George Mason School of Law Contracts II Reliance/Restitution/Punitives This file may be downloaded only by registered students in my class, and may not be shared by them F.H. Buckley fbuckley@gmu.edu

The measure of damages If damages are meant to compensate for a wrong, just what is the wrong? Failure to perform: Expectation damages Inviting detrimental reliance: reliance damages Conferring an unjust benefit

The interplay of the measures of damages When might damages be limited to the reliance measure? When might reliance damages exceed expectation damages?

When should the Π be limited to reliance damages?

When should the Π be limited to reliance damages? Contracts with Physicians Hawkins v. McGee at 868

When should the Π be limited to reliance damages? Hawkins v. McGee Was the doctor negligent?

When should the Π be limited to reliance damages? Hawkins v. McGee Was the doctor negligent? Had he been negligent, what would the damages have been?

When should the Π be limited to reliance damages? Hawkins v. McGee Was the doctor negligent? Had he been negligent, what would the damages have been? What would we need to do to put the patient in the pre-tort position?

When should the Π be limited to reliance damages? Hawkins v. McGee Was the doctor negligent? Had he been negligent, what would the damages have been? Return of doctor’s fee Pain and suffering from the operation Difference between the before-and-after hand

When should the Π be limited to reliance damages? Hawkins v. McGee Was the doctor negligent? In short, reliance damages Return of doctor’s fee Pain and suffering from the operation Difference between the before-and-after hand

When should the Π be limited to reliance damages? Hawkins v. McGee What did the court award?

When should the Π be limited to reliance damages? Hawkins v. McGee What did the court award? The difference between the hand as promised and the hand after the operation less the doctor’s fee

When should the Π be limited to reliance damages? Hawkins v. McGee What did the court award? The difference between the hand as promised and the hand after the operation less the doctor’s fee I.e., The expectation interest

Why a different result in Sullivan v. O’Connor at 866?

Why a different result in Sullivan v. O’Connor Was the doctor negligent?

Why a different result in Sullivan v. O’Connor Was the doctor negligent? On what theory was there a breach of contract without negligence?

Why a different result in Sullivan v. O’Connor What did the judge instruct the jury?

Why a different result in Sullivan v. O’Connor What did the judge instruct the jury? Out of pocket expenses incident to the operation Damages for the way in which the nose was made worse Pain and suffering for the third operation Loss of earnings too uncertain

Why a different result in Sullivan v. O’Connor What did the judge instruct the jury? In short, reliance damages

Why a different result in Sullivan v. O’Connor What did the judge instruct the jury? What are doctors taken to have promised before a procedure?

Why a different result in Sullivan v. O’Connor What did the judge instruct the jury? What are doctors taken to have promised before a procedure? A duty to take care, not to guarantee success, or a duty not to make things worse An obligation of means and not of results

Why a different result in Sullivan v. O’Connor What were the policy reasons against expectation damages (guaranteed success)?

Why a different result in Sullivan v. O’Connor What did the judge instruct the jury? What are doctors taken to have promised before a procedure? A duty to take care, not to guarantee success What would restitutionary relief look like?

Could reliance damages exceed the expectation measure? When would a Π want more than expectation damages?

Could reliance damages exceed the expectation measure? When would a Π want more than expectation damages? What about bad bargains?

Freund at 95 Semble reliance damages not to exceed the expectation interest on a bad bargain, or else a windfall

Could reliance damages exceed the expectation measure? When would a Π want more than expectation damages? Restrictions on the expectation measure Uncertainty Forseeability

The measure of damages Kizas v. Webster at 871 Robert Stack as Eliot Ness

The measure of damages Kizas v. Webster The FBI invited college graduates to work as clerical staff with a possibility of receiving preferential consideration as special agents

The measure of damages Kizas v. Webster The FBI invited college graduates to work as clerical staff with a possibility of receiving preferential consideration as special agents The FBI stopped the program in 1977 because (1) they weren’t getting qualified people, and (2) the FBI wanted to institute an affirmative action program.

The measure of damages Kizas v. Webster So what do you think of the takings argument?

The measure of damages Kizas v. Webster So what do you think of the takings argument? Reversed on appeal

The measure of damages Kizas v. Webster So what do you think of the takings argument? If it would succeed, what kind of damages?

