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
1
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
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
Could reliance damages exceed
the expectation measure?
 When would a Π want more than
expectation damages?
4
Could reliance damages exceed
the expectation measure?
 When would a Π want more than
expectation damages?
 Restrictions on the expectation measure
 Uncertainty
 Forseeability
5
Could reliance damages exceed
the expectation measure?
 When would a Π want more than
expectation damages?
 What about bad bargains?
6
Freund at 95
 Semble reliance damages not to
exceed the expectation interest on a
bad bargain, or else a windfall
7
When should the Π be limited
to reliance damages?
8
When should the Π be limited
to reliance damages?
 Contracts with Physicians
 Hawkins v. McGee at 868
9
When should the Π be limited
to reliance damages?
 Hawkins v. McGee
 Was the doctor negligent?
10
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
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
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
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
When should the Π be limited
to reliance damages?
 Hawkins v. McGee
 What did the court award?
15
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
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
Why a different result in
Sullivan v. O’Connor at 866?
18
Why a different result in
Sullivan v. O’Connor
 Was the doctor negligent?
19
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
Why a different result in
Sullivan v. O’Connor
 What did the judge instruct the jury?
21
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
Why a different result in
Sullivan v. O’Connor
 What did the judge instruct the jury?
 In short, reliance damages
23
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
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
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
Why a different result in
Sullivan v. O’Connor
 What were the policy reasons against
expectation damages (guaranteed
success)?
27
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
The measure of damages
 Kizas v. Webster at 871
Robert Stack as Eliot Ness
29
Louis Oberdorfer
30
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
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
The measure of damages
 Kizas v. Webster
 So what do you think of the takings
argument?
33
The measure of damages
 Kizas v. Webster
 So what do you think of the takings
argument?
 Reversed on appeal
34
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
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
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
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
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
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
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
41
The measure of damages
 Kizas v. Webster
 Do expectation damages place a ceiling on
reliance damages?
 Albert v. Armstrong 876

42
What is Oberdorfer’s response to this?
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
The measure of damages
 Kizas v. Webster
 So what are the reliance damages?
44
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
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
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
George Mason School of Law
Contracts II
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
48
The expectation interest as the
primary remedy
 Restatement § 347. Subject to the limitations
stated in §§ 350-53, the injured party has a
right to damages based on his expectation
interest as measured by (a) the loss in the
value to him of the other party's performance
caused by its failure or deficiency, plus (b) any
other loss, including incidental or consequential
loss, caused by the breach, less (c) any cost or
other loss that he has avoided by not having to
perform.
49
But a right to reliance damages
in some cases
 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.
50
Similarly restitutiton
 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
51
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?
52
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
53
Bailey v. West
 When is quasi-contractual liability
imposed?
54
Bailey v. West
 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
55
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
56
Restitution in special cases
 Would it be available when
expectation damages are uncertain,
on the analogy of Kizas v. Webster?
57
Restitution in special cases
 When the remedy in contract is
barred by the Statute of Frauds:
Restatement § 375
58
Restitution in special cases
 When the remedy in contract is
barred by impracticability, frustration,
non-occurrence of a condition:
Restatement § 377
59
2. Can a restitutionary award
exceed the expectation interest?
60
Zara Contracting at 878
61
Tri-cities Airport, Endicott NY
Zara Contracting
 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.
62
Zara Contracting
 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?
63
Zara Contracting
 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?
64
Zara Contracting
 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
65
Zara Contracting
 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?
66
Zara Contracting
 Why was this a compelling case, on
the equities?
67
Zara Contracting
 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?
68
Zara Contracting
 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
69
Can a party seek restitutionary
recovery after a trivial breach?
 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
70
Zara Contracting
 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”
71
Zara Contracting
 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
72
Zara Contracting
 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”
 But what if we’re talking about part
performance?
73
Measure of recovery
 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.
74
Measure of recovery
 Restatement §371. Illustration 1
 Cost to get another carpenter to do the work is
$1,800
 Increased value of house is $1,200
75
Measure of recovery
 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?
76
Measure of recovery
 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
77
3. When are restitutionary
remedies collateral to contract?
 So no problem with an expectation
cap
 Or with a trivial breach
78
Ventura v. Titan 885
Gov. Jesse Ventura (Ind. MN)
79
4. Can the party in breach
obtain restitutionary relief?
 What if the Π is the party in breach?
 Palmer Construction at 884
80
Britton v. Turner 906
 What would expectation damages
amount to here?
81
Britton v. Turner
 What is the argument for quantum
meruit on the equities?
82
Britton v. Turner
 What is the argument for quantum
meruit on the equities?
 Aliter a temptation to strategic behavior
by the employer?
83
Britton v. Turner
 Can the employer bargain around
this?
84
Britton v. Turner
 What if the party in breach has
harmed the other party by his
breach?
85
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”
86
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
87
Punitive Damages
88
Miller Brewing at 887
89
Miller Brewing at 887
 Best Beers a distributor for Miller for
30 years
 A finding of wrongful termination (?)
90
Miller Brewing at 916
 Was Miller animated by something
other than its business interests?
91
Miller Brewing at 916
 What would punitives do to efficient
breaches?
 Thyssen at 893
92
Miller Brewing
 Is Hibschman Pontiac overturned?
 The need for an independent common
law tort, not a “tortlette”
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
94
Do damages overdeter?
 Interstate Exploitation
 Suppose state A was permitted to
impose a tax on citizens of state B…
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
96
Maybe that wasn’t a good idea…
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)?
98
The Backlash
 Kozinski in Oki America at 891
99
The Backlash
 State Farm and presumptive caps at
895
100
The Backlash
 Cooter at 893 on intentional
misbehavior
 Qu. opportunistic breaches
101