“Currently, in my Contracts class, we are going over remedies (damages). More specifically, expectancy, reliance, and restitution damages. During class I felt lost when we were going over damages problems. We were doing calculations on how to find the different amounts of damages. I was really having a hard time grasping the concept. I was wondering if you had any suggestions for me. How could I grasp this concept thoroughly? How did you get to understand damages when you went to law school? Are there any specific study aids that you would recommend regarding damages?”
Contract remedies are tricky business. But, as you probably already know, you will surely be asked to address the various contract remedies on your exam.
In your question, you ask about three types of monetary (sometimes referred to as “natural”) damages that can be awarded to compensate a non-breaching party. However, if you truly want to master the rules you are learning in Contracts (or any class), it is important that you not learn them in a vacuum; you must not only learn and understand the rules for obtaining different types of monetary damages, but you must also comprehend how those damages fit into the broader picture of contractual relief (whether monetary or non-monetary).
To assist me in this process when I was in law school, I created a step-by-step analysis for any contractual remedies question. Please be advised that, while this aided me in my studies, you should tailor you approach to what your professor is teaching in class and check for any changes in the law.
Analysis of Contractual Remedies Questions.
There are four basic types of relief for contractual breaches: 1) Money Damages; 2) Specific Performance; 3) Rescission and Restitution; and 4) Reformation. When analyzing contractual remedies questions, it is always best to ask yourself the following questions, in order:
A) Do the parties simply want to modify an incorrect written agreement to reflect their actual agreement? If so, the remedy they seek is REFORMATION.
B) Does the Plaintiff want to return the parties to the position they were in before the contract was formed, as though the contract never existed? If so, the remedy is RESCISSION and RESTITUTION.
C) Would money damages be inadequate to compensate the Plaintiff? If not, because, for instance, the subject matter of the contract is unique (e.g., sale of land or a one-of-a-kind work of art), look to SPECIFIC PERFORMANCE. If so, go through the damages analysis starting with Point “D” below.
D) Is there a liquidated damages clause in the contract? If it’s valid, then it controls for damages.
E) What are the non-breaching party’s “natural” contract damages? The rule here is that the plaintiff is entitled to the gains prevented and losses caused by the breach, less the savings made possible. This rule is sometimes stated differently, but amounts to the same thing; separating the non-breaching party’s compensable interests into three categories: (i) Expectation Interest, (ii) Restitution Interest, and (iii) Reliance Interest.
(i) EXPECTATION DAMAGES give the non-breaching party the benefit of his bargain by paying him the value of the contract had it been fulfilled. Expectation Damages are merited if the non-breaching party proves their existence and amount to a reasonable certainty. If the Expectation Damages are unavailable because they’re uncertain or non-existent, the non-breaching party will be entitled to “natural” contract damages in the form of “RESTITUTION” or “RELIANCE” damages.
(ii) RESTITUTION DAMAGES give the non-breaching party the money equivalent of the benefits he conferred on the defendant.
(iii) RELIANCE DAMAGES compensate the non-breaching party for his detriment in changing position in response to the promise.
F) Is the non-breaching party entitled to “CONSEQUENTIAL DAMAGES”? That is, damages that wouldn’t normally flow from the breach in question, but are instead due to the unique circumstances of the non-breaching party? Remember, Consequential Damages are only available if they were reasonably foreseeable to the breaching party when the contract was formed.
G) Is the non-breaching party entitled to “NON-COMPENSATORY DAMAGES” (i.e., nominal damages or punitive damages)? Nominal Damages are symbolic damages (e.g., $1), appropriate where the non-breaching party didn’t suffer any actual damage or couldn’t prove that he/she did. Punitive Damages are intended to punish malicious conduct and are not normally available for contract actions unless they accompany a malicious tort (e.g., fraud).
H) Should the non-breaching party’s damages be reduced for his/her failure to mitigate? That is, the non-breaching party must take reasonable steps to minimize his/her loss — if reasonable steps are not taken to do so, the damages award will be reduced accordingly.
I think this covers all the bases and this type of analysis helped me score an “A” my Contracts exam. I also know that the best way of understanding contractual remedy questions is by practicing their application. Regardless of what casebook you are using, exam practice aids like BarBri AMP For Contracts or Law-In-A-Flash: Contracts are a great way to practice. These study aids explain black-letter contracts rules in clear, concise language and then provide hypothetical fact patterns to show how they would be applied. I highly recommend working with these exam practice aids as you cover different areas in class.
I hope this has been helpful. Good luck and keep those questions coming.