 Remedies

o Remedies at Law (Monetary Remedies)

 Expectation Interest – putting π in as good a position as he would have been had the
contract been performed
 What was promised minus what was delivered; goal = make π whole!
 Try to give π the “benefit of the bargain”
 (Lost Value + Incidental Loss + Consequential Loss) – (Cost Avoided)
 Alternative Calculation of Damages
o Contracts for Services (Usually involve construction)
 Cost of Performance – injured party is entitled to cost of completing performance
 Default Rule!
 Diminution of Value – injured party is entitled to decrease in market price of the
property caused by the breach; used if Cost of Performance is disproportionate to loss
(C.O.P is economic waste)
 **Stone’s Analysis
 Avoid economic waste – scarce resources
 Could have avoided by properly contracting beforehand
o Contracts for Goods
 Seller Remedies
 Buyer’s Non-Acceptance/Repudiation
o Damages = [(market price at time/place of tender) + (unpaid K price) +
(incidental damages)] – (expenses saved), OR
o Damages = (lost profit) + (incidental damages)
 Buyer’s Failure to Pay
o Damages = price of accepted goods or lost/damaged goods (if risk of loss has
passed to buyer)  buyer keeps goods
o Damages = price of any goods seller cannot resell after reasonable effort or likely
won’t be able to resell  buyer returns goods to seller
 Resale of Goods
o If seller retains goods, can resell then sue buyer for Damages = (price difference)
+ (incidental damages) – (expenses saved)
o Just because seller enters similar or identical K, doesn’t mean he’s precluded from
recovering full K price from buyer  may be Lost Volume Seller
 Three Part Test
 Capable of producing both?
 Not past point of diminishing returns?
 Both sales likely?
 If “yes” to all three questions, Lost Volume Seller, so still able to recover full
K price from buyer

1
  Incidental Damages = charges, expenses, or commission from caring for goods
after the breach  NOT quantity discount
 Consequential Damages = any foreseeable losses resulting from breach
 Buyer Remedies
 Seller’s Non-Delivery/Repudiation
o Damages = [(market price at time of breach) – (contract price)] + [(incidental
damages) + (consequential damages)] – (expenses saved by breach)
 Seller’s Breach of Warranty
o Warranty = a promise or guarantee by the seller that goods will have certain
qualities
o Types of Warranties
 Express – explicit promise by seller + reliance by buyer
 “puffing” is not sufficient to establish a warranty
 Must be part of the basis of the bargain
 Implied – promise through circumstances (no reliance required)
 Warranty that goods will be suitable for intended purpose
 Implied by seller with respect to goods of that kind
o Damages = (value of goods as warranted) – (value of goods as delivered)
 Cover
o Buyer can obtain cover of goods due from seller in good faith and without
reasonable delay
o Damages = [(cost of cover) – (contract price)] + [(incidental damages) +
(consequential damages)] – (expenses saved by breach)
 Efficient Breach – intentional breach of contract and payment of damages by a party who
would incur greater economic loss by performing under the contract
o If the breach of K and consequent reallocation of resources is socially desirable (enlarges the
pie), the breach is said to be efficient and is encouraged. By awarding expectation damages
to the injured party, the breaching party will have an incentive to breach only if he gains
enough from the breach that he can compensate the injured party and still profit
o This proposes to maximize social welfare by theory of pareto superior (all are better off)
and there is more money and transactions to go around (assumes all thing being equal i.e.
low/no transactions costs
 Limitations on Damages
o Mitigation of Damages – the injured party cannot hold the breaching party liable for damages
that could have reasonably been avoided; the injured party has a duty to mitigate damages
o Gains made on Other Transactions – Gains (profits) made by π after breach by Δ are to be
deducted from damages awarded to π if and only if those gains would not have been possible
but for Δ’s breach. Two contracts are separate and independent, then there is new risk for 2nd
K, so don’t subtract hose profits from π’s damages
o Foreseeability – Damages are limited to those that are naturally occurring as a result of the
breach and can be reasonably foreseen by both parties at the time of contract; a party is not

