Wednesday, January 20, 2010
1 - Contract Remedies - The Basics
CONTRACT REMEDIES – The Basics
PLEASE NOTE THAT THE FOLLOWING IS TAKEN FROM SOME OF MY CLASS NOTES, SOME OF WHICH IS MY OWN PERSONAL WORK AND SOME OF WHICH BELONGS TO CONCORD LAW SCHOOL. IT IS POSTED TO HELP MY IL STUDENTS IN PARTICULAR. IT CANNOT BE DISSEMINATED WITHOUT EXPRESS, WRITTEN PERMISSION.
I have had a number of students ask about contract remedies so I thought I would post some articles that may be helpful.
I think contract remedies should be learned in stages: (1) Applicable Law, (2) Remedies as Opposed to Damages, (3) The Basic Outline, (4) The Standard Measure of Damages for Specific Types of Contracts (5) The Comprehensive Outline.
I have tried variations on this approach and I know that this topic is taught in different ways across the country, but I think that the foregoing builds a good foundation for first-year Contracts. Some teach remedies in blocks: Expectation Damages, Reliance Damages, Restitution Damages, Stipulated Damages, Specific Performance, Punitive Damages, Interest, etc. I like to do the stages because, I believe, it is a logical approach and an approach that allows the student to understand the why of remedies and how they work together and in contrast. Also, keep in mind that remedies is only a part of contracts. If a law school has interim exams, the student will likely be tested in a fairly comprehensive manner in this area. If not, then damages will likely be a small (but still important) part of credit available on a final exam.
The Basics: Stages One, Two and Three.
Stage One: Applicable Law:
For some reason, the concept of applicable law did not sink in to me until after I graduated from law school and was preparing for the bar exam. Consequently, I spend significant time on this stage with my students. It helps in the overall study of first-year contracts and it is critical in a number of areas in contracts as a whole and it is critical in the student’s study of contract remedies.
Applicable law is determined by the type of contract presented. The Uniform Commercial Code (UCC) covers sales of goods in Article 2 and certain types of leases of goods in Article 2A. For our purposes here, we will only be concerned with the sale of goods – Article 2. The common law of contracts will cover contracts if we are not dealing with the sale of goods. This includes contracts for services and contracts for the sale of an interest in real property.
So, make sure that first you consider and discuss the applicable law since it will likely control how you evaluate contract remedies.
We will deal with the UCC later. Before we talk about contract remedies under the common law, let’s look at Stage Two.
Stage Two: Remedies as Opposed to Damages:
Contract Remedies includes all of the different types of remedies. Damages is one part of remedies. Contract remedies include damages, special issues like restitution, rescission and reformation (I call these “The Three R’s) and injunction (specific performance).
Stage Three: The Basic Outline at Common Law:
I. The Three R’s
A. Restitution (often included in “Damages”)
A. Specific Performance
If you can first grasp what I have explained above, before you go anywhere else, you will be ahead of the game. From there, before we delve into the three main areas of contract remedies, I think it is good to look at and memorize The Standard Measure of Damages for Specific Types of Contracts.
Stage Four: The Standard Measure of Damages for Specific Types of Contracts:
I. Sale of Real Property: This is really pretty simple. For the seller, the standard measure of damages is the contract price less the market price. For the buyer, the standard measure of damages is the market price less the contract price.
II. Sale of Goods (UCC): For the seller, the standard measure of damages is the contract price less the market price unless we are talking about the resale of goods, in which case, the standard measure of damages is the contract price less the resale price or Lost Volume. For the buyer, the standard measure of damages is the market price less the contract price or the cover price less the contract price.
III. Services: For employment contracts, the standard measure of damages for the employee is lost wages less earnings. The standard measure of damages for the employer is the extra cost to replace.
IV. Construction Contracts: For the builder, the standard measure of damages is lost profits plus costs. For the owner, the standard measure of damages is the cost of completion less benefits conferred or diminution of value.
There are, of course, others, but these are the basics. Tomorrow, we will begin on Stage Five – The Comprehensive Outline and look at the Three R’s. After that, we’ll concentrate on Damages and finally, Injunction.
Professor Doug Holden
© 2010 Douglas S. Holden. All Rights reserved.