KII April 18, 2008

Buyer’s RemediesSeller’s Remedies: 1st step- determine whether buyer has accepted the goods.

a) If so, then damages ltd to acceptance damages of 2-714b) 2-606 tells under what circumstances a buyer has accepted.

a. Buyer does something inconsistent w/seller’s ownership (e.g. selling goods, changing good) Buyer may, instead of accepting, reject of revoke acceptance

1) improper tender or nonconforming goods are the situation2) under what circumstances:

a. perfect tender rule- (2-601)b. exceptions:

i. installment Ks: this is an exception in the interest of fairness. 1. Can reject if an actual installment’s nonconformity substantially impairs THAT

installment, then can reject THAT installment OR2. If one installment substantially impairs the value of the entire K, then can cancel

the entire K. ii. time not expired

iii. good faith. – may limit buyer’s ability to reject. 3) Even if buyer has reasonable grounds for rejection, then the buyer must provide notice within a

reasonable period of time. 4) Even after buyer’s opp to reject has passed, can still cancel K by revocation.

Rejection- perfect tender rule & exceptionsRevocation- (2-608) much higher standard than rejection.

-must be substantially impaired.In revocation or rejections, you may only get 1) Cover damages or 2) Market damages- 2-713

If market price is greater than cover price, then the general measure of damages is the cover price. Market damages- market price-K price. Shipment Ks- relevant location for mkt price is where the delivery to carrier was madeDestination ks- relevant location for mkt price is where buyer hands goods over to seller.

Mkt price—value of goods in appropriate mkt @ time that buyer learns of breach.Seller’s remedies: 2-703- general. 2-708 If buyer has not accepted, seller may be entitled to resale damages, lost profits, and incidental damagesSeller is entitled to recover diff b/t resale price and K price.

2-706- only kicks in if buyer has not accepted. Seller must

1) ID goods being sold as the same one under the K that is being breached.2)

1st—analyze did buyer accept, reject or revoke?

Resell, market, and lost profits apply when:1) Buyer has not accepted! 2) Must id the good, give notice of resale, and resale in good faith.

Market damages- K price –market value.

What if seller has covered but the mkt price is greater? -then the measure of damages less clear than with buyer (with buyer, ct will award cover in this situation)

Lost profits- can be awarded to seller if mkt measure of damages inadequate to put seller into as good of a situation

DON’T NEED TO KNOW THIS- LV- buyer breaches, seller makes resale of same item. Seller can get lost profits if can prove capacity to make both sales and would have both been profitable- if seller can prove the capacity to make both sales,

JOBBER- middle manSeller gives goods to jobber. Jobber in process of selling to other party. B4 jobber acquires goods, 3rd party has breached. Cts may award lost profits in this situation.

Liquidated damages clause- K clause where in parties are trying to set amount of damages in event that some type of event giving rise to damages occurs- will be enforceable if;

1) Amt of damage ID must roughly approx the amt of damages likely to be recoverable in event of breach.

a. Cannot turn this into punitive damages- K law is not intended to punish parties. 2) Damages must be uncertain @ time K is made.

a. If they are certain there really is no necessity for this clause.b. Encourages parties to negotiate b4 a breach occurs to make any action more efficient.

Specific perf- unique goods??

Pg. 938-945 Seller may commit a BOK in two general ways.1. Seller may deliver goods that fail to “conform” to the K in some way (breach of an express or implied warranty relating to the “quality” of the goods, most likely.2. seller may fail to make a proper tender of the goods, such as failing to deliver on time, delivering too few or too may, or failing to deliver at all.

Buyer does not have the GOODS b/c the seller fails to deliver or the buyer rightfully rejects (2-601,2-602) or REVOKES acceptance (2-608), buyer may recover any part of the price that has been paid under 2-711 and also obtain cover damages under 2-712 or market damage under 2-713. The buyer may pursue specific performance to compel delivery of the goods under 2-716. When buyer has accepted and retained goods despite a nonconformity, buyer’s damages are determined under 2-714. Buyer may be able to recover consequential and incidental damages under 2-715.

