Reliance Damages
A popular singer expressed interest in performing in a theater producer's musical production. The producer and the singer agreed that there would be no enforceable contractual obligations between them until they had entered into a final, signed contract. Then they began negotiating the terms of the contract.
While the parties were negotiating, the producer began to spend money on the production. When the parties were unable to agree on the terms of a final contract, the producer made reasonable but unsuccessful efforts to hire another singer before abandoning the production.
If the producer sues the singer, what will he likely recover?
A. Expectation damages in the form of the profits that the production would have made if it had been performed.
B. Nothing, because it was not reasonable for the producer to expect to be reimbursed for expenses incurred when he knew that the singer was not obligated until there was a final, signed agreement.
C. Reliance damages in the form of the actual expenses the producer incurred while negotiating with the singer.
D. Restitution for any harm done to the producer's reputation when the production was abandoned.
ANSWER : B. Nothing, because it was not reasonable for the producer to expect to be reimbursed for expenses incurred when he knew that the singer was not obligated until there was a final, signed agreement.
Explanation: Although the doctrine of promissory estoppel allows for recovery of damages when there is no contract, that doctrine requires reasonable reliance on a promise. And since the parties agreed that they would not be obligated until a final agreement was signed, it was unreasonable for the producer to incur expenses during negotiations. Therefore, the producer is likely to recover nothing
Buyers Cover Formula and when does it apply?
Buying substituted goods.
(Cost of Cover – K Price) + incidental or consequential damages – Cost Avoided
Foreseeability Rule
+Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made.
WHAT ARE THE LEGAL CONSEQUENCES FOR NOT DOING WHAT WAS AGREED?
DAMAGES!!!
Reliance Rule
As an alternative to Expectation Damages, the injured party has a right to damages based on his reliance interest, including expenditures made in preparation of performance or in performance, less any loss the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed.
A well-established paper mill and a logging company signed a written contract in which the mill agreed to buy from the company all the logs the mill would need for one year. The company was unable to keep up with the mill's needs, and its log deliveries fell short by 10% to 15% in each of the four quarters of the year. The mill paid the company on time for all delivered logs.
The mill paid an attorney $2,000 for advice concerning its options in enforcing the contract. It paid a broker a reasonable fee of $5,000 to find additional logs to make up for the company's shortfall. The mill also incurred reasonable costs of $25,000 to transport the additional logs to its facility. Despite the mill's efforts to mitigate damages, it sustained an additional $200,000 in losses because of the company's failure to timely deliver enough logs.
The mill has sued the company for breach of contract.
If the court finds for the mill, how much should it award in damages?
A. $205,000.
B. $225,000.
C. $230,000.
D. $232,000.
ANSWER: C. $230,000.
Explanation:
No UCC provision provides for recovery of attorney's fees, however, so they are not recoverable in the absence of a contract provision allowing them. In addition, although a party has no duty to mitigate its losses, its recovery will be reduced by the amount that could have been reasonably avoided or minimized.
Here, the paper mill will necessarily recover the $200,000 in losses it sustained because of the logging company's failure to deliver enough logs. These are presumably consequential damages. The mill can also recover incidental damages of $25,000 for transporting the additional logs and $5,000 for the broker's commission—$30,000 in total. However, the $2,000 in attorney's fees are not recoverable
Seller's Resale Rule including formula.
Where Resale is made in GOOD FAITH and in a commercially reasonable manner the seller may recover:
(Resale price – Contract Price) + Incidental Damages – Expenses Saved = Damages
Types of Damages
1.Restitution Damages.
2.Expectation Damages.
3.Reliance Damages.
4.Liquidated Damages
5.Specific Performance.
A man obtained a bid of $10,000 to tear down an old structure on his newly purchased farm and another bid of $90,000 to replace it with a structure in which the man planned to house a new herd of dairy cows. Having only limited cash available, the man asked his uncle for a $100,000 loan. The next day, the man's uncle in a signed writing promised to lend the man $100,000 repayable over 10 years in equal monthly installments at 10% annual interest. The man promptly accepted the demolition bid and the old structure was removed, but the uncle thereafter refused to make the loan. Despite diligent efforts, the man was unable to obtain a loan from any other source.