2
 liable for damages, whether for partial or for total breach, that the party did not at the time of
K have reason to foresee as a probable result of breach
 Types of Damages/Level of Necessary Foreseeability
 General damages = naturally foreseeable (i.e. contract price, cost of transportation,
etc.); includes direct damages, but also easily foreseeable consequential damages
 Special Damages = known and accepted by both parties, where Δ should have known
or has reason to know of the special damages that may occur
o Importance of information costs
o Specific K terms can make circumstances “foreseeable”
o Tacit Agreement – to recover, Δ must prove more than knowledge/foreseeability,
but Δ must have also tacitly agreed to assume the responsibility of the special
damages
 Five parts of foreseeability
1. Must be determined as of the time of the making of the K and is unaffected by
events subsequent to that time  NOT what was foreseeable at the time of breach,
but what was foreseeable at the time of K!
2. Only must be foreseeable that the loss would result if breach occurred (what does
this mean??)
3. Only must be foreseeable by party in breach (not by other party)
4. Objective  when one makes a K, one takes the risk not only of those consequences
that one actually did foresee, but also of those that one ought reasonably to have
foreseen
5. The loss need only have been foreseeable as a probable, as opposed to necessary
or certain, result of the breach
 Reliance Interest – reimburses π for loss caused by reliance on the contract by being put in
as god a position as he would have been in had the contract not been made
 Π can choose reliance instead of expectancy; will usually choose reliance if lost profits
calculation is too speculative
 Can’t get expectancy (lost profits) AND reliance (expenses) because expectancy already includes
expenses (profits = sales – expenses)
 Loss must be foreseeable
 Damages = (expenditures) – (loss suffered had K been performed)
 Prior Expenses – π may claim expense incurred prior to K, provided that it was such as would
reasonably be in contemplation (at the moment of entering the K) of the parties as likely to be
wasted if the K was broken
 Reliance and Extra Pain – in a situation such as surgery, π may be able to claim “reliance” on no
extra pain following the operation
 Reliance and Lost Profits – a company may “rely” on future profits
 Restitution Interest – restores to π any benefit conferred upon Δ in anticipation of the K;
prevents “unjust enrichment”
 Returns parties to status quo, so that each party can go contract with others
 Π usually chooses restitution if the value of full performance (expectation interest) is a net loss
3
  Awarded if:
o Material breach of an enforceable K
o Π has conferred a benefit on Δ
o Δ has already received the benefit and can’t give it back
 Difference between Reliance and Restitution
o Reliance, like expectation is conceived of as a remedy based on affirmation of the K; it is an
enforcement of the K
o Restitution is premised on the theory of disaffirmance; it treats the breach as having caused
the K to fall away
 Special Damages
 Punitive damages – Damages may be awarded to punish Δ for breaching contract
o Not allowed unless there is also evidence of a tort in addition to contract breach (R. § 355)
o To determine amount of punitive damages, consider:
 Δ’s wealth
 Δ’s culpability and blameworthiness (are there mitigating circumstances?)
 Vulnerability and injury to π
 Offensiveness of conduct compared to societal values of justice and propriety
 Emotional Disturbance – usually damages aren’t allowed for emotional disturbance
unless caused bodily harm or emotional disturbance was a particularly likely result of breach;
commercial contracts are not peace of mind contracts
o Remedies at Equity – granted when the uniqueness of the K is such that the information
costs for ascertaining the market value of the K are too high and the value of the K is too speculative
 Requirements for awarding remedy in equity
 Money damages would be inadequate to protect the injured party
 K terms are definite enough to allow court to frame and order
 Court’s task of supervision is not unduly equitable
 Types of remedies at equity
 Specific performance of K terms
 Injunction
 Mandamus
 Why do we prefer remedy at law (money) to specific performance?
 It is easier, common denominator, etc.
 If we start granting specific performance more and more, where do we stop?  slippery slope;
may nullify the concept of efficient breach; should only use it when it mitigates the damages
 SP forces people who hate each other to work together = incentive for disharmony
 SP does not encourage mitigation
 SP has massive transaction cost to enforce
 Specific Performance
 Generally not for Long term K b/c requires cooperation of parties  high transaction costs
 When do we grant specific performance?
4
 o When item is unique, or specific manufacture of goods (land almost always)
o Item contracted for is of personal nature
o Substitute is hard to find
 Employment K – generally courts will not award SP in employment K, but may grant injunction
o Stipulated Damages
 Two Part Test
1. Assessment must be reasonable ex ante – not grossly disproportionate to the likely damages from
the breach
2. Estimation must be difficult and uncertain at the moment of entering into the K
 Liquidated damages
 Agreed-to damages found in the K as a way to limit damages between parties
o Avoids court in case of breach
o Good for avoiding foreseeable issues that would come up for breach
o Plan to avoid damages or put limits on them (Coasean K)
 Penalty Clauses – clauses included in a K that will reward the breached upon part more than
they would have earned by full performance in the event of a breach
o Shotgun clauses
 Courts will not enforce clauses covering both major and minor breaches
 These types of clause awarded a single damages amount regardless of severity of breach
o Arguments in Favor of Penalty Clauses
 Preserves freedom of parties to enter into voluntary K – low risk of provoking breach
 Parties already assessed the risk that was involved (parties are in a better position to
assess the risk than are the courts)  let them take the chance
 Maintains credibility of parties
 Make you more likely to contract with them
 Provides insurance of good faith and compensation for high risk of fault
 Allows promisor to always insist on price sufficient to cover the risks
 Other damages will under-compensate
 Clauses save both time and money
 Creates incentive to produce
 Disincentive to breach cause then you’ll pay
 Penalty Clause or Valid Liquidated Damages Clause?
o Are the damages difficult to predict or assess at the moment of entering the contract? (If easy
to predict, but assign clause anyway, PC)
o Is the liquidated damages a reasonable estimate of the actual damages?
o If both yes  valid and not a penalty clause
 How to draft a liquidated damages clause  Test question!
o Narrow the liquidated damages clause (don’t make it too broad)
o Divide the damages into steps of performance (find price for each step and set liquidated
damages for each)