E. Buyers and Sellers Remedies Under the UCC This section deals with buyers and sellers remedies for breach of K under UCC This discussion based on unamended UCC

Class Notes – UCC stress reasonableness and giving other party notice 1) First, you must have a breach 2) Once breach, then determine damages

o 2-711 – Intro to Buyer’s Remedies Distinguish between – Cancel vs. Rescission –

Cancel – analogous to TB (put parties in place if full performance delivered)o 1) seller fails to deliver the goods, or o 2) the seller repudiates, or o 3) buyer rejects the goods, OR

1- non-conforming goods…breach of express or implied warranty, OR 2-tender of the goods if they are timely or of the wrong amount or at the wrong

place)o 4) Revocation of acceptance – taking back your acceptance

Rescission – put parties in position before K Under 2-711, you can cancel for any of those four reasons (if you rightfully cancel, you still get expect. Dam) Acceptance vs. Rejection vs. Revocation

Acceptance – o 2-606 – Acceptance of goods when buyer

(a) after reasonable opportunity to inspect the goods, tells seller that goods are conforming OR that he will take them anyways

(b) fails to make effective rejection, but acceptance doesn’t occur until buyer has reasonable opportunity to inspect

(c) does any act inconsistent with seller’ ownership, such wrongful act against seller is acceptance ONLY if ratified by seller

Ex – buyer sells those goods, treats them like he owns them, establishes dominion and control

o Once buyer receives the goods, buyer has reasonable opportunity to inspect Depends on nature and quality of the goods

o If buyer accepts the goods, still entitled to damages Non-conforming goods

o 2-714 – Buyer’s damages for breach in regard to accepted goods Measure – difference at time and place of acceptance between the value of the

goods accepted and the value they would have had if they had been as warranted o UNLESS special circumstances show proximate damages of a

different amount Time and place may affect value of goods

o Buyer must give notice that they are keeping the goods, that goods are nonconforming, and that they will be suing

Must be within reasonable time Policy – to make sure seller knows you are unhappy with your goods

Rejection – o UCC 2-601 – Buyer’s rights on improper delivery

If goods or the tender of delivery tail in any respect to conform to the K, buyer may (a) reject the whole; OR (b) accept the whole; OR (c) accept any commercial unit or units and reject the rest Perfect tender rule – If they fail in ANY respect, buyer can reject

One day late, one minute late. thirty seconds late?o Thirty seconds late? UCC has a good faith requirement, so if you

reject for being 30 seconds late then this will probably be in bad faith, UNLESS there is some sort of explicit “time is of the essence” clause

Contrasts with substantial performance under CL Under substantial performance – still obligated to perform Exceptions to perfect tender rule – installment contract (deliver pieces

over time); unless otherwise agreed for contractual limitations of remedy Installment K – 2-612 –

o Buyer can reject any installment, ONLY if the nonconformance substantially impairs that value of THAT installment

o Where nonconformity of any single installment substantially impairs value of the WHOLE contract, there is a breach of the whole

Another exception to perfect tender rule – if nonconforming goods and the seller still has time to perform under the K (but if time has expired, then buyer can reject)

o Even if buyer rightfully rejects, the buyer must still give notice to the seller of rejectiono Once you accept the goods, buyer CANNOT reject the goods, the buyer is liable to the

contract price If acceptance, go to 2-714 to measure damages under acceptance

Revocation – more difficult to revoke than to reject—show substantial impairment PLUS, seller promised to fix the problem. Revocation of acceptance must occur within a reasonable time after the buyer discover or should have discovered the grout for it.

o UCC 2-608 – (1) Buyer may revoke acceptance if the nonconformance substantially impairs the

value to him, IFo Perfect tender rule – reject for ANY reasono Revoke acceptance – higher standard, ONLY for substantial

impairment (a) if acceptance (but buyer knows of non-conformance) on reasonable

assumption that seller will fix (b) latent defect – no discovery of non-conformity if non-conformance is

hard to discover, AND induced by seller’s assuranceso Damages to rejection and revocation are the sameo If goods are delivered, buyer can reject or accept

Use perfect tender rule Buyer has reasonable opportunity to inspect the goods After acceptance has reasonable time to revoke acceptance for the 2 reasons

o If buyer can reject or revoke – choose cover OR market damages Buyer is entitled to cover

Cover – substitute damages (buyer covers his ass) And incidental and consequential damages

