George Mason School of Law
Contracts II
Reliance/Restitution/Punitives
F.H. Buckley
fbuckley@gmu.edu
1
Next (last) day
 Finish Remedies chapter
 Scott 1001-36
2
The measure of damages
 If damages are meant to compensate
the innocent party for the wrong done
him, what is the wrong when the
other party breaches?
 Failure to perform: Expectation damages
 Inviting detrimental reliance: reliance
damages
3
The measure of damages
 When would the Π prefer reliance
damages?
4
The measure of damages
 When would the Π prefer reliance
damages?
 Whenever these exceed the expectation
award
5
The measure of damages
 When would the Π prefer reliance
damages?
 Whenever these exceed the expectation
award
 Limits on expectation damages
 Uncertainty
 Foreseeability
 Or bad bargains?
6
The measure of damages
 When would the Π prefer reliance
damages?
 Whenever these exceed the expectation
award
 Should the Π have the option in such
cases?
7
Freund
 What are the three kinds of damages
that are considered?
 The Expectation Interest
 The Reliance Interest
 Semble not to exceed the expectation
interest, or else a windfall
8
The measure of damages
 When should the Π be limited to
reliance damages?
9
The measure of damages
 When should the Π be limited to
reliance damages?
 Contracts with Physicians
 Hawkins v. McGee 892
10
The measure of damages
 When should the Π be limited to
reliance damages?
 Contracts with Physicians
 Hawkins v. McGee
11
The measure of damages
 When should the Π be limited to
reliance damages?
 Contracts with Physicians
 Why a different result in Sullivan v. O’Connor?
12
The measure of damages
 When should the Π be limited to
reliance damages?
 Contracts with Physicians
 Hawkins v. McGee
 Why a different result in Sullivan v. O’Connor?
 What would the two measures give?
 What difference in pain and suffering claims?
13
The measure of damages
 When should the Π be limited to
reliance damages?
 Contracts with Physicians
 Hawkins v. McGee
 Why a different result in Sullivan v. O’Connor?
 What would the two measures give?
 What would restitution give?
14
The measure of damages
 Kizas v. Webster 896
Robert Stack as Eliot Ness
15
The measure of damages
 Kizas v. Webster
 The FBI attracted college graduate 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.
16
The measure of damages
 Kizas v. Webster
 So what do you think of the takings
argument?
17
The measure of damages
 Kizas v. Webster
 So what do you think of the takings
argument?
 Reversed on appeal
18
The measure of damages
 Kizas v. Webster
 So what do you think of the takings
argument?
 If it would succeed, what kind of damages?
19
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?
20
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?
 Uncertainty
 FBI’s right to terminate
21
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?
22
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.
23
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?
 So what they get is 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
24
Anglia v. Reed 902
Robert Reed, The Brady Bunch
25
Anglia v. Reed
 What was the problem with
expectation damages?
26
Anglia v. Reed
 What was the problem with
expectation damages?
 If expectation damages are
speculative, could any reliance
damages be awarded?
27
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
28
Restitution
 The forms of action:
 Trespass
 Action on the case
 Negligence
 Assumpsit
 Quasi Contract
 Money had and received
29
Restitution or Unjust
Enrichment
 A general principle of restitution out
of Quasi Contract, Money had and
received, breach of fiduciary duty
 Based on Δ’s unjust retention of a
benefit as against Π, and not on Π’s
reliance losses.
30
Restitution: General Principles
 Suppose that, without asking you
permission, I put orange aluminum
siding on your house. Can I recover
the cost of doing do from you?
31
Restitution
 Bailey v. West p. 5
 What should the Πs have done with the
horse?
32
Restitution
 Bailey v. West p. 5
 What should the Πs have done with the
horse?
 Restitutionary remedies are available in
spite of or in the absence of consent—
but not if the Π is an officious
intermeddler
33
Restitution
 Bailey v. West p. 5
 What should the Πs have done with the
horse?
 Restitutionary remedies are available in
spite or the absence of consent—but not
if the Π is an officious intermeddler
 If not, see Leebow at p. 911
34
Restitution
 Bailey v. West p. 5
 What should the Πs have done with the
horse?
