CHAPTERCHAPTER McGraw-Hill/Irwin©2008 The McGraw-Hill Companies, All Rights Reserved Compensatory and Related Damages THIRTEENTHIRTEEN

13-2 Objectives Chapter Objectives: Use vocabulary regarding damages properly Differentiate among the different types of damages and explain the basis for their award Evaluate the plaintiff’s expectation, restitutionary, and reliance damages Identify the kinds of damages that courts do not generally enforce

13-3 Objectives Chapter Objectives: Calculate the proper measure of damages in a given fact pattern Discuss the necessity and means of mitigating damages Determine when consequential and incidental damages might be awarded Explain the difference between liquidated damages and limited damages

13-4 Objectives This chapter will examine WHAT kinds of monetary damages parties to a lawsuit can expect and, HOW to calculate the appropriate damages

13-5 Damages The law categorizes the kinds of damages available to plaintiffs based on their source Damages can be 1.Compensatory 2.Consequential 3.Incidental 4.Nominal 5.Liquid 6.Limited

13-6 Damages Not Recoverable Under Contract Law There are two kinds of damages that are never recoverable under contract law: 1.Speculative 2.Punitive

13-7 Speculative damages –Harm incurred by the nonbreaching party that is not susceptible to valuation or determination with any reasonable certainty –The act must have first been proven to have caused damage and then a party can estimate the amount of damages that could be awarded Damages Not Recoverable Under Contract Law

13-8 Punitive damages –An amount of money awarded to a nonbreaching party that is not based on the actual losses incurred by that party, but as a punishment to the breaching party for the commission of an intentional wrong Damages Not Recoverable Under Contract Law

13-9 Deterrent effect –The authority to assess excessive fines on a breaching party often can dissuade a party from committing an act that would subject him to these punitive damages Damages Not Recoverable Under Contract Law

13-10 Statutory authority –The legislature of a jurisdiction may codify certain actions as subject to punitive damages if they occur in conjunction with a contractual breach Damages Not Recoverable Under Contract Law

13-11 Tortious –A private civil wrong committed by one person as against another that the law considers to be punishable –The court may award punitive damages based on the intentional or negligent commission of the tort Damages Not Recoverable Under Contract Law

13-12 It is important to note that courts do not grant punitive damages when the plaintiff has no actual damages. The plaintiff must show that he has suffered harm before the court will award compensation beyond contractual remedies. In other words, nasty intent alone is not justification for imposing a monetary punishment. It must be on top of actual harm incurred. Damages Not Recoverable Under Contract Law

13-13 Compensatory damages compensate for the loss/harm incurred by the nonbreaching party and attempt to put him in as good a position as he would have been had the contract not been breached There are several kinds of compensatory damages: 1.expectation damages 2.restitution damages 3.reliance damages Calculation of Compensatory Damages

13-14 Expectation damages −A monetary amount that makes up for the losses incurred as a result of the breach that puts the nonbreaching party in as good a position as he would have been had the contract been fully performed Calculation of Compensatory Damages

13-15 Restitution damages –A monetary amount that requires the breaching party to return any benefits received under the contract to the nonbreaching party to ensure that the breaching party does not profit from the breach Calculation of Compensatory Damages

13-16 Reliance damages –A monetary amount that “reimburses” the nonbreaching party for expenses incurred while preparing to perform her obligations under the agreement but lost due to the breach Calculation of Compensatory Damages

13-17 Duty To Mitigate Duty –A legal obligation that is required to be performed Mitigate –To lessen in intensity or amount

13-18 Duty To Mitigate The nonbreaching party has a duty to try to lessen the amount of harm suffered due to the breach, thereby mitigating damages. The aggrieved party must make a reasonable effort to mitigate the damages caused by the breach. The reasonableness of the aggrieved party’s efforts will be determined by the court.

13-19 Consequential and incidental damages are specific damages that go beyond compensatory damages and are incurred by the nonbreaching party after the breach The timing of the actions giving rise to the damages is what distinguishes consequential and incidental damages from reliance damages Consequential and Incidental Damages

13-20 Consequential damages –Sustained by the nonbreaching party that naturally and foreseeably flow from the breach; they are a direct consequence of the breach Incidental damages –Damages resulting from the breach that are related to the breach but not necessarily directly foreseeable by the breaching party Consequential and Incidental Damages

13-21 Nominal damages –A small amount of money given to the nonbreaching party as a token award to acknowledge the fact of the breach Nominal Damages

13-22 V + E + L - M - R = D Value + Expenses + Losses - Mitigation - Received value = Damages Calculation of Damages

13-23 V + E + L - M - R = D –V - value of the promise in the contract –E - any foreseeable out-of pocket expenses –L - foreseeable losses due to the breach –M - mitigation –R - value of what nonbreaching party did receive –D - the potential compensatory damages Calculation of Damages

13-24 Liquidated Damages Liquidated damages –An amount of money agreed upon in the original contract as a reasonable estimation of the damages to be recovered by the nonbreaching party –A liquidated damages clause provides a disincentive to breach the contract

13-25 Costs American rule of attorney fees and costs –Expenses incurred by the parties to maintain or defend an action for the breach of contract are generally not recoverable as damages

13-26 Summary A plaintiff can recover different kinds of damages all stemming from the same breach of contract. Damages can be 1.Compensatory: Damages that put plaintiff in as good a position as he would have been in had breach not occurred. Damages can be based on plaintiff ’s expectations, restitutionary principles, and/or reliance 2.Consequential: Damages that arise from naturally and foreseeably occurring events after the breach 3.Incidental: Damages that arise from unforeseeable but related events after the breach

13-27 Summary A plaintiff can recover different kinds of damages all stemming from the same breach of contract. Damages can be 4.Nominal: A small sum of money awarded in the event of a breach where no actual damages have been sustained 5.Liquidated: A certain sum of money to be awarded without the necessity of proving actual damages 6.Limited: A “ceiling” that determines the maximum amount of award for damages

13-28 Summary A plaintiff will never recover 1.Speculative damages Damages that cannot be determined or calculated 2.Punitive damages absent statutory authority or the defendant’s commission of an intentional tort Rarely, a plaintiff can recover attorney fees and costs

13-29 Summary A plaintiff must establish the amount of damages he actually lost due to the breach The general formula is V+E + L-M-R=D This takes the nonbreaching party’s duty to mitigate damages into account as well

13-30 Summary In the sale of goods, the value of the contract can be determined in three ways: 1.Market price - where no mitigation is available 2.Cover - buyer is able to mitigate damages by obtaining the goods from another supplier 3.Resale - seller is able to mitigate damages by selling the goods to another purchaser