Chatlos and Excessive (?) Expectancies

1. Chatlos and Excessive (?) Expectancies • 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 • 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?

2. Has the Chatlosplaintiff recovered too much – is there such a thing as an excessive expectancy? • Wouldn’t P have had to pay $208K to get the computer D promised regardless of D’s misrepresentations? Why should P recover that amount from D instead of the difference between the value of the computer delivered ($6K) and the contract price ($46K)? • Arguments for and against P’s recovery? Should P’s be limited to reasonable expectancies or are there reasons to award expectancy even when it’s huge? • What could D’s have done to lower P’s damage award in this case?

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

4. Modern Changes to the Common Law Rule Against Expectancy Awards in Tort Cases: • Some states allow P to elect between reliance and expectancy losses in all fraud cases (e.g. Texas) • Restatement 2d of Torts § 549(2): Allows recovery of damages equivalent to benefit of the bargain in cases involving fraud in business transactions if damages are proved with reasonable certainty. • Majority of states apparently allow such recoveries • UCC §2-721: States that 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

5. 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.

6. 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?

7. Why does the distinction between general and consequential damages still matter? • Historic hostility to consequentials because they were thought to be more speculative, less certain, more remote, and more avoidable than general damages. • It’s unclear the extent to which market value measures are easier to prove or value than consequential damages. • Furthermore, the standards plaintiffs must meet in order to obtain consequential damages take care of some of the above concerns • As do certain other doctrines we will discuss later • Why, then, is there any reason to distinguish between consequential and general damages? • Special pleading requirements in FRCP and state analogs • Bargained-for remedies/limitations clauses/damage disclaimers

8. 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) and consequentialsunder 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 (unlike buyer) – why not?

9. 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?

10. 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)