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CALIFORNIA REMEDIES PROFESSOR LINDA PUERTAS

UNIVERSITY OF CALIFORNIA-IRVINE

CHAPTER 1: INTRODUCTION; DAMAGES

Exam Tip 1: Remedies is a frequently tested topic on the California Bar Exam. It may be tested independently or with other topics.

Exam Tip 2: The prompt for a remedies question will likely ask, “what rights and remedies does the party have?”

Exam Tip 3: When you are given dollar amounts in a prompt, demonstrate basic math!

A. Overview

1. Damages

2. Injunctive relief and other equitable remedies

3. Restitution

• The default goal is to maintain the ____________________________ position standard.

o Choose the remedy that puts the plaintiff back or keeps the plaintiff in the position he would have been in but for the ________________

B. Damages in General

Exam Tip 4: An award for damages is the most frequently tested remedy.

• Damages: Monetary award intended to compensate the plaintiff

T (-) --------------------------------------0------------------------------------ C (+)

Status Quo Ante

1. Torts

o Goal: restore the plaintiff to the same position she would have been in before the tort (make the plaintiff whole)

o The focus is _________________________________________ o Compensatory damages: past and present harm as well as future harms (medical expenses,

lost wages, loss of other income)

2. Contracts

o Goal: put the plaintiff in the same position he would have been in if the defendant had performed the contractual obligations

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o The focus is ______________________________________________

Exam Tip 5: It is a good idea to state that the rightful position standard is the default standard.

C. Types of Damages

• There are six types of damages:

Note 1: Try this mnemonic to remember the types of damages: The Corn Ran Rather Neatly Past the Lane.

1) Compensatory

2) ____________________________________

3) Restitution

4) Nominal

5) ____________________________________

6) Liquidated

1. Compensatory Damages

o Intended to compensate the plaintiff for a legally recognized _____________ or injury.

a. In Tort: Look for physical and emotional damages

1) Pain and Suffering

Example 1: Anna is in a serious subway accident and loses both of her legs. Loss of her legs would allow Anna to recover damages for pain and suffering.

Note 2: If a plaintiff is in a vegetative state or a state in which she cannot experience pain (i.e., dead), pain and suffering damages might not be available.

a) Hedonic Loss

o Compensates for the loss of ___________________________ of the value of life

Example 2: Anna is in a serious subway accident and loses both of her legs. In addition to pain and suffering, she can also seek hedonic loss damages.

Note 3: In California, hedonic losses are part of pain and suffering damages.

2) Emotional Distress Damages

• Compensation for emotional distress caused by fear, _________________________, humiliation, or loss of freedom

Example 3: Anna may be compensated for the emotional distress arising from the fear she experienced during the accident, anxiety she experiences now when she is near a subway.

CA Remedies | © 2016 Themis Bar Review, LLC | 3

• Emotional damages are always available in tort if you have a _________________________________ injury (parasitic, ancillary)

• If there is no physical injury, the defendant’s conduct must have been ______________________________________ or outrageous (beyond negligent)

3) Medical Expenses

• Past, present, and ___________________ medical expenses

Exam Tip 6: Medical expenses should be discussed separately from pain and suffering.

4) Loss of Income

• Present inability to work while hospitalized, and • Inability to work in the future (if the injury caused the inability)

Note 4: Remember, the goal in tort is retrospective. The goal is to return the plaintiff to the status quo as if the accident never occurred.

CHAPTER 2: DAMAGES (CONT’D)

D. Types of Damages (Cont’d)

1. Compensatory Damages (Cont’d)

a. In Contract: Expectancy Damages

Formula: (MP – KP) + (CD/ID) – ($ saved) = Expectancy Damages

1) Subtract the contract price (KP) from the market price (MP) of the goods

2) Add any additional consequential damages (CD) and/or incidental damages (ID)

3) Subtract money the plaintiff could have saved

Examples:

On August 31, Bob contracts with Seller Sally to buy $1000 worth of apples from her apple farm to be delivered on October 2. Sally will charge Bob a $200 delivery fee in addition to the cost of the apples.

a. Seller Breaches: September 30, Sally tells Bob she cannot sell him any apples because a pest destroyed her entire crop. The market price for the same amount of apples on that day is $1,200. Bob sues Sally for breach of contract. What are his compensatory damages?

i. KP = ________________

ii. MP = ________________

iii. (MP – KP) = ______________


Assume Bob lost three days of sales as a result of Sally not delivering the apples. Bob can determine with certainty that he lost $500 worth of profits. Bob also paid $50 in overtime for a worker to move an apple display from the front of his market.

