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5.9: Damages in Contract Actions

Goals

  • Learn about compensation awarded by courts in contract lawsuits and related legal English

Instructions

  • Complete the reading
  • Complete the drag-the-words exercise
  • Watch the movie clip

I. Types of Remedies in Contract Cases

Typically in a breach of contract case, one party will seek monetary damages from the other party.  Under some circumstances, a court will grant a form of relief called ‘specific performance,’ where a party will be compelled to perform according to the terms of the contract.

A. Money Damages

The most common form of money damages award in the United States is called “expectation damages.”  Expectation damages mean that the party will be placed in the position he would have been in if the other party had not breached.  In other words, the court calculates how much benefit the contract would have given the non-breaching party if the breaching party had performed as promised.

  1. Calculating Expectation Damages

Let’s assume Patrick agrees to paint Donald’s car for $1,000.  Patrick expects to buy $100 worth of paint by the time the job is done and to make $900 in profit.

When Patrick starts the job he buys $20 in paint and begins painting Donald’s car.  Donald suddenly decides he doesn’t want his car painted. 

Patrick sues Donald for breach of contract.  What are his expectation damages?  Patrick expected to make $900 in profit and he just spent $20.  His expectation damages would be $920.

In some cases expectation damages are hard to calculate.  Let’s say Patrick planned to paint Donald’s car, profit $900 from his work, and then photograph the car and sell the photograph on the internet for $50,000.

Patrick cannot be certain that he would have successfully sold the photograph for $50,000.  His calculation is speculative and the court would not award him the additional $50,000.

2. Calculating Reliance Damages

If expectation damages are too difficult to calculate, courts might allow parties to collect reliance damages, instead.  Reliance damages restore the party to the position he was in before the contract.

For example, let’s say Don enters into a contract with Peter to help Peter find a job in Seattle.  As agreed, Peter buys a plane ticket to Seattle but then Don suddenly repudiates the contract. 

Peter might have difficulty proving his expectation damages as a result of Don’s breach.  However, Peter should be able to recover from Don the cost of his airplane ticket – – his reliance damages.

C. The Duty to Mitigate Damages

One general principle of contract law is that parties are obligated to take reasonable measures to limit their damages after the other party breaches. 

For example, if a buyer refuses to purchase goods from a seller, then the seller should take reasonable steps to find another buyer.  Damages will be the difference between the contract price and the price at which the seller sold the goods to the alternative buyer.

D. Equitable Relief

In some cases, the non-breaching party will be awarded specific performance instead of money damages.  Specific performance means that the court will order the breaching party to perform the contract. 

In the United States, specific performance is traditionally reserved for contracts for the sale of real estate or the sale of unique items such as artwork, antiques, licenses, and patents.  Courts in the United States will not order specific performance of personal service contracts (e.g., a court will not order a person to paint your house).

E. Restitution

A final measure for damages is restitution.  Courts may apply this remedy if the parties do not have a contract, but one party gave some sort of benefit to the other party. 

For example, let’s say a painter is hired to paint a house for a homeowner.  He does a good job on half the house but the contract is nullified for some reason.  Courts may find it unfair that the painter gets nothing even though he painted half the house.

Under these circumstances, the court will say that the painter is entitled to restitution.  The most common way to calculate restitution is quantum meruit, meaning the reasonable value of services. The painter should receive the reasonable value of his services in connection with painting half the house.

II. Exercise

III. Movie Clip

Here is a clip from a movie called the Paper Chase. The scene is Harvard Law School in the early 1970s. On the first day of contracts class, a student is unprepared. He also does not answer a contract damages question correctly. Can you figure out his mistake in his answer? After watching you can click the “+” to see the suggested answer.

The mistake….

Unfortunately, Mr. Hart assumes the non-breaching party is only restored to where he would have been before the botched operation. He should have answered that the plaintiff must receive the value of what he had been promised – a new healthy hand.