The measure of damages Kizas v. Webster So what do you think of the takings argument? If it would succeed, what kind of damages? What was Theory A? Theory B?

The measure of damages Kizas v. Webster So what do you think of the takings argument? If it would succeed, what kind of damages? What are the problems with expectation damages here?

The measure of damages Kizas v. Webster So what do you think of the takings argument? If it would succeed, what kind of damages? What are the problems with expectation damages here? Uncertainty

The measure of damages Kizas v. Webster So what do you think of the takings argument? If it would succeed, what kind of damages? What are the problems with expectation damages here? Are reliance damages the default in such cases?

The measure of damages Kizas v. Webster So what do you think of the takings argument? If it would succeed, what kind of damages? Do expectation damages place a ceiling on reliance damages?

The measure of damages Kizas v. Webster So what do you think of the takings argument? If it would succeed, what kind of damages? Do expectation damages place a ceiling on reliance damages? Albert v. Armstrong at 872, 876

The measure of damages Kizas v. Webster Do expectation damages place a ceiling on reliance damages? Albert v. Armstrong 876 What is Oberdorfer’s response to this?

The measure of damages Kizas v. Webster Do expectation damages place a ceiling on reliance damages? No proof that the opportunity was valueless and onus was on the FBI

The measure of damages Kizas v. Webster So what are the reliance damages?

The measure of damages Kizas v. Webster So what are the reliance damages? The difference between what they received as FBI employees (and for a year afterwards) and what they would have received in the labor market, plus dislocation

The measure of damages Restatement § 349. As an alternative to the measure of damages stated in § 347 [expectation damages], the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed.

The measure of damages Restatement § 349. As an alternative to the measure of damages stated in § 347 [expectation damages], the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed.

What about restitutionary awards A way around bad bargains?

Restitution What are the elements of restitution? Can a restitutionary award exceed the expectation interest? Measure of recovery Can the party in breach seek a restitutionary remedy? When is restitution wholly collateral to contract, so that problem 2 doesn’t arise?

1. What are the elements of Restitution? A general principle of restitution out of Quasi Contract, Money had and received, breach of fiduciary duty, Unjust Enrichment

Bailey v. West When is quasi-contractual liability imposed?

Bailey v. West When is quasi-contractual liability imposed? Benefit conferred on defendant by plaintiff Appreciation by defendant of the benefit It would be inequitable to permit the defendant to retain the benefit

Restitution Bailey v. West No recovery for officious intermeddler But that problem doesn’t arise when restitution is sought as a remedy in contract, since the benefit was solicited

Restitution in special cases Would it be available when expectation damages are uncertain, on the analogy of Kizas v. Webster?

Restitution in special cases When the remedy in contract is barred by the Statute of Frauds: Restatement § 375

Restitution in special cases When the remedy in contract is barred by impracticability, frustration, non-occurrence of a condition: Restatement § 377

2. Can a restitutionary award exceed the expectation interest?

Zara Contracting at 878 Tri-cities Airport, Endicott NY

Zara Contracting Zara contracts with US gov’t to build an airport Zara subcontracts the entire job to Π Two months after Π begins work, Zara wrongfully fires it and finishes the job itself.

Zara Contracting Zara contracts with US gov’t to build an airport Zara subcontracts the entire job to Π Two months after Π begins work, Zara wrongfully fires it and finishes the job itself. How does the Miller Act work?

Zara Contracting Two months after Π begins work, Zara wrongfully fires it and finishes the job itself. Could the subcontractor have recovered on a claim for expectation damages for the value of the extra work done?

Zara Contracting Two months after Π begins work, Zara wrongfully fires it and finishes the job itself. Could the subcontractor have recovered on a claim for expectation damages for the value of the extra work done? No: Clause 5

Zara Contracting Two months after Π begins work, Zara wrongfully fires it and finishes the job itself. So a restitutionary recovery would necessarily give the Π more than the expectation award. And what is the basis for such a claim?

Zara Contracting Why was this a compelling case, on the equities?

Zara Contracting Why was this a compelling case, on the equities? Should restitutionary recovery which exceeds the expectation interest be restricted to special facts such as these?

