George Mason School of Law
Contracts II
Reliance/Restitution/Punitives
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F.H. Buckley
fbuckley@gmu.edu
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Next day
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This week
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Reliance
Restitution
Punitives
Lost-volume seller
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
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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?
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Could reliance damages exceed
the expectation measure?
 When would a Π want more than
expectation damages?
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Could reliance damages exceed
the expectation measure?
 When would a Π want more than
expectation damages?
 Bad bargains
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Could reliance damages exceed
the expectation measure?
 When would a Π want more than
expectation damages?
 Bad bargains
 Restrictions on the expectation measure
 Uncertainty
 Forseeability
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The measure of damages
 When would the Π prefer reliance
damages?
 Should the Π have the option in such
cases?
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Freund at 95
 Semble reliance damages not to
exceed the expectation interest, or
else a windfall
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When should the Π be limited
to reliance damages?
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When should the Π be limited
to reliance damages?
 Contracts with Physicians
 Hawkins v. McGee at 892
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When should the Π be limited
to reliance damages?
 Hawkins v. McGee at 892
 Was the doctor negligent?
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When should the Π be limited
to reliance damages?
 Hawkins v. McGee at 892
 Was the doctor negligent?
 Had he been negligent, what would the
damages have been?
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When should the Π be limited
to reliance damages?
 Hawkins v. McGee at 892
 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
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When should the Π be limited
to reliance damages?
 Hawkins v. McGee at 892
 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
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When should the Π be limited
to reliance damages?
 Hawkins v. McGee at 892
 What did the court award?
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When should the Π be limited
to reliance damages?
 Hawkins v. McGee at 892
 What did the court award?
 The difference between the hand as
promised and the hand after the operation
less the doctor’s fee
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When should the Π be limited
to reliance damages?
 Hawkins v. McGee at 892
 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
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Why a different result in
Sullivan v. O’Connor at 890?
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Why a different result in
Sullivan v. O’Connor at 890?
 What did the judge instruct the jury?
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Why a different result in
Sullivan v. O’Connor at 890?
 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
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Why a different result in
Sullivan v. O’Connor at 890?
 What didn’t the Π ask for the difference
between the nose as promised and
delivered?
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Why a different result in
Sullivan v. O’Connor at 890?
 What didn’t the Π ask for the difference
between the nose as promised and
delivered?
 Was this really a case which denied the
expectation measure?
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Why a different result in
Sullivan v. O’Connor at 890?
 What didn’t the Π ask for the difference
between the nose as promised and
delivered?
 Can one generalize this to all noncommercial cases, as Fuller and Perdue
argue at 894?
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Why a different result in
Sullivan v. O’Connor at 890?
 What didn’t the Π ask for the difference
between the nose as promised and
delivered?
 Can one generalize this to all noncommercial cases, as Fuller and Perdue
argue at 894?
 What is the link between Pond v. Harris and
Smith v. Sherman in n. 6?
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Why a different result in
Sullivan v. O’Connor at 890?
 What didn’t the Π ask for the difference
between the nose as promised and
delivered?
 Could a court award damages for pain and
suffering and emotional distress in
contract?
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The measure of damages
 Kizas v. Webster
Robert Stack as Eliot Ness
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The measure of damages
 Kizas v. Webster
 The FBI invited college graduates to work
as clerical staff because of the possibility of
receiving preferential consideration as
special agents
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The measure of damages
 Kizas v. Webster
 The FBI invited college graduates to work
as clerical staff because of the 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.
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The measure of damages
 Kizas v. Webster
 So what do you think of the takings
argument?
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The measure of damages
 Kizas v. Webster
 So what do you think of the takings
argument?
 Reversed on appeal
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The measure of damages
 Kizas v. Webster
 So what do you think of the takings
argument?
 If it would succeed, what kind of damages?
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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?
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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
 FBI’s right to terminate
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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?
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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 901
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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 901
 What might have given Armstrong the option
to sue for reliance damages, and how were
they limited?
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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?
 Yes—but no proof that a bad bargain and onus
was on the FBI
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The measure of damages
 Kizas v. Webster
 So what do you think of the takings
argument?
 If it would succeed, what kind of damages?
 So what are the reliance damages?
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The measure of damages
 Kizas v. Webster
 So what do you think of the takings
argument?
 If it would succeed, what kind of damages?
 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
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Reliance damages and
uncertainty of the expectation
1. The expectation interest is sizable but
uncertain
2. The expectation interest is likely
trivial but uncertain
Cf. Restatement 349, Comment a
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Reliance damages and
uncertainty of the expectation
 Wartzman v. Hightower at 901
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Reliance damages and
uncertainty of the expectation
 Wartzman v. Hightower at 901
 Why a problem with expectation
damages?
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Reliance damages and
uncertainty of the expectation
 Anglia v. Reed 902
Robert Reed, The Brady Bunch
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Anglia v. Reed
 What was the problem with
expectation damages?
 If expectation damages are
speculative, could any reliance
damages be awarded?
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Anglia v. Reed
 What was the problem with
expectation damages?
 If expectation damages are
speculative, could any reliance
damages be awarded?
 Both pre- and post-contract reliance
damages awarded
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Restitution or Unjust
Enrichment
 A general principle of restitution out
of Quasi Contract, Money had and
received, breach of fiduciary duty
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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
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Restitution
 Bailey v. West p. 5
 What should the Πs have done with the
horse?
 No recovery for officious intermeddler
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Restitution
 Bailey v. West p. 5
 What should the Πs have done with the
horse?
