Ch. 7 Damages 1

RemediesFall 2014Ch. 7 Damage Remedies

Prof. George W. Conkgconk@law.fordham.edu212-636-7446Room 8-122Adjunct Professor of LawSenior Fellow, Stein Center for Law & Ethics

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Damages in tort

Compensatory damages - Reasonable expectations

honored by making injured party whole

- unreasonable conduct deterred Punitive damages - punishment and deterrence of

conscious wrongdoers

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Damages in contract and quasi contract - remedial purposes

Consensual expectations

vindicated

Gains unjustly retained by

another restored to rightful

possessor

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Contract Damages – Restatement 2d

§ 344 Purposes of RemediesJudicial remedies… serve to protect one or more of the following interests of a promisee:a) his "expectation interest," which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed

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Contract Damages – Restatement 2d

(b) his "reliance interest," which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made

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Contract Damages – Restatement 2d

(c) his "restitution interest," which is his interest in having restored to him any benefit that he has conferred on the other party.

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The conventional measure of damages

The amount necessary to make the victim whole

The award should make the plaintiff indifferent to the breach

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Efficient breach

Wasteful performance avoided Expectation vindicated Wealth maximized

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Taking Account of the time value of money

Lump sum damages Pre-judgment interest Discounting to present value Installment payment of future

losses

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For breach of warranty

Buyer’s damages

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UCC 2-714 § 2-714. Buyer's Damages for

Breach in Regard to Accepted Goods.

(1) Where the buyer has accepted goods and given notification (subsection (3) of Section 2-607) he may recover as damages for any non-conformity of tender the loss resulting in the ordinary course of events from the seller's breach as determined in any manner which is reasonable.

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UCC 2-714 – Breach of warranty (2) The measure of damages for

breach of warranty is the difference at the time and place of acceptance between the value of the  goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount.

(3) In a proper case any incidental and consequential damages may also be recovered.

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UCC § 2-715. Buyer's Incidental and Consequential Damages. (1) Incidental damages resulting from

the seller's breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach.

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UCC § 2-715. (2) Consequential damages resulting from the seller's breach include

(a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and

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UCC § 2-715. (2) Consequential damages resulting from the seller's breach include

(b) injury to person or

property proximately

resulting from any breach of

warranty.

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Dealers Hobby v. Marie Ann Linn Realty (IA 1977) p. 569 Plaintiff sought $193,082.23 - the

difference between the fair rental value of the premises as warranted and the fair rental value of the premises as they actually existed for the entire duration of the lease prior to the collapse.

Why shouldn’t they get retroactive rent reduction?

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Types of damages for breach of covenant to keep building in good repair 1) Consequential damage to

merchandise and business 2) Difference between rental value as

promised and as they were during occupancy

3) Punitive damages

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Dealers Hobby v. Marie Ann Linn Realty (IA 1977) p. 569

No rule of the law of damages permits the injured party to receive more than he has lost.

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Dealers Hobby v. Marie Ann Linn Realty (IA 1977) Specific rules are subordinate to the

general rule that compensatory damages are designed to put the injured party in as good a position as he would have had if performance had been rendered as promised

A given formula is improvidently invoked if it defeats a common sense solution

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Dealers Hobby v. Marie Ann Linn Realty (IA 1977) Action for damages after a partial

collapse of the roof of the leased warehouse

Proper measure of damages for the landlord's breach of an express warranty to maintain and repair the roof of a commercial warehouse was the tenant's actual loss

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Dealers Hobby v. Marie Ann Linn Realty (IA 1977) Consequential Damages Damages to merchandise and

inventory together with incidental damages which totaled $16,037.94

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Basiliko v. Pargo Corp., (D.C. 1987) p. 576 The trial judge applied the `English Rule’: the purchaser at a void foreclosure

sale, "relieved as he is of paying the purchase price . . . also loses what would otherwise be his own correlative position as an innocent purchaser for fair value,

Basiliko therefore "loses any right to sue the [sellers] for breach of contract to recover in damages the benefit of his bargain."

Doesn’t this correctly restore Buyer to status quo ante – with no loss?

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Expectancy measure of damages

Majority rule

"American rule" on breach of contract

allows the frustrated purchaser of real property the benefit of the bargain he has negotiated.

