1. 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

2. 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

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

4. When should the Π be limited to reliance damages?

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

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

7. 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?

8. 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?

9. 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

10. 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

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

12. 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

13. 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

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

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

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

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

18. 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

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

20. 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?

21. 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

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

23. 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?

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

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

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

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

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

29. 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

30. 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.

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

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

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

34. 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?

35. 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?

36. 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

37. 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?

38. 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?

39. 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

40. 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?

41. 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

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

43. 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

44. 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.

45. 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.

46. What about restitutionary awards
A way around bad bargains?

47. 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?

48. 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

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

50. 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

51. 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

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

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

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

55. 2. Can a restitutionary award exceed the expectation interest?

56. Zara Contracting at 878
Tri-cities Airport, Endicott NY

57. 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.

58. 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?

59. 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?

60. 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

61. 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?

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

63. 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?

64. 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

65. 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

66. 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”

67. 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

68. 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

69. 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.

70. 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

71. 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?

72. 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

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

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

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

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

77. Britton v. Turner
Can the employer bargain around this?

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

79. 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”

80. 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

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

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

83. 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

84. Exam

85. Punitive Damages

86. Hibschman Pontiac

87. 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.

88. Hibschman Pontiac
What was the car?

89. Hibschman Pontiac Little Ronnie and the Daytonas

90. Miller Brewing at 887

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

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

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

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

95. 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

96. Maybe that wasn’t a good idea…

97. 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)?

98. The Backlash
Kozinski in Oki America at 891

99. The Backlash
State Farm and presumptive caps at 895

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