Expectancy Damages and Breach of Contract

Overview

• Expectancy damages are awarded for breach of contract.
• There is agreement on the underlying rule but disputes on the method of computation.
• The lecture explores two key cases to understand these methodologies.

Case 1: Liengong vs. City of Mandan Weed Board

• A Supreme Court case from North Dakota involving a municipal contract for weed cutting.
• Issue: Improper assignment of lots leading to loss of business for Liengong.
• Main Argument: Different methods used to calculate lost profits.
• Lower Court's Approach: Used a modified net profit approach (deemed incorrect).
  • Profit margin calculated by subtracting expenses from income.
  • Resulted in a 20% profit margin of the contract price.
• Appeal & Correct Approach:
  • Need to differentiate between direct and indirect costs.
  • Direct costs vary with units sold; indirect costs (fixed costs) do not.
  • Only direct costs saved should be deducted from the contract price.

Case 2: Brandeis Machinery vs. Capital Crane Rental

• Involves a breach of contract concerning the sale of a crane.
• Dispute: Methodology for calculating damages.
• Brandeis' Argument: Entitled to full contract price and additional expenses.
• Capital Crane's Argument: Damages should be contract price minus fair market value.
• Court's Decision:
  • Calculated damages as contract price minus market price, plus incidental damages.
  • Incidental damages included costs for inspection and repairs.
  • Total damages awarded: $29,067.

Principles of Damage Calculation

• Methodology exists both under the Uniform Commercial Code and common law.
• For Expectancy Damages:
  • Determine the seller's position if the contract had been performed.
  • Calculate the difference between contract price and market price, plus incidental damages.
  • Ensure the non-breaching party is in as good a position as if the contract was performed, but no better.

Key Legal References

• Uniform Commercial Code Section 2-709
  • Deals with buyer's damages in the event of a breaching seller.
  • Emphasizes making the non-breaching party whole without a windfall.

Conclusion

• Understanding the correct calculation of damages is crucial.
• Next topic will cover the argument between the cost of performance and diminution in value.