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Basiliko v. Pargo Corp., (D.C. 1987)

A seller who breaches an executory contract for sale of realty is liable for damages measured by

Difference between the sales price and the fair market value at the time the property should have been conveyed

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Basiliko v. Pargo Corp., (D.C. 1987)

On remand, the trial court must determine what that fair market value would have been…,

"the price that an owner willing but not compelled to sell ought to receive from one willing but not compelled to buy."

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Net “actual loss” is measure

• Offset expenses saved:• closing costs• brokerage commissions• incidental expenses

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Basiliko v. Pargo Corp., (D.C. 1987)

The trial court may consider as evidence the price at which Basiliko had agreed to resell the property to Pargo Corporation.

A resale contract provides sufficient evidence of fair market value on which to base an award of damages for breach of the initial sales contract

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ChatlosSystems v. NCR (3rd Cir) 1982, p. 580 Warranty exceeded capability of

machine Damages: Contract price: $46k FMV $207,826 Value as delivered: $6k Net: $201,826 Plus interest Is UCC 2-714 correctly applied?

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N.J. Stat. § 12A:2-714 (2) The measure of damages for

breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount.

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Chatlos Systems Is the dissent correct? Isn’t the result

a windfall? “There is no probative evidence to

support the district court's award of damages for the breach of warranty in a sum amounting to almost five times the purchase price of the goods.”

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9 elements of fraud cause of action (1) a representation of an existing

fact, (2) materiality (3) falsity (4) speaker's knowledge of falsity or ignorance of truth, (5) intent that representation be acted on by the person to whom it is made (6) ignorance of falsity by the person to whom it is made (7) reliance on the truth of the representation 8) right to rely upon it, and (9) consequent damage.

Was Sanders defrauded? What was her loss?

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Liberty National (ALA 2000) p. 584 Fraud cause of action Knowing material misrepresentation

of fact Justifiable reliance Loss Measure of damages: value as

represented vs. value in reality

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TERRA-PRODUCTS v. KRAFT GEN. FOODS, INC., (Ind. Ct. App. 1995), p. 588 Terra demands: Lost land value: Appraised value

absent contamination minus auction price

Cost of two week shutdown during relocation

$3M stigma damages

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TERRA-PRODUCTS v. KRAFT GEN. FOODS, INC., (Ind. Ct. App. 1995), p. 588 Hybrid measure of recovery The fundamental measure of

Terra's damages is any reduction in the fair market value of Terra Site caused by Kraft.

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TERRA-PRODUCTS v. KRAFT GEN. FOODS, INC., (Ind. Ct. App. 1995) Temporary vs. Permanent Injury

The measure of damages in a case of injury to real property depends first upon a determination of whether the injury is "permanent" or "temporary."

Permanent injury to unimproved land occurs where "the cost of restoration exceeds the market value . . . prior to injury."

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TERRA-PRODUCTS v. KRAFT GEN. FOODS “total loss”

If the injury is permanent, the measure of damages is limited to the difference between the fair market value of the property before and after the injury

Rationale: "economic waste" results when restoration costs exceed the economic benefit.

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TERRA-PRODUCTS v. KRAFT GEN. FOODS, INC., (Ind. Ct. App. 1995) p. 514

Temporary injury Cost of repair is less than value of

damaged property

For a temporary injury the proper measure of damages is the cost of restoration.

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TERRA-PRODUCTS v. KRAFT GEN. FOODS,

If ... the value of Terra Site after remediation was less than its value before discovery of PCB contamination, the property was permanently damaged.

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TERRA-PRODUCTS v. KRAFT GEN. FOODS,

Hybrid theory: Prove reduction in fair market

value “by a combination of cost of repair and evidence of FMV before the causative event and FMV after repair

If repair will not restore value P is entitled to the reduction in value

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TERRA-PRODUCTS v. KRAFT GEN. FOODS, Stigma? Terra would be entitled to

compensation for any "remaining loss" in the property's fair market value after remediation in that, under such circumstances, remediation would be inadequate to compensate Terra fully for its loss.

