the goods are unique, where cover is unlikely/impossible, or where goods have been id’ed to the K and buyer has a security interest via partial payment.
    • liquidated damages [2-718 ]
    • expectation, incidental, and consequential damages [2-715]
      • If buyer does not cover where it is reasonably possible they may not recover consequential damages.
    • Damages for breach of warranty [2-714 ]
• Specific Performance [This is not Europe, Ct.s are unlikely to want to supervise/grant this remedy]
  • Copylease Corp. v. Memorex Corp. , 408 F. Supp. 758 (D. Cal. 1976) p. 61:. The test of uniqueness under [2-716] must be made in terms of the total situation which characterizes the K. Output & requirements Ks involving a particular or peculiarly available source or market present today the typical commercial specific performance situation. However, uniqueness[of the goods]  is not the sole basis for specific performance, & the relief may also be granted in other proper circumstances [based on the relationship] & inability to cover is strong evidence of other proper circumstances .
  • UCC 2-716 & RST §360 Specific Performance is an equitable remedy & is only awarded where the damages at law are inadequate [object of K is unique "or in other proper circumstances."]
• Liquidated Damages v. Penalty Clauses [ UCC 2-718 & RST §356]:
  • Lake River Corp. v. Carborundum Co. , 769 F.2d 1284 (7th Cir. 1985) : To be valid a liquidation of damages clause, the clause must be a reasonable estimate at the time of K’ing or reasonable in light of actual damages. If damages would be easy to determine or if the estimate greatly exceeds a reasonable upper estimate of what the damages are likely to be, it is a penalty clause (i.e., not enforceable).
• Measure of Damages to Prevent Undue Waste:
  • Peevyhouse v. Garland Coal & Mining Co. , 382 P.2d 109 (OK 1962) p. 151: The cost of performance is the proper measure of damages if this is possible & does not involve unreasonable economic waste ; & that the diminution in value caused by the breach is the proper measure if construction & completion in accordance with the K would involve unreasonable economic waste.

_____________

UCC Buyer 2-711 – 2-717 :

• • A seller breaches a K for the sale of goods by:
    • wrongfully failing to make delivery
    • wrongfully failing to perform a K obligation
    • making a non-conforming tender of goods
    • repudiation
  • Remedies available to a buyer for a seller’s breach include:
    • recovery of price paid [2-711 ]
    • deduction of damages from outstanding payments due [2-717 ]
    • recover damages for seller’s non-delivery or repudiation [2-713]
      • MP At Time Buyer Learned Of Breach – KP + Incidental & Consequential Damages – Expenses Saved Due To Seller’s Breach
    • "cover" [2-712]
      • Cost Of Cover – K Price + Incidental & Consequential Damages – Expense Saved As The Result Of Seller’s Breach
    • specific performance and replevin [2-716]
      • Where the goods are unique, where cover is unlikely/impossible, or where goods have been id’ed to the K and buyer has a security interest via partial payment.
    • liquidated damages [2-718 ]
    • expectation, incidental, and consequential damages [2-715]
      • If buyer does not cover where it is reasonably possible they may not recover consequential damages.
    • Damages for breach of warranty [2-714 ]