Failure to cover may result in NO consequential damages, since buyer has a duty to mitigate damages

Market damages – market price at time when buyer learned of the K Shipment Ks – seller’s responsibility is to give them to the carrier

o Carrier Destination Ks – where seller has responsibility to deliver right to the buyer Shipment or destination K determines the market place

GR – if market damages are higher, still only entitled to cover damages 2-713 – market damages

Rejection/ revocation damagesCover 2-712: (cover price-K price)- after a breach the buyer may “cover” by making in good faith

and without unreasonable delay any reasonable purchase of or K to purchase goods in substitution for those due from the seller, buyer’s failure to cover will preclude recovery of consequential damages only if she fails to act reasonable.

Market daagmes 2-713: damages measured at time of breach. Cover can be different than market

If you see a buyer attempting to cover, looks like MITIGATION. Look at consequential and incidental. If you failed to mitigate/cover, may not be able to cover incidental and consequential damages.

1. Buyers Remedies: Seller may commit breach of K in 2 ways

o 1) Seller may deliver goods that do not conform to the K in some way (breach of express or implied warranty relating to the quality of the goods)

o 2) Seller may fail to make a proper “tender” of the goods, such as failing to deliver on time, delivering too few or too many, or failing to deliver at all

When buyer does not have the goods because the seller fails to deliver OR buyer rightfully rejects OR revokes acceptance….then the buyer may recover any part of the price that has been paid under 2-711 and also obtain cover damages under 2-712 or market damages under 2-713.

Alternatively, buyer may pursue specific performance to compel delivery of goods under 2-716o When buyer has accepted and retained the goods despite nonconformity, the buyers damages are determined under

2-714 Buyer may also be able to recover consequential and incidental damages in addition

a. Cover, UCC 2-712 Traditional rule for measuring seller’s breach – the difference between the contract price and the market price

o Sometimes market measure arbitrarily applied, Sometimes overcompensate the buyer who purchased substitute goods at a price lower than the relevant

market price Sometimes under compensate buyer when buyer bought substitute goods at a price greater than market value

o Cover measure of damages – If buyer complies with the requirements of 2-712, they may recover the difference between the cover price and the K price, plus incidental and consequential damages (2-715)

Recover under 2-712 Covering purchase must be made in good faith and without unreasonable delay Comment 2 – buyer need not purchase identical goods, only commercially reasonable substitutes If buyer purchases superior or significantly different goods, the purchase will not qualify as cover Some courts – expand scope of cover to include situations where buyer internally manufactures

substitute goods rather than purchase on market 2-712(3) – cover is elective and failure to cover does not bar buyer from any other remedy

Read in light of duty to mitigate damages (2-715(a))which allows a buyer to recover consequential damages that meet the foreseeability test of Hadley.

Buyer may recover consequential damages as long as they meet foreseeability test in Hadley; and as long as damages could not be reasonably prevented by cover or otherwise

o Buyer’s failure to cover will preclude recovery of consequential damages only if they fail to act reasonably

b. Market Damages, UCC 2-2713 Instead of purchasing substitute goods to cover, the buyer may instead recover damages under 2-713 Basic measure of damages – difference between market price (MP) at the time when the buyer learned of the breach and

the K price 2-713(2) – relevant MP is place for tender and the place of tender depends on where the seller complete its deliver

obligations with respect to the goods Shipment Ks – seller tenders by placing goods in hands of carrier Destination Ks – goods are deliverd to a specific point or place; often the buyer’splace of business or locale (2-503) Usually in a commercial K – terms will define seller’s delivery obligations and ID the relevant MP for measuring damages

o Hypo – buyer covers, but MP at time and place of delivery is more than cover price Can buyer forgo damages under the cover section and recover greater damages under market damage

section? Code is unclear Comment 3 of 2-712 – buyer is always free to choose between cover and damages for non-delivery

under the nex section Comment 5 of 2-713 – Market value rule applies only when and to the extent that the buyer has not

covered UCC 1-106 – purpose of remedies under UCC is to place aggrieved party in as good a position as if the

other party had fully performed Most scholars – buyer should be limited to damages measured under the cover section

o Hypo – Sller commits anticipatory repudiation and the buyer fails or elects not to cover When should the MP be determined:?