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the market value of chattels

Actual Cash Value

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O'Brien Bros., Inc. v. The Helen B. Moran, 160 F.2d 502, 505 (2d Cir. 1947) p. 595

Pound, Ch. J., in the New York Court of Appeals, discussed the principles involved where an automobile was injured in a collision and the repairs were found to cost more than the vehicle was worth:

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O'Brien Bros., Inc. v. The Helen B. Moran 'The damages sustained by an

automobile in a collision may be established by showing the reasonable cost of the repairs necessary to restore it to its former condition, although the general rule is that the measure of damages to personal property is the difference between its market value immediately before and immediately after the injury.’

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O'Brien Bros., Inc. v. The Helen B. Moran Windfalls not permitted

This rule is subject to the limitation, first, that the cost of repairs must be less than the diminution in market value due to the injury, and secondly, that the repairs must never exceed the value of the automobile itself as it was before the injury.

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O'Brien Bros., Inc. v. The Helen B. Moran Total loss Where the automobile is totally

destroyed, the measure of damages is its reasonable market value immediately before destruction.

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Semenza v. Bowman (MT 1994) p. 599

Damage to crops by improper spraying

Date for measuring loss: 1) Date of injury 2) Date of harvest 3) Date of sale Why does the court pick the date of

sale?

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Fukida v. Hon/Hawaii (2001) p. 609 Where a person is deprived of the

use of his or her property due to the tortious conduct of another, he or she may recover loss of use damages…for the period of time reasonably necessary to

- effect repairs - obtain a replacement - recover possession

The value itself is not determinative

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Fukida v. Hon/Hawaii (2001) p. 609

Why doesn’t Fukida need to show he actually rented a substitute vehicle?

Should damages be capped at the value of the chattel?

What is a “reasonable period of loss of use”? Suppose owner has bad credit and no cash?

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UCC § 2-715. Buyer's Incidental Damages. (1) Incidental damages resulting from

the seller's breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach.

(2) Consequential damages resulting from the seller's breach include

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United Truck Rental v. Kleenco (HW 1996) p. 602 Two kinds of loss Loss of chattel - ACV Loss of use 1) Rental value – reasonable period of time - must deduct costs saved 2) Cost of renting a substitute 3) Net profits that could have been

made from use

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Heirlooms and Unique Objects

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Three approaches to value (O’Brien)

1) Market value of similar property 2) Replacement cost 3) Capitalization of earnings Less depreciation of the damaged

chattel

Which is most appropriate for Amorita?

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Capitalization of net earnings

To produce a 1 year income stream of $15,000 @ 6% discount rate how much do you need today?

Year 1 $15,000 x 1/1.06 = PV $14,150.94

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Restat 2d of Torts, § 911 Value (1) As used in this Chapter,

value means exchange value or the value to the owner if this is greater than the exchange value.

Since Amorita is “an undying love” should the owner recover the rebuilding cost which exceeds the price of another boat of the same type?

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Restat 2d of Torts, § 911 Value (2) The exchange value of

property or services is the amount of money for which the subject matter could be exchanged or procured if there is a market continually resorted to by traders, or if no market exists, the amount that could be obtained in the usual course of finding a purchaser or hirer of similar property or services.

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Duty to mitigate damages

Claimant must take reasonable measures to limit its losses

A matter of proximate cause, not duty

Burden may be on breaching party – e.g. lessee in NY

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Hadley v. Baxendale lives

Consequential damages under the UCC

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Miss. Chem. Corp. v. Dresser-Rand Co. (5th Cir. Miss. 2002) p. 618

In the event of a breach of warranty, a buyer may seek direct, incidental, and consequential damages.

MISS. CODE ANN. § 75-2-714.

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Miss. Chem. Corp. v. Dresser-Rand Co. (5th Cir. Miss. 2002)

 Under the Mississippi UCC 2-715, "consequential damages" include:

(a) Any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and

(b) Injury to person or property proximately resulting from any breach of warranty.

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Miss. Chem. Corp. v. Dresser-Rand Co. (5th Cir. Miss. 2002)

Lost profits are recoverable as consequential damages if :

(1) the seller had reason to know at the time of contracting that if he breached the contract, the buyer would be deprived of those profits -- i.e., the lost profits were foreseeable;

(2) the lost profits are reasonably ascertainable; and

(3) the lost profits could not have been reasonably prevented.

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Miss. Chem. Corp. v. Dresser-Rand Co. (5th Cir. Miss. 2002)

MCC's damage : 1) MCC computed the profit per unit of

ammonia during each of the three malfunctioning periods.

