Restitution Damages : Contract Law

1. Restitution Damages
   1. Rst. 2d, 371: “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.” 
      1. The courts have generally held that the choice of measures will be more generous to the party who is NOT in breach.
      2. The illustration from the Rst., 371, is very helpful (CB 561, bottom).
   2. United States For the Use of Palmer Construction, Inc. v. Cal State Electric, Inc.
      1. (CSE subcontracted w/ Palmer; Palmer breached; CSE had to pay out over 6000 more than what it had contracted w/ Palmer; CSE sued for breach and cover; trial court held, yes, that CSE’s damages were cover price minus contract price, but THEN held by the time Palmer breached, it had supplied a value of 204,845.26 dollars to the project, but had rec’d only 114, 758.98 from CSE.; court held Palmer had damages of 90,086.28, less CSE’s damages (6295.54) and less CSE’s prejudgment interest (1468.88) for a total of 82321.86 in damages; CSE obviously appealed and high court reversed that shit up).
         1. Held, where the innocent party has paid MORE than the contract price for the goods and services ordered from the breaching party, the innocent party may recover the overage from the breaching party. The innocent party is not unjustly enriched when it receives what it bargained for and pays no more than the contract price. 
         2. Further held, the breaching party may not obtain a quasi-contractual recovery from the innocent party. 
2. Specific Performance
   1. Do something, or enjoin from doing something: a remedy granted when money would be inadequate; usually granted when there is a piece of land at issue. 
      1. Most successful specific performance cases in American courts are to enforce contracts to sell land where a P/buyer is seeking an order direction the D/seller to convey. This is largely based on the courts’ notion that no two pieces of land are alike–but this idea has become particularly hard to justify in commercial real estate deals where the parties deal with parcels of land nearly identical or without distinguishing features.
         1. The reasons commonly given for the Common Law courts’ aversion to specific performance are not very persuasive. Ex: It is said that courts will not order specific performance b/c those orders require time and effort for their enforcement…This is lame…Civil Law courts don’t seem to have such problems, and our own courts routinely grant sweeping orders that involve far more supervision than the performance of a contract.
         2. Prof asks us to consider the costs and benefits of specific performance v. damages. Our system has a lot of faith in damages.
      2. Rst. 2d 357-360. (Prof really stresses 360)
         1. Sec. 359: “Specific performance or an injunction will not be ordered if damages would be adequate to protect the expectation interest of the injured party.”
         2. Sec. 360: (Prof. points out 360) Describes the circumstances that are “significant” in determining the adequacy of damages: “a. the difficulty in proving damages w/ reasonable certainty; b. the difficulty of procuring a suitable substitute performance by means of money awarded as damages, and c. the likelihood that an award of damages could not be collected.”
      3. UCC and specific performance: Sec. 2-716(1): “Specific performance may be decreed where the goods are unique or in other proper circumstances.” 
         1. Comment 1 notes: “this Article seeks to further a more liberal attitude.”
         2. Additionally, (3) the buyer has the right of replevin “goods identified to the contract” if cover is attainable with reasonable effort, or if circumstances reasonably indicate that such effort will be of no avail.
   2. Walgreen Co. v. Sara Creek Property Co.
      1. (WG sought to enjoin Sara from opening a discount pharmacy in the center, pursuant to no-compete clause in their contract; Posner ordered specific performance).
         1. Posner discussed pros/cons of injunction; concluded trial court was OK in issuing injunction, most because of uncertainty of damages. Trial court judge concluded that the costs of the damage remedy would exceed the costs of an injunction
            1. Determination of damages would have been costly in forensic resources and “inescapably inaccurate;” the lease had ten years to run, so WG would have had to project its sales revenues and costs over the next ten years, project the impact on those figures of Phar-Mor’s competition, and then discount that impact to present value–all but the last would be “fraught with uncertainty.”