Difficult for courts; uncertain about meaning of phrase “learned of breach” in 2-713….3 interpretations

1) Date when the buyer learns of repudiationo Plain meaning rule supports this

2) Date when buyer learns of repudiation plus a commercially reasonable time thereaftero UCC 2-610(a) – buyers right to await performance by a repudiating party for a commercially

reasonable time thereafter supports this 3) Date when actual performance by seller is due under the K

o Legislative history and comparison with approaches in other code provisions support thisRule applies only when and to the extent that the buyer has not covered. 1-305 purpose of remedies is to place the aggrieved party…in as good a position as if the other party had fully performed.

c. Damages for Accepted Goods, UCC 2-714 Even if nonconforming goods have been accepted, buyer may still recover damages under 2-714(1) Buyer may recover damages that result in the ordinary course of events from the seller’s breach If damages are caused by a breach of warranty, UCC 2-714(2) provides that the measure of damages is the difference at the

time and place of acceptance between the value of the goods accepted and the vaule they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amounto Ex – If automobile is delivered with a different and lower priced set of tires than specified the K, the buyer would be

able to recover the difference in the value (based on MP) between the 2 sets of tireso UCC 2-714(3) – authorizes incidental and consequential damageso If buyer retains the goods despite nonconformity in the goods or the seller’s tender, the buyer must give notice to the

seller within treasonable period of time under 2-607(a)(a), in order to prserve right to collect a remedy

d. Specific Performance, UCC 2-716 Principal damages are money damages or equitable relief Most common form of equitable relief is specific performance – judicial decree compelling the breaching party to render

performance required by the K CL principles impose restrictions on award of specific performance, especially the requirement that money damages be

proved inadequate remedy UCC 2-716 – liberalize award of specific performance; specific performance may be given in the buyer’s favor where the

goods are “unique” or in “other proper circumstances”o If goods are readily available on the market, courts likely to deny specific performanceo Where goods or substitute K is not available, courts are more likely to grant specific performance

e. Incidental and Consequential Damages, UCC 2-715 2-715 – After breach by seller, buyer is entitled to recover both incidental and consequential damages under UCC 2-715, in

addition to other more immediate damages 2-715(1) – Incidental damages – out of pocket expenses incurred by buyer to deal with consequences of the seller’s breach 2-715(2) – Consequential damages –

o (a) – any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; AND

o (b) Injury to person or property proximately resulting from any breach or warrantyo Distinction between

economic/commercial loss (lost profits like in subsection a); and Subject to foreseeability test of Hadley (where seller at time had reason to know) Subject to principle of mitigation (would not reasonably be prevented by cover or otherwise) UCC rejects tacit agreement formulation of the foreseeability test

damage to person or property (subsection b) Comment 2 – Damges for injury to person or property are not subject to foreseeability test Comment 4 – damages must be proved by buyer with reasonable certainty but not to mathematical

precision

2. Sellers Remedies – Code modifies CL rules, allows right of resale under 2-706 2-708(2) – allows a seller, under certain circumstances, to recover damages based on lost profit 2-703 – analysis of seller’s remedies, states sellers’ rights in event buyer breaches the K Measuring seller’s damages depends partly on wither buyer has accepted the good based on the definition of acceptance in 2-

606 If not, seller may recover either resale damages, market damages, or lost profit If goods have been accepted, or are n ot reasonably subject to resale, the seller may recover the K price under UCC 2-709

a. Resale Damages, UCC 2-706 2-706 – allows a seller to resell goods after breach by buyer and “recover the difference between the resale price and the K

price” Equivalent to buyer’s right to cover Seller must follw 3 basic steps to recover damages under 2-706

o 1) Seller must ID the goods beings resold as the same ones under the K that was breachedo 2) Seler must give the buyer proper notice of resale

2-706 (3) – Private sales – “seller must give buyer reasonable notification of his intention to resell 2-706(4)(b) – public sales – seller must give buyer reasonable notice of the time and palce of the resale except

in cases of goods which are perishable or otherwise may quickly decline in valueo 3) Seller’s resale must be made in good faith and in a commercially reasonable matter

If seller engages in “sham” resale to a friendly purchaser or an affiliated entity, the court should not allow the seller to recover damages under this section

