general damages measures in contract situations
TRANSCRIPT
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Consequential Damages – Buck v. MorrowTwo years into 5-year lease of pasture land to Buck (lessee), Morrow (lessor) breached.
o What is the measure of Buck’s direct contract damages?
o What are Buck’s other damages?
oTerminology:o General/Direct Damages: Refers to the value of what plaintiff lost from
the original impact of defendant’s acts.
o Consequential Damages: Refers to those damages that can (but do not have to) occur as a consequence of the initial loss.
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Standards for Consequential Damages – Common Law
Tort: Plaintiff can recover only those damages for which she can show D’s actions are the proximate cause.
Contract: Plaintiff can only recover those losses which are reasonably within the contemplation of the parties as a probable result of the breach.
o What facts support Buck’s award of consequentials under this standard?
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When does the distinction between general and consequential damages still matter?
Historic hostility to consequentials - thought to be more speculative and more avoidable than general damages.
o But - unclear that market value measures are really easier to prove/value than consequential damages.
o Furthermore, the standards plaintiffs must meet to obtain consequential damages take care of some of the above concerns
Why, then, is there any reason to distinguish between consequential and general damages – especially if they are necessary to put P in rightful position?
o Special pleading requirements in FRCP and state analogso Bargained-for remedies/limitations clauses/damage disclaimers
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Consequential Damages Under the UCC
UCC 1-305(a) expresses an ambivalence to consequential (or incidental) damages similar to the common law. UCC 1-305(a) allows recovery only if such damages are specifically provided for by UCC or other rule of law
o BUT every section we discussed last class provides for such damages
Buyer’s Remedies – UCC 2-715o Buyer gets incidentals under 2-715(1) and consequentials under 2-
715(2)o What is the difference between the two and why are they
treated differently?
Seller’s Remedies – UCC 2-710o Seller get’s incidental damages but not consequentials – why?
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Meinrath – Consequential Damages Stemming from Failure to Pay Money
P & D entered “Purchase and Sale Agreement.” D breached agreement by failing to pay certain “bonus compensation”
o P seeks $300,000 in bonus compensation (general damages)o P seeks $770,000 in losses of invested capital and decline in the
net worth of the businesses as a result of failure to pay the bonus compensation (consequential damages)
What does the court award instead of consequential damages?
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Meinrath, cont’dWhy do courts refuse to give consequentials for failure to pay money?
Erosion of the Meinrath rule:
o Contracts to loan moneyo Insurers – bad faith refusal to settle
o Majority rule in both instances is that P’s can get consequential damages from initial breach (even though they involve a failure to pay money)
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REVIEW PROBLEM Ellen is moving from Columbia to L.A for a new job. She signed a contract with Jack to rent an apartment at $1,500 a month for 12 months beginning immediately. She told Jack that she would return to Columbia to gather her stuff and move it immediately. Ellen hired a service to move her belongings from Columbia to L.A. for $4,500. Upon arrival in L.A., Ellen discovered that Jack had rented the apartment to someone else for $2,100 a month.
While looking for new apartment Ellen checked into a hotel for seven days at a nightly rate of $125 while looking for a new apartment and stored her belongings at U-Store-It for $300. After searching all week, she found an apartment comparable to the first for $2,000/month (the going rate for such apartments). Ellen signed a one year lease.
Ellen sued Jack for breach of contract. What kind and amount of damages is Ellen entitled to recover and why?
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Limits on Restoring Plaintiff to Rightful Position – Bargaining out of Rightful Position
Default rules are rules a court applies to determine how to restore P to his rightful position.
But parties in contract situations may bargain out of these rules. Although P has bargained out of the default rules, their bargain can also be considered P’s rightful position.
We will consider two bargained-for remedies and their legal limits◦ Limitations on Remedies Clauses (UCC 2-719)◦ Liquidated Damages Clauses (UCC 2-718); Restatement (2d) of
Contracts
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Limitations on Remedies Clauses – UCC 2-719
Clauses that try to prevent non-breaching party from recovering all remedies the law would normally provide. They explicitly:1. limit non-breaching parties to certain remedies specified in the
contract, or2. exclude certain available common law remedies upon breach.
Most common kind of limitations clauses:◦ Substituted remedies clause – i.e., one that seeks to substitute a
certain remedy for those available at common law◦ E.g., repair/replace clause in Kearney & Trecker – 2nd part of indented
para
◦ Limitations on consequential damages – attempt to disclaim liability for consequential damages stemming from breach of contract
◦ E.g., Kearney & Trecker – 1st part of indented para
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Substituted Remedies Clauses
Under 2-719(1)(b) substituted remedies clauses are enforceable as the exclusive remedy for breach of contract if two conditions are met:
1.The parties expressly agree that the substituted remedy is exclusive◦UCC 2-719(1)(b)
2.The substituted remedies clause does not fail of its essential purpose◦UCC 2-719(2)
Why did the substituted remedies clause fail in Kearney & Trecker?
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Buyer’s Remedies When Substituted Remedies Clauses “Fail of Their Essential Purpose”
Does the “failure of essential purpose” standard really protect non-breaching parties?
What if both parties to a contract agree to a clause that states: “Buyer agrees to assume the sole risk of loss due to failure of the machine except that Seller will try to repair in good faith.”
◦Isn’t that clause fail proof? Is there any way plaintiff can get around such a problem?
What remedies are available to P if the substituted remedies clause is found to be unenforceable?
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Limitations on Consequential Damages
There was also a limitation on consequential damages in K&T. UCC 2-719(3) allows parties to limit consequential damages.
Courts uphold clauses limiting consequential damages if they are not “unconscionable”
◦ Unconscionable = whether under circumstances existing at the time K formed in light of the general commercial background and commercial needs of a particular case, the clause is so one-sided as to be oppressive.
◦ Unconscionability is a difficult standard to meet.◦ Every case depends on the circumstances and evidence pertaining to the
general commercial practices, needs of a particular case and the operation of the clause against P. You really need to pay attention to the circumstances at the time of contract in such cases.