In a successful claim for monetary relief against the uncle based on promissory estoppel, what is the probable measure of the man's recovery?
A. Expectancy damages, measured by the difference between the value of the new structure and the old structure, less the amount of the proposed loan ($100,000).
B. Expectancy damages, measured by the estimated profits from operating the dairy farm for 10 years, less the cost of repaying a $100,000 loan at 10% interest over 10 years.
C. Nominal damages only, because both expectancy and reliance damages are speculative.
D. Reliance damages, measured by the $10,000 expense of removing the old structure, adjusted by the decrease or increase in the market value of the man's land immediately thereafter.
Answer D: Reliance damages, measured by the $10,000 expense of removing the old structure, adjusted by the decrease or increase in the market value of the man's land immediately thereafter.
Explanation:
Promissory estoppel allows a party to recover damages stemming from another's failure to perform a promise when no valid contract exists. However, such damages may be limited as justice requires. This typically leads to an award of reliance damages based on the out-of-pocket expenses incurred by the enforcing party. This is designed to place the enforcing party in the same position as if the promise had never been made and to avoid unjust enrichment of the enforcing party.
However, in some promissory-estoppel cases, courts have awarded expectation damages. Expectation damages are designed to put the enforcing party in the same position as if the promise had been performed. These damages usually exceed reliance damages but cannot be speculative—eg, the value of a nonexistent building, estimated profits from a nonexistent farm (Choices A & B).
Therefore, the probable measure of the man's recovery is reliance damages, measured by the expense of removing the old structure in reliance on the uncle's promise ($10,000). This amount should then be adjusted by the decrease or increase in the market value of the land after demolition to further compensate the man for losses or avoid his unjust enrichment, respectively.
On April 1, a carpenter contracted with a homeowner to remodel the homeowner's home for $10,000, the contract price to be paid on completion of the work.
On May 29, relying on his expectation that he would finish the work and have the homeowner's payment on June 1, the carpenter contracted to buy a car under the following terms: "$10,000 in cash, if payment is made on June 1; if payment is made thereafter, the price is $12,000."
The carpenter completed the work according to specifications on June 1 and demanded payment from the homeowner on that date. The homeowner, without any excuse, refused to pay. As a result, the carpenter became very excited, suffered a minor heart attack, and incurred related medical expenses of $4,000. The reasonable value of the carpenter's services in remodeling the homeowner's home was $13,000.
In an action by the carpenter against the homeowner, which of the following should be the carpenter's measure of recovery?
A. $10,000, the contract price.
B. $12,000, the contract price plus $2,000, the bargain that was lost because the carpenter could not pay cash for the car on June 1.
C. $13,000, the amount the homeowner was enriched by the carpenter's services.
D. $14,000, the contract price plus $4,000 for the medical expenses incurred because the homeowner refused to pay.
Answer A. $10,000, the contract price.
Explanation:
The primary goal of contract damages is to place the nonbreaching party in the same position it would have been in had the contract been performed. This includes expectation damages for the value of the breaching party's performance that was lost (eg, the contract price). But it only includes consequential damages for losses arising from the nonbreaching party's special circumstances if the breaching party:
Here, the homeowner refused to pay after the carpenter completed all the contractual work. As a result, the carpenter can recover the $10,000 contract price for the work done (expectation damages). But the carpenter cannot recover $2,000 for the loss of the bargain on the car or $4,000 for the medical expenses incurred (consequential damages). That is because those losses were an unforeseeable result of the breach (Choices B & D). Therefore, the carpenter is entitled to $10,000.
(Choice C) When a breaching party is unjustly enriched as a result of the breach, the nonbreaching party can seek restitution (ie, the value of the benefit conferred on the breaching party) as an alternative to expectation damages. However, this is not permitted when, as here, the work giving rise to the unjust-enrichment claim has been fully performed and the breaching party's only remaining obligation is payment of the contract price.
What are the Exceptions to Attorney fees not being recoverable under the American Rule?
+By statute (consumer protection, civil rights, etc.)
+Court rules (Rule 11)
+Contract terms (but unconscionability can be a limitation)
+Collateral litigation (when the defendant’s breach has caused the plaintiff to engage in collateral litigation)
+Against insurers to force company to honor its contractual terms