Fact that in “hindsight”, a better price could have been obtained does NOT make a sale unreasonable

b. Market Damages, UCC 2-708(1) 2-708(1) – Difference in K price minus market value

o Problem – interrelationship between this and 2-706’s resale sectiono Ex – seller has resold goods ID’d by the K. Can seller recover damages under 2-708(1) if that sectinowould produce a

greater recovery than the formula of 2-706? This happens when MP at time and place for tneder is less than resale price Comment 2 to 2-706 – a seller who fails to follow the requirements for resale under that section is left to the

remedy under 2-708(1) Scholars – seller who has resold should not be entitle to recover greater damages under 2-708(1) than under

2-706….this would contravene principle of awarding only compensatory damages as expressed in 1-106

c. Lost Profits, UCC 2-708(2) Alternative to MP, UCC 2-708(2) allows courts to award lost profits to sellers if market measure of damages is inadequate to

put the seller in as good a position as performance would have done 3 situations when this should apply

o 1) Lost volume seller – If buyer breaches and the seller makes a resale of the same item, the seller may collect lost profits if it can prove that it had the capacity to make both sales and that both sales would have been profitable

Ex – dealer sells fungible new cars may argue that it has practically unlimited supply Burden of proving its status as a lost volume seller is on the seller 2-708(2) – requires due credit for payments or proceeds of resale. Troublesome in lost volume seller cases

If total proceeds of seller’s resale are deducted, the profit recovery under 2-708(2) would be negated because the resale price also includes seller’s profit

Courts avoid this problem by interpreting the “due credit” language to apply only when seller sells uncompleted or otherwise unmarketable goods for scrap

o 2) Seller who is in process of assembling a product for sale when buyer breaches Seller could complete the manufacture of the product and attempt to resell it on open market, it might not be

commercially reasonable to do this (if goods are specialty items without established market) Awarding lost profits based on K price minus cost of production may be only way to compensate seller

o 3) “Jobber” – a middle person who purchases goods for resale (2-708(2)) If buyer from a jobber breaches before the jobber has acquired the goods, courts may award lost profits as the

best measure of the seller’s harmo Section 2-708(2) – applies if the market value measure of damages is inadequate

Can seller elect to recover market value damages under 2-708(1), if measure of recovery under that section exceeds his lost profit in the transaction?

Same arguments as in buyer’s section Courts are divided Language and legislative history of the Code favor allowing the election by the non-breaching party Principle of compensation supports opposite view

d. Sellers Action for the Price, UCC 2-709 2-709 – Seller may recover price of goods from buyer as damages in 3 situations

o 1) buyer has accepted goods, then seller may recover price under 2-709(1)(a)o 2) Seller may recover price if goods are damages after the risk of loss has passed to buyer

In both 1 and 2, buyer has effectively received the goods and thus should pay the K priceo 3) Seller may recover price under 2-709(1)(b) and essentially force the goods onto the buyer, if seller is unable to resell

the goods with reasonable efforto 2-709(1)(b) and comments DO NOT use phrase “specific performance”, it appears that the section is the analogue of 2-

716, which makes specific performance available to the buyer

e. Sellers Incidental and Consequential Damages, UCC 2-710 All sections above allow seller to recover incidental damages under 2-710

o Incidental damages – includes various out of pocket expenses incurred by seller to deal with the buyer’s breach (cost of storage, or transportation of goods)

o 2-710 – does not contain any references to consequential damages Probably becauses drafters persuaded that sellers very rarely incur consequential damages that wouldn’t

already be covered by above provisions Scholars – even though consequential damages left out, courts should still allow sellers to recover when

appropriate Revised code expressly allows consequential damages

Pg. 965-974, 983-988, 993-985

Alternatives to Expectation Damages: Reliance and Restitutionary Damages, Specific Performance, and Agreed Remedies Here, we analyze several alternatives to expectation damages – reliance and Restitutionary damages, specific performance, and

agreed remedies Also, we examine situations when liability is based not on breach of K, but on promissory estoppel or restitution