5
 Enforceable v. Unenforceable Promises
o Reasons for Enforcing Promises
 Enhances utility  creates more voluntary K’s
 Protects private property rights (important for free society)
 Helps allocate risk
 Puts resources to their highest use (Coasean Theory)
o Not all K’s are enforceable by law
 Gratuitous promises (social K’s) are not enforceable
 Statute of Frauds – certain K’s must be in writing to be enforceable by a court
 Legal seal is not required for an enforceable K (UCC 2-203). Seal only provides a rebuttal
presumption of consideration
o Types of Contracts
 Express
 Implied – allows a party to recover where he would not otherwise, most often when there wasn’t
even an attempt at a K, but it can be implied from the actions of the parties and P is entitled to some
recovery
 Possibilities
o Implied in Fact – promise between two parties; contract is implied by looking at the actions
of the parties
o Implied in Law – court may create this legal fiction by looking at the relationship of the
parties
 Quantum meruit – knowledge of party receiving the service is important; if party stands
by and accepts service, then there is an implied K. But the party must know that he is the
beneficiary of the value, not someone else.
 Courts will find an implied K where the parties could have K’d, except for high
transaction costs. If here are low transaction costs and the partied didn’t K, then the court
will generally not find an implied K.
 Market value of the services rendered or products received is the appropriate restitution
damage for implied K
 When to imply a K
o See if there is high information costs in the facts (person needing assistance is unconscious)
o Go to the statistical probability question (most people in society would want a contract)
 Does the doctrine make sense?
o YES
 Not making a party pay offers unjust enrichment; free lunch
 Incentives for doctors to come to the aid of those in need
 High statistical probability that parties would enter into K anyway if information costs
were low
 Professionals expect to be paid
 If not, victim gets windfall
o NO
 Freedom to make and break K is impaired
6
  Parties should set terms, not courts
 D is forced into a contractual agreement
 Slippery slope of forced agreements
 K law should leave business judgment and value judgment to parties
 No meeting of the minds
 Legal fiction
o Consideration – legal detriment to promisor and promise; both parties need to give up something
 A contract is made up of: Offer + Acceptance + Consideration (O+A+C=K)
 Consideration is the cause, motive, price, or compelling influence which induces a contracting party
to enter into a contract
 Bargain Theory of Consideration – Bargain and exchange of promises or performance
(includes promises to forebear what one has a legal right to)
 Used to prevent the enforcement of promises that are in reality promises to make gifts
 We look for:
o New legal detriment, or
o Bargained-for exchange
 Why enforce bargains?
o Moves goods to highest/best use
o Adds to wealth of society by holding parties responsible
 NO CONSIDERATION (No bargain)
o Gifts – lack consideration because party receiving gift did not suffer detriment (includes
family promises  natural love and affection is not a contract)
 Exception  if the gift is conditional upon something which is of benefit to the promisor
(altruistic benefit is not sufficient)
o Moral/Past Consideration – promise is made in return for detriment previously suffered by
the promisee usually does not constitute consideration
 Pre-existing debt – a promise to pay a pre-existing debt holds no consideration because
the loan, etc. was received before the promise was made (includes debt discharged in
bankruptcy)
 If mutual discharge of old promise, new promise may hold consideration
 New Legal Detriment – in order for consideration to exist, each side must suffer “new legal
detriment;” promise must do something he does not have to do or refrain from doing something he
has a right to do
 Does not have to be economic
 Can be either promise or performance
o Bilateral K – Bargain K in which the parties exchange a promise for a promise (A promises
B $100 for B’s TV to be delivered in one week, an B promises to deliver the set in one week
for $100)
 To contain consideration, must have mutuality of obligation (neither party’s promise can
be illusory)

