1. 1 George Mason School of Law Contracts II Reliance/Restitution/Punitives This file may be downloaded only by registered students in my class, and may not be shared by them F.H. Buckley fbuckley@gmu.edu

2. The measure of damages  If damages are meant to compensate for a wrong, just what is the wrong? Failure to perform: Expectation damages Inviting detrimental reliance: reliance damages 2

3. The interplay of the measures of damages 1.When might reliance damages exceed expectation damages? 2.When might damages be limited to the reliance measure? 3

4. Could reliance damages exceed the expectation measure?  When would a Π want more than expectation damages? 4

5. Could reliance damages exceed the expectation measure?  When would a Π want more than expectation damages? Restrictions on the expectation measure  Uncertainty  Forseeability 5

6. Could reliance damages exceed the expectation measure?  When would a Π want more than expectation damages? What about bad bargains? 6

7. Freund at 95  Semble reliance damages not to exceed the expectation interest on a bad bargain, or else a windfall 7

8. When should the Π be limited to reliance damages? 8

9.  Contracts with Physicians Hawkins v. McGee at 868 9

10. When should the Π be limited to reliance damages?  Hawkins v. McGee Was the doctor negligent? 10

11. When should the Π be limited to reliance damages?  Hawkins v. McGee Was the doctor negligent?  Had he been negligent, what would the damages have been? 11

12. When should the Π be limited to reliance damages?  Hawkins v. McGee Was the doctor negligent?  Had he been negligent, what would the damages have been?  What would we need to do to put the patient in the pre-tort position? 12

13. When should the Π be limited to reliance damages?  Hawkins v. McGee Was the doctor negligent?  Had he been negligent, what would the damages have been? Return of doctor’s fee Pain and suffering from the operation Difference between the before-and-after hand 13

14. When should the Π be limited to reliance damages?  Hawkins v. McGee Was the doctor negligent?  In short, reliance damages Return of doctor’s fee Pain and suffering from the operation Difference between the before-and-after hand 14

15. When should the Π be limited to reliance damages?  Hawkins v. McGee  What did the court award? 15

16. When should the Π be limited to reliance damages?  Hawkins v. McGee  What did the court award?  The difference between the hand as promised and the hand after the operation less the doctor’s fee 16

17. When should the Π be limited to reliance damages?  Hawkins v. McGee  What did the court award?  The difference between the hand as promised and the hand after the operation less the doctor’s fee  I.e., The expectation interest 17

18. Why a different result in Sullivan v. O’Connor at 866? 18

19. Why a different result in Sullivan v. O’Connor  Was the doctor negligent? 19

20. Why a different result in Sullivan v. O’Connor  Was the doctor negligent?  On what theory was there a breach of contract without negligence? 20

21. Why a different result in Sullivan v. O’Connor  What did the judge instruct the jury? 21

22. Why a different result in Sullivan v. O’Connor  What did the judge instruct the jury? Out of pocket expenses incident to the operation Damages for the way in which the nose was made worse Pain and suffering for the third operation Loss of earnings too uncertain 22

23. Why a different result in Sullivan v. O’Connor  What did the judge instruct the jury? In short, reliance damages 23

24. Why a different result in Sullivan v. O’Connor  What did the judge instruct the jury? What are doctors taken to have promised before a procedure? 24

25. Why a different result in Sullivan v. O’Connor  What did the judge instruct the jury? What are doctors taken to have promised before a procedure? A duty to take care, not to guarantee success An obligation of means and not of results 25

26. Why a different result in Sullivan v. O’Connor  What did the judge instruct the jury? What are doctors taken to have promised before a procedure? A duty to take care, not to guarantee success Are the reliance damages inconsistent with a finding of no negligence? 26

27. Why a different result in Sullivan v. O’Connor  What were the policy reasons against expectation damages (guaranteed success)? 27

28. Why a different result in Sullivan v. O’Connor  What did the judge instruct the jury? What are doctors taken to have promised before a procedure? A duty to take care, not to guarantee success What would restitutionary relief look like? 28

29. The measure of damages  Kizas v. Webster at 871 29 Robert Stack as Eliot Ness

30. Louis Oberdorfer 30

31. The measure of damages  Kizas v. Webster The FBI invited college graduates to work as clerical staff with a possibility of receiving preferential consideration as special agents 31

32. The measure of damages  Kizas v. Webster The FBI invited college graduates to work as clerical staff with a possibility of receiving preferential consideration as special agents The FBI stopped the program in 1977 because (1) they weren’t getting qualified people, and (2) the FBI wanted to institute an affirmative action program. 32

33. The measure of damages  Kizas v. Webster So what do you think of the takings argument? 33

34. The measure of damages  Kizas v. Webster So what do you think of the takings argument?  Reversed on appeal 34

35. The measure of damages  Kizas v. Webster So what do you think of the takings argument?  If it would succeed, what kind of damages? 35