A. Reliance Damages – Modern K law recognizes three interests as basis for awarding damages –

o 1) Expectation; 2) Reliance; and 3) Restitution

F – Wartzman v. Hightower Productions

Law firm appealed from a judgment of the Superior Court of Baltimore City, Robert L. Karwacki, J., awarding damages to corporation in its breach of contract and negligence action brought against law firm for its alleged failure to have created a corporation authorized to raise the capital necessary to fund the venture for which the corporation was created. The Court of Special Appeals, James S. Getty, Special Judge, held that: (1) reliance damages were proper where law firm knew, or should have known, that success of the venture rested upon the ability of corporation to sell stock and secure advertising, and when corporation could no longer sell its stock due to law firm's failure to properly incorporate, the entire project failed; (2) the instruction given fairly apprised the jury of plaintiffs' burden and adequately covered the reliance damages concept; (3) the trial court properly declined to instruct the jury on the issue of mitigation of damages; and (4) refusal to permit the jury to consider prejudgment interest was not an abuse of discretion

Ordinarily, profits lost due to breach of contract are recoverable; where anticipated profits are too speculative to be determined, however, money spent in part performance, in preparation for or in reliance on the contract are recoverable

Where a breach of contract has prevented an anticipated gain and made proof of loss difficult to ascertain, injured party has a right to damages based upon his reliance interest, including expenditures made in preparation for performance, or in performance, less any loss that party in breach can prove with reasonable certainty injured party would have suffered had the contract been performed

Party who is in default on a contract may not mitigate his damages by showing that other party could have reduced those damages by expending large amounts of money or incurring substantial obligations; since such risks arose because of the breach, they are to be borne by defaulting party

Doctrine of Avoidable Consequences:

Go to expectation damages, then reliance.

Where a claim is for unliquidated damages, interest may run from date of the judgment, but not beforeReliance damages awarded to corporation in its breach of contract and negligence action against its former counsel were not subject to prejudgment valuation since such damages were not reasonably ascertainable until jury rendered its verdict, and thus refusal to permit jury to consider prejudgment interest was not an abuse of discretion Procedure –

o Facts –

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Notes – 1. Reliance damages as a substitute remedy – Even if expectation damages would be in theory recoverable, they may not be proveable with reasonable certainty P’s fall-back position – seek recovery of reliance damages Ex – contractor recovers what he spent in part-performance where lost profits were too speculative to prove Ex – Promoter allowed to recover out-of-pocket expenses despite inability to prove lost profits for new venture2. Contract price as limit on reliance damages – Original RSK – reliance damages (as alternative to expectation damages) not recoverable in excess of full K price promised by D Scholars – difference between costs of performance of the K (essential reliance) and costs incurred in collateral transactions

related to the K (incidental reliance)o K price should limit the recovery only of essential reliance damageso If essential reliance exceeds the K price, K would be a losing oneo Award of essential reliance damages in excess of the K price would put the injured party in a better position than if the

K had been fully perfrmedo K price, however, should not limit the recovery of incidental damageso Maine Rubber International – P paid D $1900 to inspect property. D lied, said ok for P to move in. P began moving in,

gov. stopped him after P had spent over $200k. P allowed to recover since these damages were reasonably foreseeable reliance damages even though their total greatly exceeded the K price

3. Limiations on recovery of reliance damage s- RSK – doctrines that normally apply to limit recovery or expectation damages (foreseeability, causation, certainty, and

mitigation) should also apply to recovery of reliance damages Principle damage-limiting factor – mitigation of damages by P Equal opportunity exception – will not reduce P’s recovery of damages when both P and D had opportunity to perform some act

that would mitigate the damages, and neither party did soo Applied by some courts, not all

4. Losing Contracts – RSK 349 – recovery should be offset by any loss that the party in breach can prove with reasonable certainty the injured party

would have suffered had the K been performedo D has the burden of showing that the K would have been a “losing” K for the P

5. Precontract reliance – Courts may not allow party to recover for reliance costs incurred before the K was made6. Forgone opportunities as reliance damages – Usually, reliance damages are thought of as out of pocket expenses made by P Sometimes – protection of the injury to the Ps reliance extends further; taking into accound the gains the P would have made

had she not relied on the promises of the D

Class Notes –

Pg. 983-988

B. Resitutionary Damages – RSK 349 – If a party cannot prove expectation damages with reasonable certainty, may still recover damges measure by his

reliance interest RSK 373 – Also allows non-breaching party to elect recovery of restitutionary value rather than expectation damages for breach

of K RSK 374 – Even a breaching party may in some cases be ntitled to restitution by virtue of the benfit conferred on the other party

by part performance RSK 375 – If performance obligations imposed by the K have been “discharged” for some reason (like incapacity or

impracticability), either or both of the parties may be entitled to some restitutionary relief

