Contract Law Module: Lesson 7 - Damages for Breach of Contract

Expectation Measure of Damages

• Objective: Compensate the non-breaching party to place them in the position they would have been if the contract was performed.
• Challenges: Difficulties arise when the cost of performance vastly exceeds the financial benefit.

Case Studies

PV House and Garland Coal and Mining Company

• Scenario: Garland failed to fill in coal pits after mining on PV House's farm.
• Costs:
  • Cost of filling pits: $29,000
  • Diminution in land value: $300
  • Total farm value: $3,500
• Court Decision: Awarded $300 for diminution in value, not $29,000 for performance cost, citing reasonableness and prevention of windfall gains.

Groves and John Wonder

• Scenario: John Wonder failed to level land after gravel removal.
• Costs:
  • Land value: $12,000
  • Cost to level: $60,000
• Court Decision: Awarded $60,000 for cost of performance to prevent rewarding willful breach.
  • Dissent: Argued for diminution in value, focusing on compensating loss rather than punishing the breach.

Legal Principles

Disgorgement Damages

• Purpose: Strip profits from the breaching party, even without direct financial loss to the plaintiff.

Intangible Losses

• Criteria: Courts may award damages for non-economic losses if they are the contract's purpose.
• Example: Jarvis v. Swan Tours - Compensation for loss of holiday enjoyment.

Punitive Damages

• Purpose: Punish the defendant for egregious conduct, granted in rare cases.
• Example: Whitten v. Pilot Insurance - Supreme Court upheld $1 million punitive damages for unjustified claim refusal.

Consequential Losses

• Scope: Limited to losses naturally arising from the breach or foreseeable at contract formation.
• Example: Hedley v. Baxendale - No liability for unforeseeable shutdown loss.

Duty to Mitigate

• Requirement: Plaintiffs must take reasonable steps to mitigate losses.
• Consequence: Failure to mitigate can limit recoverable damages.

Conclusion

• Damages are typically compensatory, not punitive, with exceptions for certain cases.
• Final Note: Remember to check the knowledge questions and engage in the discussion forum.