1. CHAPTERCHAPTER McGraw-Hill/Irwin©2008 The McGraw-Hill Companies, All Rights Reserved Compensatory and Related Damages THIRTEENTHIRTEEN

2. 13-2 Four types of remedies Damages (money) –For breach of contract –Includes compensatory, punitive, etc. Restitution –Allows for legal damages or equitable restitution (for quasi-contract or quantum meruit claims) Injunctive –An order to do (or not do something) –Injunction, SP, etc Declaratory –Establishes status of relationship of parties –May be accompanied by nominal damages

3. 13-3 Four types of remedies Damages –For breach of contract or a tort claim –Includes compensatory, punitive, etc. Restitution –Allows for legal damages or equitable restitution (for quasi-contract or quantum meruit claims) Injunctive –An order to do (or not do something) –Injunction, SP, etc Declaratory –Establishes status of relationship of parties –May be accompanied by nominal damages

4. 13-4 Objectives This chapter will examine WHAT kinds of monetary damages parties to a lawsuit can expect and, HOW to calculate the appropriate damages

5. 13-5 Damages The law categorizes the kinds of damages available to plaintiffs based on their source Damages can be 1.Compensatory 2.Consequential 3.Incidental 4.Nominal 5.Liquid 6.Limited

6. 13-6 Damages Not Recoverable Under Contract Law There are two kinds of damages that are never (or almost never) recoverable under contract law: 1.Speculative 2.Punitive

7. 13-7 Speculative damages –Harm incurred by the nonbreaching party that is not susceptible to valuation or determination with any reasonable certainty –The act must have first been proven to have caused damage and then a party can estimate the amount of damages that could be awarded Damages Not Recoverable Under Contract Law

8. 13-8 Punitive damages –An amount of money awarded to a nonbreaching party that is not based on the actual losses incurred by that party, but as a punishment to the breaching party for the commission of an intentional wrong Damages Not Recoverable Under Contract Law

9. 13-9 Deterrent effect –The authority to assess excessive fines on a breaching party often can dissuade a party from committing an act that would subject him to these punitive damages Damages Not Recoverable Under Contract Law

10. 13-10 Statutory authority –The legislature of a jurisdiction may codify certain actions as subject to punitive damages if they occur in conjunction with a contractual breach Damages Not Recoverable Under Contract Law

11. 13-11 It is important to note that courts do not grant punitive damages when the plaintiff has no actual damages. The plaintiff must show that he has suffered harm before the court will award compensation beyond contractual remedies. In other words, nasty intent alone is not justification for imposing a monetary punishment. It must be on top of actual harm incurred. Damages Not Recoverable Under Contract Law

12. 13-12 Compensatory damages compensate for the loss/harm incurred by the nonbreaching party and attempt to put him in as good a position as he would have been had the contract not been breached There are several kinds of compensatory damages: 1.expectation damages 2.restitution damages 3.reliance damages Calculation of Compensatory Damages

13. 13-13 Expectation damages −A monetary amount that makes up for the losses incurred as a result of the breach that puts the nonbreaching party in as good a position as he would have been had the contract been fully performed Calculation of Compensatory Damages

14. 13-14 Restitution damages –A monetary amount that requires the breaching party to return any benefits received under the contract to the nonbreaching party to ensure that the breaching party does not profit from the breach Calculation of Compensatory Damages

15. 13-15 Reliance damages –A monetary amount that “reimburses” the nonbreaching party for expenses incurred while preparing to perform her obligations under the agreement but lost due to the breach Calculation of Compensatory Damages

16. 13-16 Duty To Mitigate The nonbreaching party has a duty to try to lessen the amount of harm suffered due to the breach, thereby mitigating damages. The aggrieved party must make a reasonable effort to mitigate the damages caused by the breach. The reasonableness of the aggrieved party’s efforts will be determined by the court.

17. 13-17 Consequential and incidental damages are specific damages that go beyond compensatory damages and are incurred by the nonbreaching party after the breach The timing of the actions giving rise to the damages is what distinguishes consequential and incidental damages from reliance damages Consequential and Incidental Damages

18. 13-18 Consequential damages –Sustained by the nonbreaching party that naturally and foreseeably flow from the breach; they are a direct consequence of the breach Incidental damages –Damages resulting from the breach that are related to the breach but not necessarily directly foreseeable by the breaching party Consequential and Incidental Damages

19. 13-19 Nominal damages –A small amount of money given to the nonbreaching party as a token award to acknowledge the fact of the breach Nominal Damages

20. 13-20 V + E + L - M - R = D Value + Expenses + Losses - Mitigation - Received value = Damages Calculation of Damages