36. The measure of damages  Kizas v. Webster So what do you think of the takings argument?  If it would succeed, what kind of damages?  What was Theory A? Theory B? 36

37. The measure of damages  Kizas v. Webster So what do you think of the takings argument?  If it would succeed, what kind of damages? What are the problems with expectation damages here? 37

38. The measure of damages  Kizas v. Webster So what do you think of the takings argument?  If it would succeed, what kind of damages? What are the problems with expectation damages here?  Uncertainty 38

39. The measure of damages  Kizas v. Webster So what do you think of the takings argument?  If it would succeed, what kind of damages? What are the problems with expectation damages here? Are reliance damages the default in such cases? 39

40. The measure of damages  Kizas v. Webster So what do you think of the takings argument?  If it would succeed, what kind of damages? Do expectation damages place a ceiling on reliance damages? 40

41. The measure of damages  Kizas v. Webster So what do you think of the takings argument?  If it would succeed, what kind of damages? Do expectation damages place a ceiling on reliance damages? Albert v. Armstrong at 872, 876 41

42. The measure of damages  Kizas v. Webster Do expectation damages place a ceiling on reliance damages?  Albert v. Armstrong 876  What is Oberdorfer’s response to this? 42

43. The measure of damages  Kizas v. Webster Do expectation damages place a ceiling on reliance damages?  No proof that the opportunity was valueless and onus was on the FBI 43

44. The measure of damages  Kizas v. Webster So what are the reliance damages? 44

45. The measure of damages  Kizas v. Webster So what are the reliance damages? The difference between what they received as FBI employees (and for a year afterwards) and what they would have received in the labor market, plus dislocation 45

46. The measure of damages  Restatement § 349. As an alternative to the measure of damages stated in § 347 [expectation damages], the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed. 46

47. The measure of damages  Restatement § 349. As an alternative to the measure of damages stated in § 347 [expectation damages], the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed. 47

48. Similarly restitutiton 48  Restatement 373(1). On a breach by non-performance that gives rise to a claim for damages for total breach … the injured party is entitled to restitution for any benefit he has conferred on the other party

49. Restitution 1.What are the elements of restitution? 2.Can a restitutionary award exceed the expectation interest? 3.Measure of recovery 4.When is restitution wholly collateral to contract, so that problem 2 doesn’t arise? 5.Can the party in breach seek a restitutionary remedy? 49

50. 1.What are the elements of Restitution?  A general principle of restitution out of Quasi Contract, Money had and received, breach of fiduciary duty, Unjust Enrichment 50

51. Bailey v. West 51  When is quasi-contractual liability imposed?

52. Bailey v. West 52  When is quasi-contractual liability imposed? Benefit conferred on defendant by plaintiff Appreciation by defendant of the benefit It would be inequitable to permit the defendant to retain the benefit

53. Restitution  Bailey v. West No recovery for officious intermeddler But that problem doesn’t arise when restitution is sought as a remedy in contract, since the benefit was solicited 53

54. Restitution in special cases  Would it be available when expectation damages are uncertain, on the analogy of Kizas v. Webster? 54

55. Restitution in special cases  When the remedy in contract is barred by the Statute of Frauds: Restatement § 375 55

56. Restitution in special cases  When the remedy in contract is barred by impracticability, frustration, non-occurrence of a condition: Restatement § 377 56

57. 2.Can a restitutionary award exceed the expectation interest? 57

58. Zara Contracting at 878 58 Tri-cities Airport, Endicott NY

59. Zara Contracting 59  Zara contracts with US gov’t to build an airport  Zara subcontracts the entire job to Π  Two months after Π begins work, Zara wrongfully fires it and finishes the job itself.

60. Zara Contracting 60  Zara contracts with US gov’t to build an airport  Zara subcontracts the entire job to Π  Two months after Π begins work, Zara wrongfully fires it and finishes the job itself.  How does the Miller Act work?

61. Zara Contracting 61  Two months after Π begins work, Zara wrongfully fires it and finishes the job itself. Could the subcontractor have recovered on a claim for expectation damages for the value of the extra work done?

62. Zara Contracting 62  Two months after Π begins work, Zara wrongfully fires it and finishes the job itself. Could the subcontractor have recovered on a claim for expectation damages for the value of the extra work done?  No: Clause 5

63. Zara Contracting 63  Two months after Π begins work, Zara wrongfully fires it and finishes the job itself. So a restitutionary recovery would necessarily give the Π more than the expectation award. And what is the basis for such a claim?

64. Zara Contracting 64  Why was this a compelling case, on the equities?

65. Zara Contracting 65  Why was this a compelling case, on the equities?  Should restitutionary recovery which exceeds the expectation interest be restricted to special facts such as these?