RSK 376 – Restitution when K is voidable because of lack of capacity, mistake, misrepresentation, duress, undue influence, or breach of fiduciary duty

RSK 377 – Restitution when K is discharged due to impracticability, frustration of purpose, or failure of condition

F – United States ex rel Coastal Steel Erectors v. Algernon Blair Inc Procedure –

o Facts –

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Notes – 1. Actions under the Miller Act – Ps claim based on Miller Act, which provides that in any K for constructrion, alteration, or repair of any buiding or public work fo

the US in an amount of over 100k, the contractor is required to furnish both “performance” and “payment” of bonds issued by satisfactory sureties (usually insurance companies)

Performance bond – protects the gov. against the contractor’s improper performanceo If contractor breaches, gov. may demand that the surety complete or pay for performance of the K

Payment bond – protects subcontractors who supply labor or materials to the project against nonpayment by the contraqctoro If subcontractor not paid, he may bring suit against the contractor and surety under the payment bondo This suit is styled on behalf other the US for the use of the subcontractor

Federal law governs claims brought under the Miller Act; both federal and state law recognize right of injured party to elect to recover restitionary rather than expectation damages

2. Market value restitution – Market Value Restitution – when a P elects restitution as a remedy for breach of K by the D, the measure of recovery is the

reasonable value of performance and recovery is undiminished by any loss which would have been incurred by compete performance

o If P elects to recind the K and recover in restitution, the K no longer legally exists; any loss that would have resulted from performance of the K should not act as a limitation on the amount of recovery

Critics – labels should not control resultso Even though action is classified Restitutionary, it amounts to a claim fore damages for creach of K. Thus, the normal

rules of K damages should apply, including the rule that a court should not place the injured party in a better position than the party would have ben in had performance been completed.

o Rule of market value ignores risk allocation function of modern commercial Ks3. Cases adopting rule of market value restitution – Majority – follows market value rule4. Effect of K price in measuring restitution – Courts may used the K price as evidence of the market value of the K This may erode at the underlying purpose of the market value measure5. Full performance exception to market value restitution - The right of a nonbreaching party to elect restitution is subject to an important exception

o RSK 373(2) – If nonbreaching party has fully performed his obligations under the K and the breaching party’s only remaining duty of performance is the payment of a liquidated or specified sum of money, the nonbreaching party may not elect a restitutionary recovery but is limited to expectation damages

o RSK 373 Comment B – Policy – exception protects the nonbreachign party’s expectation interest while eliminating the judicial burden of determining the market value of the performance

Class Notes –

Pg. 993-995

Notes from Lancellotti v. Thomas

1. Origin of breaching party’s right to restitution – RSK 374 – general right to restitution in favor of a party in default2. Case law – Cites several modern cases allowing a breaching party to recover in restitution UCC 2-718 – provides a right of restitution on behalf of a defaulting purchaser of goods3. Effect of willful breach – Original RSK – defaulting party could not recover restitution if the breach was willful and deliberate RSK 374 – does not mention willfulness

o Comment B – intentional variation from terms of the K (as distinguished from intentional nonperformance) will preclude restition

o A party who intentionally furnishes services or builds a building that is materially different from what he promised is properly regarded as have acted officiously and not in part performance of his promise and will be denied recovery on that ground, even if his performance was of some benefit to the other party

4. Measure of Restitution – The measure of Restitutionary interest will be limited when that party has committed a material breach

o RSK 374 Comment b – recovery limited to the lesser of either A) the value of the benefits conferred; OR B) The Ds increase in wealth In addition, to prevent the breaching party from recoverying more than his expectation interest, RSK also

provides that in no case will the breaching party be allowed to recover more than a ratable portion of the total K price where such a protion can be determined

RSK 374(1) – To protect nonbreaching party’s expectation interest – any damages suffered by that party must be deducted from the amount of restitutionary award