2) It estimated the quantity of ammonia lost in each malfunctioning period because of the reduction in the speed of the compressor train.

3) It multiplied the profit per unit by the number of units lost to come up with the total amount of damages (i.e., lost profits) caused by the malfunctioning compressor train.

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Mississippi Chemical v. Dresser “Cover”

Duty to mitigate damages

Causal relationship between breach and loss

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The time value of money

Interest & Discounting

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Lump sum damages The norm in tort and breach of

contract Statutory exceptions: Oil

Pollution Act, workers compensation

Past damages - interest Future damages - discounted

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Interest as Consequential damages for loss of use of money or to vindicate contractual expectations Prejudgment interest from day of

filing complaint to verdict is commonly allowed

May be discretionary with judge or other fact-finder

Contractual rate of interest in event of breach often the measure

Or courts may employ the “legal” or prevailing rate of interest

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Prejudgment interestSemenza v. Bowman (Mont. 1994)p. 599

Section 27-1-212, MCA: "in an action for the breach of an

obligation not arising from contract and in every case of oppression, fraud,  or malice, interest may be given, in the discretion of the jury.“

This also applies where the judge is the

fact finder

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Interest – Wrongful death - NY Interest Is Recoverable In Wrongful Death

Actions

EPTL § 5-4.3 provides that ''[i]nterest upon the principal sum recovered by the plaintiff from the date of the decedent's death shall be added to and be a part of the total sum awarded.''

4-242 Warren's Negligence in the New York Courts § 242.03

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Incommensurability and estimation

Personal Injury Damages

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The cardinal principle "The cardinal principle of damages in

Anglo-American law is that of compensation for the injury caused to the plaintiff by defendant's breach of duty" where compensation consists of "repairing plaintiff's injury or ... making him whole as nearly as that may be done by an award of money."

Harper & James, The Law of Torts

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Compensatory damages irrelevant considerations?

- punishment - deterrence - spreading the wealth - helping those less fortunate than

we

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Limits on damages Caps on damages- constitutional vulnerability* Charitable immunity (partial/whole) Limits on governmental liability- no prejudgment interest- credit for payments by collateral

sources The American Rule on counsel fees Litigation costs

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Special problems in PI damages Full compensation or fair

compensation? Measurement of non-economic

loss damages Incommensurability of money

with personal injury losses and death

Evidence of collateral sources excluded

Lump sum damages

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Elements of damage

Special Damages

Property damage (actual cash value)

Lost income - past and future

Medical bills and other repair costs (including job training)

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Elements of damage

Non-economic damages- pain, suffering, disability and

impairment- (including hedonic damages)

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Elements of damage

Spousal damages

per quod - spouse’s medical expenses, gratuitous care rendered to the spouse, the impact on the marital relationship, loss of companionship, loss or diminishment in quality of sexual relationship

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Seffert v. Los Angeles Transit Lines p. 556 (CA 1961)

Non-economic: $134,000 Special damages:Medicals: $10,330

Drugs: $2,273Future medicals $25,800 Lost earnings

to time of trial $5,500

Possible future lost earnings $ 10,000

Total pecuniary loss $53,903

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Medical expenses – “reasonable and necessary”

charges for medical expenses must be reasonable and recovery is limited to necessary (medically warranted, etc.) expenses.

statutory or regulatory controls on charges may define the outer limit of reasonableness. E.G.:

In New York service charges for the health services listed are limited to the amounts permissible under Workers' Compensation Law schedules for industrial accidents.

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The collateral source rule Bryant v. New York City Health &

Hosps. Corp., (N.Y. 1999):

Evidence of compensation received from a source other than the tortfeasor is inadmissible

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Tort `reform’ NY CLS CPLR § 4545  Admissibility of collateral source of payment

If … any such cost or expense was or will be replaced or indemnified from any collateral source, it shall reduce the amount of the award by such finding, minus an amount equal to the premiums paid by the plaintiff for the two-year period immediately preceding the accrual of such action and minus an amount equal to the projected future cost to the plaintiff of maintaining such benefits.

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Exceptions to tort-reform limit on collateral source exclusionary rule Union/Mgt welfare funds Workers comp benefits FELA – health insurance

payments FTCA – US does not repay liens Medicare - 42 USC 1395y Medicaid