Contracts Map – Remedies

Here is the conventional outline version:

A. Compensatory Damages

The Plaintiff (non-breaching party) is put in the position he/she/it would be in if promise had been performed.

1. Expectation Damages

Expectation damages are designed to give the Plaintiff (non-breaching party) the “benefit of the bargain.” This means compensating the Plaintiff so that he is placed in the position he would have been in if the breaching party had performed.

a. General Damages

The Plaintiff (non-breaching party) will be compensated for damages that result from a given type of breach, without regard to the Plaintiff’s particular circumstances. This generally means the Plaintiff will be compensated for the difference between the contract price and the price of obtaining a substitute performance (in some cases, this may be the difference between the contract price and the market price).

b. Consequential Damages

Consequential damages are available in addition to expectation damages when:

i. the Plaintiff has additional losses as a result of his or her particular circumstances

ii. that a reasonable person would have foreseen as a result of breach

iii. at the time the parties entered the contract.

The Plaintiff has the burden of proving consequential damages. Look for situations where, at the time the contract is formed, the Plaintiff tells the Defendant of particular additional damages that will result from the breach.

2. Reliance Damages

If the Plaintiff cannot show with sufficient certainty what his expectation damages would be, he may recover reliance damages.

Reliance damages place the Plaintiff in the position he would have been in if the contract had never been formed. Usually, this means the Plaintiff can recover the cost of his performance.

B. Duty to Mitigate Damages

The non-breaching party (i.e., the Plaintiff), has a duty to mitigate damages. This means that the Plaintiff must make reasonable efforts to cut her losses by avoiding additional expenditures (usually by stopping performance), or by obtaining substitute performance. There will be no recovery for damages that a party could have avoided.

A party is allowed to recover the expenses of mitigation.

1. Manufacturing

If the Plaintiff (non-breaching party) is a manufacturer, the general rule is that she should stop work after the other party’s breach. However, if the manufacturer can sell the manufactured goods to a third party, she should mitigate damages by finishing the goods and selling them.

2. Construction

The non-breaching contractor should stop work on the project. She has no duty to find another construction job.

3. Employment

If the employer breaches, the employee is under a duty to mitigate damages by seeking similar employment at the same rank in the same locale.

4. Sale of Goods

a. If the buyer is in breach, the seller may resell the goods in a commercially reasonable manner. The seller may recover the difference between the contract price and the sale price. U.C.C. 2-706. The seller gets no recovery if he resells for more than the contract price.

If the seller does not resell, he may recover the difference between the contract and the market price.

b. If the seller is in breach, the buyer has the right to purchase substitute goods at a reasonable price. The buyer can recover the difference between the contract price and the cost of substitution (“cover”). UCC 2-712.

If the buyer does not purchase substitute goods, he can recover the difference between the contract price and the market price of the goods. The buyer may not recover consequential damages that could have been avoided by purchasing the substitute goods.

C. Liquidated Damages

A liquidated damage provision provides that the breaching party will give the non-breaching party a specific amount of money in the event of breach. Such a provision is enforceable when:

1. actual damages were difficult to determine when the contract was formed, and

2. the amount of liquidated damages was a reasonable forecast of the actual damages.

D. Nominal Damages

The court may aware the Plaintiff a token amount if the she proves the Defendant breached, but is unable to prove damage.

E. Punitive Damages

Punitive damages are generally not available. There are two major exceptions.

1. The breaching party’s conduct is such the the Plaintiff also has a cause of action in tort.

2. The breaching party is an insurer who acts in bad faith when refusing to pay a claim, either to the insured, or to a third party who has a claim against the insured.

F. Specific Performance

The court orders the breaching party to perform. This remedy is only available when the subject matter of the contract is rare or unique.

1. Specific performance is available for real estate contracts.

2. Specific performance is available for unique goods such as works of art.

3. Specific performance may be available if the subject matter of the contract is sufficiently rare.

4. Specific performance is not available if the contract is for rare or unique services (i.e., an actor or musician). However, the court may enjoin the breaching party from performing for another for the duration of the contract.

5. Specific performance is not available if the seller has sold the item to another bona fide purchaser.

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