21. 13-21 V + E + L - M - R = D –V - value of the promise in the contract –E - any foreseeable out-of pocket expenses –L - foreseeable losses due to the breach –M - mitigation –R - value of what nonbreaching party did receive –D - the potential compensatory damages Calculation of Damages

22. 13-22 Liquidated Damages Liquidated damages –An amount of money agreed upon in the original contract as a reasonable estimation of the damages to be recovered by the nonbreaching party –A liquidated damages clause provides a disincentive to breach the contract

23. 13-23 Costs American rule of attorney fees and costs –Expenses incurred by the parties to maintain or defend an action for the breach of contract are generally not recoverable as damages

24. 13-24 Definitions Equity –The doctrine of fairness and justice; the process of making things balance or be equal between parties Bright line rules –A legal standard resolves issues in a simple, formulaic manner that is easy in application although it may not always be equitable Black letter law –The strict meaning of the law as it is written without concern or interpretation of the reasoning behind its creation

25. 13-25 “Action” Damages When a party’s monetary damages are inadequate to compensate for the harm incurred, the court has the ability to order alternative equitable remedies in the form of either 1.an injunction or 2.specific performance These are “action” damages because they effectively force the defendant to act in some way to try to remedy the breach

26. 13-26 It bears repeating that the court must find that monetary remedies are insufficient to compensate the plaintiff. Only after showing that the money will not fix or prevent harm can the plaintiff obtain an injunction or specific performance. “Action” Damages

27. 13-27 Injunction –A court order that requires a party to refrain from acting in a certain way to prevent harm to the requesting party “Action” Damages

28. 13-28 Temporary injunction –A court order that prohibits a party from acting in a certain way for a limited period of time Permanent injunction –A court order that prohibits a party from acting in a certain way for an indefinite and perpetual period of time “Action” Damages

29. 13-29 Preliminary hearing –An appearance by both parties before the court to assess the circumstances and validity of the restraining application “Action” Damages

30. 13-30 Specific Performance –A court order that requires a party to perform a certain act in order to prevent harm to the requesting party –To obtain an order for specific performance, the contract must be very clear as to the act to be compelled. The standard of proof for specific performance is greater than that of obtaining damages at law “Action” Damages

31. 13-31 Declaratory Judgment –the court’s determination of the rights and responsibilities of a party with respect to the subject matter of the controversy The court’s decree settles the matter in its entirety “Court-Ordered” Solutions

32. 13-32 It is important to note that declaratory judgment is only appropriate where another legal remedy is not available. The action for declaratory judgment is limited to situations where there is genuine controversy as to the rights and status of the parties involved and a declaration of those rights as determined by the court will resolve the issue between the parties. “Court-Ordered” Solutions

33. 13-33 Rescission and restitution –A decision by the court that renders the contract null and void and requires the parties to return to the wronged party any benefits received under the agreement “Court-Ordered” Solutions

34. 13-34 Quasi-contract / pseudo-contract / implied-in- law contract –Where no technical contract exists, the court can create an obligation in the name of justice to promote fairness and afford a remedy to an innocent party and prevent unearned benefits to be conferred on the other party Quasi-Contracts

35. 13-35 Promissory estoppel does not require certainty in all the elements of contract This theory of relief only arises where there is no valid contract! Where a defect in formation would normally render the contract unenforceable under traditional contract principles, the court can look to the precepts of fairness and rely on the doctrine of promissory estoppel Quasi-Contracts

36. 13-36 Promissory reliance –A party’s dependence and actions taken upon another’s representations that he will carry out his promise Substantial detriment –The change in a party’s position in reliance upon another’s representations that, if unanswered, will work a hardship on that party Quasi-Contracts

37. 13-37 Prevention of Unjust Enrichment –the doctrine of unjust enrichment focuses on the unearned benefit received by the promisor The court must find that: 1.there was a promise made 2.that the promisor intended to induce the promisee to act in reliance thereon, and 3.the promisee’s actions conferred a benefit on the promisor Quasi-Contracts

38. 13-38 Quantum meruit –A Latin term referring to the determination of the earned value of services provided by a party –Quantum meruit is the value of services rendered Quasi-Contracts

39. 13-39 Quantum valebant –A Latin term referring to the determination of the market worth assignable to the benefit conferred –The court may determine that a more just valuation lies in quantum valebant, which is the value of the benefit received –This is the value to the benefited promisor. It is the amount of money the promisor has gained in taking advantage of the situation Quasi-Contracts

40. 13-40 Doctrine of “Unclean Hands” None of these equitable remedies will be available to a party seeking relief if they come to the court with unclean hands. Where the plaintiff is also guilty of some misconduct, the notions of justice under equitable principles will not allow a guilty party to complain of unfairness.