 No recovery for officious intermeddler
 But that problem doesn’t arise when
restitution is sought as a remedy in
contract
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Zara Contracting at 903
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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.
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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?
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Zara Contracting
 Two months after Π begins work,
Zara wrongfully fires it and finishes
the job itself.
 Would expectation damages include a
claim for the value of the extra work
done?
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Zara Contracting
 Two months after Π begins work,
Zara wrongfully fires it and finishes
the job itself.
 Would expectation damages include a
claim for the value of the extra work
done?
 No: clause 5 of the agreement
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Zara Contracting
 Two months after Π begins work,
Zara wrongfully fires it and finishes
the job itself.
 Would expectation damages include a
claim for the value of the extra work
done?
 So a restitutionary recovery would give
the Π more than the expectation award.
And what is the basis for such a claim?
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Zara Contracting
 Two months after Π begins work,
Zara wrongfully fires it and finishes
the job itself.
 The innocent party’s option
 Value of work done at contract rate
 Or Quantum meruit for value of work done
(more than contract rate as the work was
harder than expected)
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Zara Contracting
 Two months after Π begins work,
Zara wrongfully fires it and finishes
the job itself.
 How to calculate quantum meruit
 What would a third party have charged
 Note the extra claim by Zara against the US.
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Zara Contracting
 Two months after Π begins work,
Zara wrongfully fires it and finishes
the job itself.
 How to calculate quantum meruit
 What would a third party have charged
 Cf. Restatement 371, illustration 2
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Zara Contracting
 Two months after Π begins work,
Zara wrongfully fires it and finishes
the job itself.
 Quantum meruit for value of work done
(more than contract rate as the work
was harder than expected)?
 Contrast Palmer Construction at 909
 Qu. Breachers vs. non-breachers
 Restatement 373(1)
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Britton v. Turner at 906
 Who was the party in breach?
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Can restitution damages exceed
expectation damages?
 Britton v. Turner 906
 What would expectation damages
amount to?
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Can restitution damages exceed
expectation damages?
 Britton v. Turner
 What is the argument for quantum
meruit?
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Can restitution damages exceed
expectation damages?
 Britton v. Turner
 What is the argument for quantum
meruit?
 Aliter a temptation to strategic behavior
by the employer?
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Can restitution damages exceed
expectation damages?
 Britton v. Turner
 What would quantum meruit give the Π?
 Aliter a temptation to strategic behavior
by the employer?
 Can the employer bargain around this?
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Can restitution damages exceed
expectation damages?
 Britton v. Turner
 What would quantum meruit give the Π?
 Aliter a temptation to strategic behavior
by the employer?
 What if the court had found that Turner
had been enriched by $150?
 See Restatement 373, comment d
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Ventura v. Titan 910
Gov. Jesse Ventura (Ind. MN)
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Punitives: Do compensatory
damages undercompensate?
 The American rule of costs chills
meritorious actions (and encourages
frivolous ones)
 Small dollar claims might not be
brought
 But class actions remedy this
 And then some?
69
Do compensatory damages
undercompensate?
 If they do, an argument for punitive
damages?
70
OMG! We’re not suing enough!
Suits/
100,000
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Aust.
Canada
France
Japan
U.K.
U.S.
1,542
1,450
2,416
1,768
3,681
5,806
Do compensatory damages
undercompensate?
 Hibschman Pontiac at 912
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What does a Chevy Volt want to be?
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It wants to be a Pontiac GTO!!!!
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Little GTO
Little GTO, you're really lookin' fine
Three deuces and a four-speed and a 389
Listen to her tachin' up now, listen to her whine
C'mon and turn it on, wind it up, blow it out GTO
Wa-wa, wa, wa, wa, wa, wa,
(mixed with "Yeah, yeah, little GTO")
Wa-wa, wa, wa, wa, wa, wa,
(mixed with "Yeah, yeah, little GTO")
Wa-wa wa, wa, wa, wa, wa, wa
(mixed with "Ahhh, little GTO")
Do damages
undercompensate?
 What was needed to rebut the
presumption against punitive
damages in contract?
76
Do damages
undercompensate?
 What was the “malice, fraud, gross
negligence and oppressive conduct”?
 As opposed to a simple breach of
contract…
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Do damages
undercompensate?
 What was the “malice, fraud, gross
negligence and oppressive conduct”?
 As opposed to a simple breach of
contract…
 Did the Π independently establish a
common law tort?
 Or just have elements of fraud, malice
etc mingle in the controversy
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Do damages
undercompensate?
 The jury awarded punitive damages
assessed at 10 times the
compensatory damages
 When is the “first blush” rule triggered?
79
Do damages overdeter?
 Suppose you’re a potential Δ. Are you
made whole by a finding of no
liability?
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Miller Brewing at 916
 Best Beers a distributor for Miller for
30 years
 Was the termination wrongful?
 Was Miller animated by something other
than its business interests?
81
Miller Brewing
 The court found that Monroe
Beverage’s performance was in some
ways inferior to Best Beers.
 Is this relevant?
82
Miller Brewing
 Is Hibschman Pontiac overturned?
 The need for an independent common
law tort.
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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
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Do damages overdeter?
 Interstate Exploitation
 Suppose state A was permitted to
impose a tax on citizens of state B…
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The Pinto Case 922
 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 punitive damages?
86
The Backlash
 Kozinski in Oki America at 922
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The Backlash
 Efficient breaches: Thyssen at 923
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The Backlash
 State Farm and presumptive caps at
925
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The Backlash
 Cooter at 924 on intentional
misbehavior
 Qu. opportunistic breaches
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