Three measures of recovery
Remedies & Third Parties · Mar 24
Floor. ~40 min: R2d § 344 + Hawkins. The doctrine the next class assumes you have covered.
Target. ~75 min: Floor + R2d § 347 + synthesis.
Judicial remedies under the rules stated in this Restatement serve to protect one or more of the following interests of a promisee:
(a) his "expectation interest," which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed,
(b) his "reliance interest," which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made, or
(c) his "restitution interest," which is his interest in having restored to him any benefit that he has conferred on the other party.
Subject to the limitations stated in §§ 350-53, the injured party has a right to damages based on his expectation interest as measured by
(a) the loss in the value to him of the other party's performance caused by its failure or deficiency, plus
(b) any other loss, including incidental or consequential loss, caused by the breach, less
(c) any cost or other loss that he has avoided by not having to perform.
Reliance reimburses the injured party for costs incurred in reliance on the contract, putting her in the position she occupied before the contract was made.
Painter hypothetical. Homeowner hires a painter for $5,000; the painter buys $1,000 in supplies, then the homeowner cancels. If the painter cannot prove lost profit with certainty, reliance recovers the $1,000 out-of-pocket cost.
When it is used: expectation is too speculative to prove. Cap: reliance is usually limited to the expected benefit — you cannot recover more than performance would have produced.
Restitution measures the benefit conferred on the breaching party and forces its return, preventing unjust enrichment.
Landscaper hypothetical. You prepay $500 for a summer of lawn mowing; the landscaper never shows. Restitution returns the $500 — the value of the benefit you conferred.
Partial performance. If the landscaper mowed once, the award adjusts for the value of what was actually delivered.
Ballroom hypothetical. A hotel rents its ballroom to a nonprofit for $5,000, then books a corporate client for $50,000. The hotel breaches, pays the nonprofit its damages, and still comes out ahead.
Should the law allow this? Contract law is compensatory, not punitive. Expectation damages let resources move to their higher-valued use while still making the nonprofit whole. The cost: the nonprofit's non-monetizable interests (reputation, mission timing) may not be fully captured by the damage number.
84 N.H. 114 (1929)
Supreme Court of New Hampshire
Rule. The measure of expectation damages for breach of a promise to produce a specific result is the difference between the value of the promised result and the value of what was actually delivered. Pain and suffering that is part of the bargained-for exchange (the surgery itself) is not separately recoverable.
Problem 24.2. Joe Wurzelbacher contracts to replace cast iron pipes with copper for the Bistro Hotel for $20,000. Joe expects to pay $15,000 in workers and supplies and to clear $5,000 in profit. Before Joe starts, Bistro repudiates. Bistro has paid nothing in advance.
What expectation damages does Bistro owe Joe?
Variation 1. Bistro had pre-paid $4,000.
Variation 2. Joe had already incurred $2,000 in materials; he can resell them for only $1,000.
Variation 3. After Bistro repudiated, Joe took an emergency job from Metro City Fire Department for $7,500 that he could not have performed alongside the Bistro work.
(1) Incidental damages resulting from the seller's breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach.
(2) Consequential damages resulting from the seller's breach include
(a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and
(b) injury to person or property proximately resulting from any breach of warranty.
The § 347 formula is loss in value + other loss − cost avoided − loss avoided. "Other loss" splits into two:
(1) Subject to subsection (2) and to the provisions of this Article with respect to proof of market price (Section 2-723), the measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provided in this Article (Section 2-710), but less expenses saved in consequence of the buyer’s breach.
(2) If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this Article (Section 2-710), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale.
A dealer with unlimited inventory resells the breached-upon unit to a new buyer. The resale is not a substitute — the dealer could have made both sales. So the contract/resale differential is zero, yet the dealer is genuinely out one sale's profit.
UCC § 2-708(2) rescues the lost-volume seller: when the market-price measure (§ 2-708(1)) is inadequate to put the seller in as good a position as performance would have, damages equal the profit (including reasonable overhead) the seller would have made on the lost sale.
Haverfield contracts to sell 400 pounds of oysters to Angstrom at $6/lb for August 1 delivery. Angstrom resells to six restaurants at $10/lb. In July the market climbs to $7/lb. Haverfield repudiates and resells to a third party at $7/lb. Angstrom covers at $6.50/lb and pays $100 to arrange the cover purchase.
What is Angstrom's remedy?
Dynamo contracts to sell Republic a lithium wall battery for $130,000. Dynamo delivers; Republic inspects and accepts. Payment is due 30 days after delivery. Republic does not pay.
What damages should Republic pay?
Variation. Dynamo has finished the battery but not delivered, and cannot resell because the unit is custom. Republic repudiates.
Expectation as the default measure. Today's punchline: damages put the non-breaching party in the position performance would have produced, computed under R2d § 347's four-term formula. The question this rule does not fully answer: what limits apply once the formula spits out a number? Class 45 picks up Hadley v. Baxendale and the foreseeability limit.
Next class: Hadley v. Baxendale + foreseeability
_Remedies & Third Parties_ · Apr 1
Read Hadley v. Baxendale. A mill's broken shaft sat in a carrier's warehouse while the miller lost a week's output. The miller had not told the carrier the mill was idle. The court invents the foreseeability rule. Should the carrier pay for lost profits it had no reason to know about, and what does the rule force parties to do at the bargaining table? Come ready to answer. You may be called.