Expectancy and Rightful Position

1. Expectancy and Rightful Position • In breach of contract cases courts prefer to award damages that implement the notion of “expectancy” – i.e., damages that put P in the position she would have been in if the contract had been performed

2. Chatlos and Excessive (?) Expectancies • What measure of damages gives the Chatlos P its expectancy? • Why does the court use this measure to implement P’s expectancy instead of the difference between the value of the thing delivered and the bargained-for contract price?

3. Has Chatlos P recovered too much – can there be an excessive expectancy? • Wouldn’t P have had to pay $208K to get the computer D promised regardless of D’s misrepresentations? Why shouldn’t P recover the difference between the value of the computer delivered ($6K) and the contract price ($46K)? • Should P’s be limited to reasonable expectancies or are there reasons to award expectancy even when it’s huge? • What could D have done to lower P’s damage award in this case?

4. Bolles and Expectancy Damages • Like Chatlos, P wants difference between the value of the stock as described ($10/share X 4,000 shares) and value as delivered ($0) = $40,000 • P gets the difference between his actual expenditure for the stock ($1.50/share x 4,000 shares) and value as delivered ($0) = $6,000 • Why doesn’t court give P the expected benefit of his bargain? • Does it make sense to treat the Bolles & Chatlos P’s differently? When would you ever sue in tort as a result?

5. Changes to the Common Law Rule Against Expectancy Awards in Tort Cases: • Some states allow P to elect between reliance & expectancy losses in all fraud cases (e.g. Texas) • Restatement 2d Torts § 549(2): Allows recovery of damages equivalent to benefit of the bargain in cases involving fraud in business transactions if damages proved w/ reasonable certainty. • Majority of states apparently allow such recoveries • UCC §2-721: All remedies for “non-fraudulent breach” are also available for material misrepresentation or fraud cases involving the sale of goods. • Federal courts still tend to take approach similar to Bolles

6. Consequential Damages – Buck v. Morrow • Two years into 5-year lease of pasture to Buck, Morrow (lessor) breached. • What is the measure of Buck’s contract damages? • What are Buck’s other damages? • Terminology: • General Damages: Refers to the value of what plaintiff lost from the original impact of defendant’s acts. • Consequential Damages: Refers to those damages that can (but do not have to) occur as a consequence of the initial loss.

7. Standards for Consequential Damages – Common Law • Tort: Plaintiff can recover only those damages for which she can show D’s actions are the proximate cause. • Contract: Plaintiff can only recover those losses which are reasonably within the contemplation of the parties as a probable result of the breach. • What facts support Buck’s award of consequentials under this standard?

8. When does the distinction between general and consequential damages still matter? • Historic hostility to consequentials - thought to be more speculative and more avoidable than general damages. • But it’s unclear that market value measures are really easier to prove/value than consequential damages. • Furthermore, the standards plaintiffs must meet in order to obtain consequential damages take care of some of the above concerns • Why, then, is there any reason to distinguish between consequential and general damages – especially if they are necessary to put P in rightful position? • Special pleading requirements in FRCP and state analogs • Bargained-for remedies/limitations clauses/damage disclaimers

9. Consequential Damages Under the UCC • UCC 1-305(a) expresses an ambivalence to consequential (or incidental) damages similar to the common law. UCC 1-305(a) allows recovery only if such damages are specifically provided for by UCC or other rule of law • BUT every section we discussed last week provides for such damages • Buyer’s Remedies – UCC 2-715 • Buyer gets incidentals under 2-715(1) andconsequentialsunder 2-715(2) • What is the difference between the two and why are they treated differently? • Seller’s Remedies – UCC 2-710 • Seller get’s incidental damages but not consequentials– why?

10. Meinrath – Consequential Damages Stemming from Failure to Pay Money • P & D entered “Purchase and Sale Agreement.” D breached agreement by failing to pay certain “bonus compensation” • P seeks $300,000 in bonus compensation (general damages) • P seeks $770,000 in losses of invested capital and decline in the net worth of the businesses as a result of failure to pay the bonus compensation (consequential damages) • What does the court award instead of consequential damages?

11. Meinrath, cont’d • Why do courts refuse to give consequentials for failure to pay money? • Are such damages really more remote and speculative? Were they here? • Erosion of the Meinrath rule: • Contracts to loan money • Insurers – bad faith refusal to settle • Majority rule in both instances is that P’s can get consequential damages from initial breach (even though they involve a failure to pay money)