66. Zara Contracting 66  Should restitutionary recovery which exceeds the expectation interest be restricted to special facts such as these?  Also: Construction contract  Other party in breach

67. Zara Contracting 67  Restatement 373(1). On a breach by non-performance that gives rise to a claim for damages for total breach … the injured party is entitled to restitution for any benefit he has conferred on the other party

68. Can a party seek restitutionary recovery after a trivial breach? 68  Restatement 373(1). On a breach by non-performance that gives rise to a claim for damages for total breach … the injured party is entitled to restitution for any benefit he has conferred on the other party Farrah v. Sykes at 885

69. Zara Contracting 69  Restatement 373(2). But not “if he has performed all of his duties under the contract and no performance by the other party remains due other than payment of a definite sum of money”

70. Zara Contracting 70  Restatement 373(2). But not “if he has performed all of his duties under the contract and no performance by the other party remains due other than payment of a definite sum of money” Contractor has finished building a house for a promise of $100K. House is worth $200K because of rise in the market

71. Zara Contracting 71  Contractor has finished building a house for a promise of $100K. House is worth $200K because of rise in the market  Cf. Zara at 880 Appreciation of value vs. cost of getting someone else to do the work

72. Measure of recovery 72  Restatement §371. MEASURE OF RESTITUTION INTEREST. If a sum of money is awarded to protect a party's restitution interest, it may as justice requires be measured by either (a) the reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant's position, or (b) the extent to which the other party's property has been increased in value or his other interests advanced.

73. Measure of recovery 73  Restatement §371. Illustration 1 Cost to get another carpenter to do the work is $1,800 Increased value of house is $1,200

74. Measure of recovery 74  Restatement §371. Illustration 1 Cost to get another carpenter to do the work is $1,800 Increased value of house is $1,200  What if carpenter was in breach?  What if owner was in breach?

75. Measure of recovery 75  Restatement §371. Illustration 1 But see Illustration 2  Surgeon saves a life (worth $1 million) in performing services for which another surgeon would have charged $1800

76. 3.When are restitutionary remedies collateral to contract?  So no problem with an expectation cap  Or with a trivial breach 76

77. Ventura v. Titan 885 77 Gov. Jesse Ventura (Ind. MN)

78. 4.Can the party in breach obtain restitutionary relief?  What if the Π is the party in breach? Palmer Construction at 884 Restatement 374 “in excess of the loss that he has caused by his own breach” 78

79. Britton v. Turner 881  What would expectation damages amount to here? 79

80. Britton v. Turner  What is the argument for quantum meruit on the equities? 80

81. Britton v. Turner  What is the argument for quantum meruit on the equities? Aliter a temptation to strategic behavior by the employer? 81

82. Britton v. Turner  Can the employer bargain around this? 82

83. Britton v. Turner  What if the party in breach has harmed the other party by his breach? 83

84. Britton v. Turner  Restatement 374(1). On breach of a promissory condition, “the party in breach is entitled to restitution for any benefit that he has conferred by way of part performance … in excess of the loss that he has caused by his own breach” 84

85. Britton v. Turner  Restatement 374(1). Illustration 1: A agrees to sell land to B for $100. B pays $30k but fails to pay the remaining $70K. Owner sells to a third party for $95K. A can recover $30K less $5K 85

86. Punitive Damages 86

87. Miller Brewing at 887 87

88. Miller Brewing at 887  Best Beers a distributor for Miller for 30 years  A finding of wrongful termination (?) 88

89. Miller Brewing at 916  Was Miller animated by something other than its business interests? 89

90. Miller Brewing at 916  What would punitives do to efficient breaches? Thyssen at 893 90

91. Miller Brewing  Is Hibschman Pontiac overturned? The need for an independent common law tort, not a “tortlette” 91

92. Little Ronnie and the Daytonas 92

93. Do damages overdeter?  Imagine the argument to the jury in Miller Brewing They’re so rich, they won’t notice unless you make it hurt 93

94. Do damages overdeter?  Interstate Exploitation Suppose state A was permitted to impose a tax on citizens of state B… 94

95. The Pinto Case 892  Ford did not make a safety improvement which would have solved the problem because it did not think this cost effective, given the expected value of the accident In doing so, it valued a life as worth $2M 95

96. Maybe that wasn’t a good idea… 96

97. The Pinto Case 892  Ford did not make a safety improvement which would have solved the problem because it did not think this cost effective, given the expected value of the accident In doing so, it valued a life as worth $2M Does this deserve $125M in punitive damages (reduced to 3.5M)? 97

98. The Backlash  Kozinski in Oki America at 891 98

99. The Backlash  State Farm and presumptive caps at 895 99

100. The Backlash  Cooter at 893 on intentional misbehavior Qu. opportunistic breaches 100