BCOR 3000 1nd Edition Lecture 18 Outline of Last Lecture I. Discharge of DutiesII. Discharge by agreement of PartiesA. Mutual RescissionB. NovationC. Substituted ContractD. Accord and SatisfactionIII. Discharge—ImpossibilityIV. Subjective ImpossibilityOutline of Current Lecture I. DamagesII. Benefits of the BargainIII. Applying the Benefit of Bargain: Damages AmountIV. Applying the Benefit Bargain: Alternative PerformanceV. Consequential DamagesVI. MitigationVII. Liquidated DamagesVIII. Rescission and RestitutionCurrent LectureChapter 14—Contract Breach and RemediesDamages• Term is used 2 ways– What the non-breaching party has lost– What the non-breaching party can recover to compensate for what was lostThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.• Used to compensate the non-breaching party for anything short of fullperformanceDamages: Generally• Infinite variety of contracts• Infinite ways can be breached• Thus– No single damage formula– Flexibility in remedies– General principles and goals– Protect the non-breaching partyProtection of the “non-breacher”—not to take it out on the breacher.Benefits of the Bargain—“Benefit of the Deal”• Puts the non-breaching party where they would have been if the contract had been properly performed• Expectation damages—damages computed to get what you expected• Not a return to the status quo• First goal of remedies—try to get what you negotiated or as close to that as you can • Cannot always be done, thoughApplying Benefit of Bargain: Damages Amount• Compare the value(s) of:– What was promisedTo– What was delivered• In other words, how much less did the non-breacher get compared to what was promised?• If seller breaches, price paid is usually not relevant• Except as used to establish value• Can’t use benefit of bargain if can’t determine the 2 values• Often happens with unique items or servicesThe difficulty comes when you have items and there is not objective fair market value for the item. Price is not what is looked at—value of item is what is looked at. Sometimes we have to go to the contract to figure out what the contract is. If we CANNOT determine the market value then benefit of the bargain does not work—Most likely will go back to restitution.Benefit of Bargain: Alternative Performance• After someone breaches, the non-breacher finds:– another buyer, – another seller, – someone else to do the work, or• Damages = what it takes to for non-breacher to get same “deal”Ex: Have signed a lease for an apartment in Boulder for the year. Owner breaches contract. You are not going to sit out for a whole year, instead you are going to search high and low for a place to live. Therefore this is “alternate performance”.Example: Contract for Sale of Car for $10,000• Buyer breaches, seller sells to another, what could seller collect as damages if sold for:– $7,800?– $10,000?– $11,000?Steps: 1.) Analyze the bargain—what was it? --> Get rid of car with $$$ in pocket.2.) If buyer breaches—the buyer has to do whatever takes to get the car sold to someone else.3.) If sold for only $7800—the breaching buyer has to compensate the seller for $2200.4.) If sold for $10,000—seller has got his bargain, so he cannot recover anything. No damages.5.) If sold for $11,000—got bargain so there are no damages or recovery. Neither party owes anything, even if there is a gain on sale price.If original buyer breaches, very seldom does a seller not sell that item again. 99% of the time the seller will find another party to sell to.Example: Seller Breaches a Contract for the Sale of a car for $10,000• Seller breaches, buyer gets similar car from another for:– $8,500– $10,000– $12,000• Buyer does not buy another, but can prove car was worth $11,500Steps:1.) Analyze bargain from buyers perspective—benefit of the bargain.2.) Where do I stand?3.) If you have to pay $8500—no recovery b/c less then what originally was going to pay.4.) If you pay $10,000—still no recovery b/c same price as what you were going to pay for the prior car.5.) If you buy it for $12,000—seller owes you damages of $2000.6.) If you can prove that the car is actually worth $11,500 and you were supposed to pay $10,000.Your bargain was to come out $1500 ahead and therefore you can recover that ($1500) from the seller.If you make a contract that is unfair and very 1-sided, it increases the chance of someone breaching the contract. If seller “under-prices” it then the seller is more willing to breach. Example: Contract to Paint House for $6000• Painter breaches: does no work, homeowner must pay another $7,000• Painter does 50% of the work, another paid $5,000 to finish• Painter does 10% of the work, another paid $6,800 to finishIf the breach is by the painter, the painter must do whatever it takes to get the house painted for $6000. Where does buyer stand?—out an extra $1000,therefore painter owes the buyer $1000 (7000-6000 = 1000).If painter does 50% of the work—paid up-front $6000 and must pay another $5000 to hire another painter to finish the work. The first painter must compensate you the $5000 extra you had to spend to finish the job. If you did not pay all $6000 upfront, you will have to pay the painter a reasonable amount for the work he did do.If painter does 10% of the work—and you haven’t paid them yet. They disappear therefore you have to contract someone else for $6800. The painter will have to compensate you $800 b/c you had to spend more to get the job done.Example: Homeowner breaches Painting Contracts for $6000• Homeowner cancels (breach)—(painter supplies materials of $1500)– Painter can get no other work– Painter gets other job netting $3,500– Painter has already spent $700 on supplies (nonrefundable) and can find no other workThe bargain—we use the net. (Costs of job minus tools/supplies)  Therefore $6000 - $1500 = $4500. The homeowner shows up to paint, but the homeowner just lost their job and cannot pay. This is a breach. The painter has to try to find other work but the assumptions are that they don’t. The paint is entitled to the benefit of the bargain of $4500, therefore the painter ended out getting ahead because they didn’t have to do the work.If painter nets $3500 from another job—painter is