         2. Benefits of injunction: 
            1. Shifts the burden of determining the cost of the D’s conduct from the courts to the parties; there is likely a price for dissolving the injunction that will make both parties better off; upholding the injunction will substitute the costly process of forensic fact determination with the less costly private negotiation
            2. Prices and costs are more accurately determined by market than gov’t. Experts in court are no substitute for WG and SC negotiating over the price at which WG would feel adequately compensated.
         3. Costs:
            1. Continuing supervision (can be costly)
            2. Can impose costs on 3^rd parties
            3. “Bilateral monopoly:” WG and SC can only deal with each other if the injunction is enforced, and there is a danger that WG would want to force a buyout price up as much as possible, while SC would want to keep the price down; HOWEVER, court notes that “with so much at stake, both parties will have an incentive to devote resources, time and money to negotiations.”
               1. However, if the negotiations break down, the injunction would have brought about an inefficient result
               2. Substantial cost in this case is that it may set off a round of negotiations b/w the parties, and in some cases, that consideration alone is enough to warrant the denial of injunctive relief (in the instant case, Posner determines there’s not so much at stake that denial is necessary).
3. Liquidated Damages and Agreed Remedies
   1. Ex ante attempt to determine the consequences of a breach.
   2. Rst. 2d limits the enforceability of LD clauses. (Sec. 356)
      1. Rst. 2d, 356(1): permits such clauses provided they are “at an amount that is reasonable in the light of the anticipated OR actual loss caused by the breach and the difficulties of proof of loss…A term fixing unreasonably large liquidated damages is unenforceable on the grounds of public policy.”
   3. UCC similarly limits damages to an amount that is reasonable in light of actual or anticipated harm, the inconvenience or non-feasibility of securing an alternate remedy. UCC 2-718.
      1. Prof. points out 2-718(1): Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm cause by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty.
         1. Versus UCC 2A-504: Damages payable by either party for default, or any other act or omission, including indemnity for loss or diminution of anticipated tax benefits or loss or damage to lessor’s residual interest, may be liquidated in the lease agreement but only at an amount or by a formula that is reasonable in light of the then anticipated harm caused by the default or other act or omission.
      2. Prof. points out reasonableness requirement. The factors for which reasonableness does attach will vary. 
   4. ePlus Group, Inc. v. Panoramic Communications LLC
      1. (Liquid damages written into contract; court struck them as unreasonable)
         1. ePlus failed to show in this motion that the liquidated damages clause is reasonable under Section 2A-504.
            1. D’s have raised an issue of material fact as to whether the clause is a penalty which would place P in a far better position than it would have been had the K been performed.
            2. D’s, then, may be able to show that P knew in practice that the liquidated damages formula would operate to provide P with a windfall
         2. Regardless of the flexibility and freedom to contract referred to in the Comment to 2a-504, the official comment and actual text of the section require any such clause to be REASONABLE.
         3. Freedom to contract is still restrained by the rule of REASONABLENESS: the enforceability of the lqd damages clause is based on the context of each case by applying a standard of reasonableness in light of the harm anticipated when the formula was agreed to.        
            1. Reasonableness is not explained under the Official Comment to the section 2a504, but commentators suggest that the theory of remedy under 2a is to place the lessor roughly in the same position the lessor would have been in had the first lease deal gone through.
   5. Note: Limitations of Remedies
      1. The most common agreed remedy in sales of goods contracts are those that make the seller liable for repair or replacement but NOT damages. 
         1. Unlike disclaimers under § 2-316, the terms need not be conspicuous not have any particular magic language.
         2. HOWEVER, under § 2-719(1)(b), they must be “exclusive”.
            1. Example: “buyer’s only remedy is repair or replacement”
            2. Buyer can challenge under  § 2-719(2)
      2. § 2-719(3) has a specific rules on limiting consequential damages.
      3. Other agreed remedies: forum selection clauses, arbitration clauses, etc.
      4. Buyer can challenge with unconscionability, etc.