7
 o Unilateral K – K in which the parties exchange a promise for an act (A promises B that A
will pay B $100 to paint A’s fence, but makes it clear that he does not want B’s promise to
paint the fence, only the act of painting the fence will do)
 B not bound – free to paint or not paint, but if B performs, A bound to perform
 Mutuality of obligation does NOT apply to unilateral Ks
 Adequacy of detriment does not matter
 Pre-Existing Duty is not “new legal detriment”
o Some claim this is valid detriment because party has given up “right to breach”
o Agreement to accept part payment in satisfaction of whole
 Usually not accepted because debtor has legal obligation to pay full amount
 Some disagreement
 Only applies to liquidated debts (no dispute over amount/liability), not unliquidated debts
(dispute over amount/liability)  if dispute exists and creditor agrees to take less than he
thinks is due, agreement is enforceable
 Cashing of “paid in full” check constitutes agreement
o Exceptions
 Unforeseen circumstances – if neither party could have anticipated the circumstances that
occur, may allow new agreement
 Promissory estoppel – makes modification binding “to the extent that justice requires
enforcement”
 Mutual discharge of original K
 Additional duties – if party assumes new or different duties, modification is considered
detriment (cannot be a false recital of new duties)
 Mutuality of Consideration – each party must furnish consideration to the other (“Because
you never bound yourself to do anything, I shouldn’t be bound either”)
o AKA “mutuality of obligation”
o Both parties must make promises that somehow bind them
o Illusory Promises – statement that has the form of a promise, but is not a real promise in
substance
 no mutuality of consideration because one party is not bound; they have a “free way out”
 A real promise is a commitment that limits one’s future options; an illusory promise does
not limit one’s future options because they have an option not to perform
 Types
 Party has a right to change their mind (“you promise to sell me whatever I decide to
order”)
 Right to terminate without notice
o Exceptions
 Unilateral K – not applicable; one person makes a promise in exchange for another’s act,
the second person is not bound to act, but if he does, the first party is bound
 Limited Promises – party allowed to terminate on X days notice; bound to perform for at
least X days, so consideration (courts split)