Zara Contracting Should restitutionary recovery which exceeds the expectation interest be restricted to special facts such as these? Also: Construction contract Other party in breach

Zara Contracting Restatement 373(1). On a breach by non-performance that gives rise to a claim for damages for total breach … the injured party is entitled to restitution for any benefit he has conferred on the other party

Zara Contracting Restatement 373(2). But no restitutionary recovery “if he has performed all of his duties under the contract and no performance by the other party remains due other than payment of a definite sum of money”

Zara Contracting Restatement 373(2). But not “if he has performed all of his duties under the contract and no performance by the other party remains due other than payment of a definite sum of money” Contractor has finished building a house for a promise of $100K. House is worth $200K because of rise in the market

Zara Contracting Cf. Zara at 880 Contractor has finished building a house for a promise of $100K. House is worth $200K because of rise in the market Cf. Zara at 880 Appreciation of value vs. cost of getting someone else to do the work

3. Measure of recovery Restatement §371. MEASURE OF RESTITUTION INTEREST. 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 other interests advanced.

3. Measure of recovery Restatement §371. Illustration 1 Cost to get another carpenter to do the work is $1,800 Increased value of house is $1,200

3. Measure of recovery Restatement §371. Illustration 1 Cost to get another carpenter to do the work is $1,800 Increased value of house is $1,200 What if carpenter was in breach? What if owner was in breach?

3. Measure of recovery Restatement §371. Illustration 1 But see Illustration 2 Surgeon saves a life (worth $1 million) in performing services for which another surgeon would have charged $1800

4. Can the party in breach obtain restitutionary relief? What if the Π is the party in breach? Palmer Construction at 884

Britton v. Turner 881 What would expectation damages amount to here?

Britton v. Turner What is the argument for quantum meruit on the equities?

Britton v. Turner What is the argument for quantum meruit on the equities? Aliter a temptation to strategic behavior by the employer?

Britton v. Turner Can the employer bargain around this?

Britton v. Turner What if the party in breach has harmed the other party by his breach?

Britton v. Turner Restatement 374(1). On breach of a promissory condition, “the party in breach is entitled to restitution for any benefit that he has conferred by way of part performance … in excess of the loss that he has caused by his own breach”

Britton v. Turner Restatement 374(1). Illustration 1: A agrees to sell land to B for $100. B pays $30k but fails to pay the remaining $70K. A sells to a third party for $95K. A has received $30K plus $95K = $125K B can recover $30K less $5K = $25K

5. When are restitutionary remedies collateral to contract? So no problem with an expectation cap Or with a trivial breach

Ventura v. Titan 885 Gov. Jesse Ventura (Ind. MN)

George Mason School of Law Contracts II Reliance/Restitution/Punitives This file may be downloaded only by registered students in my class, and may not be shared by them F.H. Buckley fbuckley@gmu.edu

Exam

Punitive Damages

Hibschman Pontiac

Hibschman Pontiac Punitive damages may be awarded in addition to compensatory damages "whenever the elements of fraud, malice, gross negligence or oppression mingle in the controversy.” the public interest will be served by the deterrent effect of the punitive damages. Vernon Fire & Casualty Ins. Co. v. Sharp, supra.

Hibschman Pontiac What was the car?

Hibschman Pontiac Little Ronnie and the Daytonas

Miller Brewing at 887

Miller Brewing at 887 Best Beers a distributor for Miller for 30 years A finding of wrongful termination (?)

Miller Brewing at 916 Was Miller animated by something other than its business interests?

Miller Brewing at 916 What would punitives do to efficient breaches? Thyssen at 893

Miller Brewing Is Hibschman Pontiac overturned? The need for an independent common law tort, not a “tortlette”

The Pinto Case 892 Ford did not make a safety improvement which would have solved the problem because it did not think this cost effective, given the expected value of the accident In doing so, it valued a life as worth $2M

Maybe that wasn’t a good idea…

The Pinto Case 892 Ford did not make a safety improvement which would have solved the problem because it did not think this cost effective, given the expected value of the accident In doing so, it valued a life as worth $2M Does this deserve $125M in punitive damages (reduced to 3.5M)?

The Backlash Kozinski in Oki America at 891

The Backlash State Farm and presumptive caps at 895

The Backlash Cooter at 893 on intentional misbehavior Qu. opportunistic breaches