 Restitutionary remedies are available in
spite or the absence of consent—but not
if the Π is an officious intermeddler
 But that problem doesn’t arise when
restitution is sought as a remedy in
contract
35
Zara Contracting 903
36
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.
37
Zara Contracting
 Two months after Π begins work,
Zara wrongfully fires it and finishes
the job itself.
 What can Π recover?
 Value of work done at contract rate?
38
Zara Contracting
 Two months after Π begins work,
Zara wrongfully fires it and finishes
the job itself.
 What can Π recover?
 Value of work done at contract rate?
 Quantum meruit for value of work done
(more than contract rate as the work was
harder than expected)?
39
Zara Contracting
 Two months after Π begins work,
Zara wrongfully fires it and finishes
the job itself.
 What can Π recover?
 What was the benefit unjustly retained by
Zara?
 Is it unjust if the plaintiff is simply paid at the
contract rate?
40
Zara Contracting
 Two months after Π begins work,
Zara wrongfully fires it and finishes
the job itself.
 What can Π recover?
 Does it matter that the defendant was in
breach?
 Cf Restatement 373
 Palmer Construction 909
41
Zara Contracting
 Two months after Π begins work,
Zara wrongfully fires it and finishes
the job itself.
 What can Π recover?
 Does it matter that the defendant was in
breach?
 Cf gloss added by Farash at 910
42
Zara Contracting
 The measure of recovery:
 Extent to which defendant’s wealth is
increased?
 Amount defendant would have paid a
third party for the work?
 Zara’s recovery from the government of
$17,115 for the extra work?
43
Zara Contracting
 The court thought that Restatement
347, comment c was triggered. Was
it?
44
Briton v. Turner 906
 Is there some reason why the nobreach rule should be waived here?
45
Can restitution damages exceed
expectation damages?
 Britton v. Turner
 Aliter a temptation to strategic behavior
by the employer?
46
Can restitution damages exceed
expectation damages?
 Britton v. Turner
 Can the employer bargain around this?
47
Do damages undercompensate?
 The American rule of costs chills
meritorious actions (and encourages
frivolous ones)
 Small dollar claims might not be brought
48
Do damages undercompensate?
 The American rule of costs chills
meritorious actions (and encourages
frivolous ones)
 But class actions remedy this
 And then some?
49
Do damages undercompensate?
 If they do, an argument for punitive
damages?
50
Do damages undercompensate?
 If they do, an argument for punitive
damages?
 Of course, this assumes that the U.S.
has it right and the rest of the world
is really very backward…
51
Do damages
undercompensate?
 Would compensatory damages
undercompensate in Hibschman
Pontiac?
52
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")
53
Do damages
undercompensate?
 What was the “malice, fraud, gross
negligence and oppressive conduct”?
 As opposed to a simple breach of
contract…
54
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?
55
Do damages
undercompensate?
 The jury awarded punitive damages
assessed at 10 times the
compensatory damages
 When is the “first blush” rule triggered?
 5 times is appropriate?
56
BMW v. Gore
 $4,000 in compensatory damages for
selling a used car without disclosing it
had been repainted
 $4,000,000 in punitives, later
reduced to $2,000,000 by the
Alabama Supreme Court
 After USSC weighs in, punitives
reduced to $50,000
57
Do damages overdeter?
 Suppose you’re a potential Δ. Are you
made whole by a finding of no
liability?
58
Do damages overdeter?
 Suppose you’re a potential Δ. Are you
made whole by a finding of no
liability?
59
Miller Brewing
 What was the wrongful behavior?
 And what were the damages?
60
Miller Brewing
 Best Beers a distributor for Miller for
30 years
 Was the termination wrongful?
 Was Miller animated by something other
than its business interests?
61
Miller Brewing
 The court found that Monroe
Beverges performance was in some
ways inferior to Best Beers.
 Is this relevant?
62
Miller Brewing
 Is Hibschman Pontiac overturned?
 The need for an independent common
law tort.
63
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?
64
The Backlash
 Kozinski in Oki America at 992
 Thyssen v. Taiwan Int’l at 923
 State Farm and interstate exploitation
at 925
 Cooter on business judgment
standards
65