8
  Alternative Promises – promisor may discharge his obligation by performing one of two
or more acts; valid consideration as long as each alternative would be valid consideration
on its own
 Needs and Requirements K – NOT illusory because each party is obligated to perform to
some extent (implied best efforts)
 Implied Promise – courts don’t like to strike down agreements, so they often find that a K
includes an implied promise to execute best efforts
 Adequacy of Consideration – the court will not judge the adequacy of consideration once
consideration has been shown to exist (R. § 79); Consideration is what two parties have agreed
upon; doesn’t have to be fair; parties themselves put value on the exchange; freedom to K
involves risk and responsibility
o BUT Nominal Consideration is considered void. Consideration must involve the exchange of
things of some value. If there is not value exchanged, then there is no consideration.
o Value exchanged must be differential – can’t be equal (e.g., K to give $25 for $25, no
consideration)
 Duress – if a party’s agreement is induced by improper threat by the other party which leave the
victim no reasonable alternative, the K is void because there is no bargained for exchange (R. §
175)
o If π had choices, no duress
o Cannot claim economic duress when financial strain arises from one’s own activities
 Consideration Based on Reliance – if one party incurs a burden in reliance on a promise,
that reliance can constitute consideration  Estoppel Theory
 Four Elements
o Justifiable, reasonable
o Induced
o Detrimental
o Reliance
 Promissory Estoppel – Δ is refused permission to deny existence of contract because he induced
π to change his position in reliance of Δ’s promise
o Prevention of injustice
o Determine if applicable
 Was a change in position on the part of π reasonably foreseeable?
 Did π have a material change in position in reliance on the contract?
 Does justice require granting a remedy?

 Statute of Frauds
o Circumstances requiring K’s be in writing:
 M – A K in consideration of marriage.
 Does not apply to mutual promise to marry, only to promises made in consideration of marriage.
(e.g., A promises to pay B $10,000 if B marries C)
 Y – A K that, by its terms, cannot be performed within one year.
 1 year begins at date contract is formed
9
  Impossibility - must be impossible to perform in 1 year
 If K can be discharged by death then it is outside of the statute (e.g., employment for life can be
oral because it can be performed in a year if the employee dies w/in the year)
 ** But, full performance makes the K enforceable w/o writing.
 L – A K for the sale of an interest in land (real property).
 K that incidentally involves land is excluded.
 Part performance (e.g., A conveys land to B) makes K binding.
 Crops don’t count
 If B acts in reliance and makes permanent improvements on land, then K is enforceable.
 E – A K in which an administrator or executor of estate answers personally
for duty of decedent
 If I die, anything I want my executor to do has to be in writing
 G – Guarantor/Suretyship  A promise to discharge the duty of another
(pay some else’s debts)
 Promisor must be the guarantor of the debt and there must be a principal debtor.
 Debt that promisor is guaranteeing must be a legally enforceable debt.
 Does not apply if promisor benefits from the promise (main purpose rule).
 Does not apply if promisee or creditor is not aware of the suretyship.
 Does not apply if promise is give in exchange for release of 3rd party=s obligation to pay his
own debt (novation).
 S – Sale of goods for $500 or more.
 Exceptions
o Specially manufactured goods
o Admission by party receiving goods
o Goods accepted or paid for
 ** A K that cannot be performed during the lifetime of the promisor.
 Included only in a minority of jurisdictions.
o Some states have additional writing requirements (e.g., must have promise to repay bankruptcy debt in
writing), so check state law.
o Statute of Frauds is common law and was adopted to deal with areas that produced the most
litigation. All states, except LA, have adopted this statute.
o Elements necessary to satisfy the statute of frauds:
 A written K or memorandum containing:
 purpose of K
 terms and conditions of K (must have price unless w/in UCC)
 parties to the K
 consideration
 signature of party being charged
 Does not have to be written for the purpose of creating a K, can be just a memorandum.
 Memo doesn’t have to be sent to ∆.
10
  Can be in lots of pieces if the court can see that the pieces go together.
 UCC requirements:
 Signed by party being charged
 Quantity listed but price omitted, still okay if collateral evidence of price is available
 Unsigned written confirmation of an oral agreement that is sent between merchants if it is
received and the party does not object w/in 10 days.

 Parole Evidence Rule

o Rules about whether or not additional evidence should be allowed to demonstrate the intent of a contract
o Generally, Parole Evidence is not admissible
o Purpose: to give legal effect to whatever intention the parties may have had to make their writing at least
a final and perhaps also a complete expression of their agreement.
 If the parties had such an intention, the agreement is said to be integrated, and the parole evidence
rule bars evidence of prior negotiations for at least some purposes
 If an agreement is integrated, it is considered “partially integrated” or “completely integrated”
according to the degree to which the parties intended the writing to express their agreement
o If they intended the writing to be a final expression of the terms it contains, but not a
complete expression of all the terms agreed upon – some terms remaining unwritten – the
agreement is partially integrated  evidence allowed to supplement, not contradict
o If they intended the writing to be a complete expression of all terms agreed upon, as well as a
final expression of the terms it contains, the agreement is completely integrated  no
additional evidence allowed
 If the parties had no such intention, the agreement is said to be unintegrated and the parole evidence
rule does not apply
o Application: Two questions
 Is the agreement integrated?
 The answer turns on whether parties intended the writing as a final expression of the terms it
contains, even if the writing was not intended as a complete and exclusive statement of all terms
on which the agreement was reached.
 No particular form is required for an integrated agreement
o The writing need not be signed by either party
o If a writing appears in view of its thoroughness and specificity to embody a final agreement
on the terms that it contains, the agreement is conclusively to be taken as an integrated one
with respect to those terms.
o However, evidence of prior negotiations is still admissible to show that the writing was not
intended as a final expression of the terms it contains.
o Thus, the intention of the parties is determined from all circumstances.
 If an agreement is only partially integrated, it must then be determined whether the evidence of
prior negotiations sought to be introduced would be “consistent” with the writing and would
therefore merely supplement it or whether it would contradict a term of the writing.
 In the former case (“supplement”) it would be admissible. In the latter case (“contradict”), it
would not.

11
  Assuming it is integrated, it is completely or only partially integrated?
 The answer depends on whether the parties intended the writing as a complete and exclusive
expression of all terms on which agreement was reached, as distinguished from merely a final
expression of the terms that it contains.
 Williston’s view: It is generally held that the contract must appear on its face to be incomplete
in order to permit parole evidence of additional terms.” Some courts have recognized the futility
of trying to tell whether the writing is completely integrated without looking beyond the writing
and have softened the test by looking at the surrounding circumstances. However, these courts
exclude the most vital circumstance-the evidence of prior negotiations themselves.
 Corbin’s view: According to Corbin, all circumstances should be taken into account including
evidence of prior negotiations since the completeness and exclusivity of the writing cannot be
determined except in light of those circumstances. “The writing cannot prove its own
completeness and accuracy.”
o Collateral agreement may be allowed if it doesn’t contradict the original terms
 Thre parties involved
 Two promises
 Second promise is to perform is first promise is not performed

12
Stone-isms!
1. “Yum, yum give me some”  everyone wants more for himself
2. Disciplined mind
3. Nirvana Fallacy  the expectation that the law will solve all problems instead of the market
4. NOT “fair, reasonable, just”
5. Wealth v. Poverty
6. Mother Market
7. Coasean K
8. Three aspects of K Law  incentives, cost/benefits, economic impact
9. Two focuses of K law  respect for the rule of law, analysis
10. “Black and white of the K terms”
11.“I’ll love you in the morning”
12. World of scare resources
13. Everybody gets a trophy
14. How could parties have contracted beforehand??
15. Private regulation over government regulation
16. “Be precise”
17. 40 mph… maybe
18. 13 states one way, 13 states another way
19. Allocate resources efficiently
20. Speak in terms of foreseeability
21. Legal action is not always the best choice
22. Incentives matter
23. Hypothetical K analysis – what would parties have agreed to?
24. We don’t live in a risk-free society
25. Expanding the economic pie
26. Importance of competitive market (It’s a competitive world)
27. Time is money
28. “Whose K is it anyway?”
29. Life has choices
30. There are costs to being poor
31. An ounce of planning is worth a pound of cure

13