Note 5: Consequential Damages (CD): Any damages that naturally result from the seller’s breach.

Note 6: Incidental Damages (ID): Costs leading up to the breach in reliance on the contract.

Buyer’s ID: cost to inspect and receive the goods, the cost of alternative transportation, the cost of returning the apples, etc.

Seller’s ID: the cost of stopping delivery or production, transporting goods to another buyer

Note 7: Damages must be proven with reasonable certainty. Lost profits and other estimated harm can be difficult to prove with reasonable certainty.

Exam Tip 7: On the exam, damages leading up to and naturally resulting from the breach of contract can be discussed together as “consequential/incidental” damages.

iv. CD/ID = _______________

Note 8: Any money that the non-breaching party saved as a result of the breach ($ saved) must be subtracted from the total award.

v. $ Saved = ____________________

vi. ($1200–$1000) + ($550) – ($200) = Total

vii. TOTAL Compensatory Damages: ______________

Exam Tip 8: Explain every step and show your work!

b. Buyer Rightfully Rejects: Instead of Sally telling Bob that she would not deliver the apples on September 30th, Sally delivers the apples to Bob’s store on October 2. Bob finds the apples are pest-infested. Does the calculation for expectation damages change?

i. Answer: ___________.

Note 9: When the buyer rightfully rejects the goods, or learns that there has been a breach, or justifiably revokes acceptance, the buyer is entitled to the same expectation damages.

c. Assume the market price did not change from when Sally called Bob on September 30th to tell him she could not deliver the apples to October 2 when she delivered the pest infested apples.

i. Bob is entitled to the same amount of compensatory damages: $550


Note 10: Under the UCC, Bob has the right to the above compensatory damages. Plus, he has the right to sell the goods.

Note 11: After the seller breaches, the buyer has several options. First, he can take no action and recover expectation damages. Second, the buyer can cover. Third, he can accept the goods and sue for breach of warranty.

d. Buyer Covers: On October 1, Bob finds another seller from which to buy the same type and amount of apples for $1300. The new seller will charge Bob $100 to deliver the apples because this seller’s farm is closer than Sally’s. This seller will also charge Bob a “rush fee” of $50. What are Bob’s compensatory damages?

i. Formula: (CP – KP) + (CD/ID) – ($Saved) = Expectation Damages

ii. Cover price (CP) = ________________

Note 12: Cover Price = the cost to replace (cover) the goods.

Note 13: The cover price might be greater than the market place. The cover price is still considered because we want to incentivize people to mitigate their losses.

iii. KP = __________________

iv. CD/ID = _________________

v. $ Saved = _____________________

vi. TOTAL Compensatory Damages = _____________________

e. Buyer accepts non-conforming goods: Bob accepts the apples Sally delivered because he can sell half of them.

Note 14: If the buyer accepts nonconforming goods, the buyer can sue for breach of warranty.

i. Formula: (Value as warranted – value as accepted) + (CD/ID) – ($Saved) = Expectation Damages

ii. Value accepted: ________________

iii. Value as warranted: ____________________

iv. Difference: ____________________

Note 15: Continue the formula with consequential/incidental damages and any money saved to find the total expectation damages.

Note 16: Remember the goal of compensatory damages is to maintain the rightful position standard.

Exam Tip 9: Always start your analysis with compensatory damages.


CHAPTER 3: DAMAGES (CONT’D)

E. Types of Damages (Cont’d)

2. Reliance Damages

o An alternative to expectation damages in contract o A plaintiff may be awarded money damages based on his _________________________

interest o Reliance interest damages include: expenses made in _______________________________

for performing the contract and expenses in performing the contract. o Compensatory damages are generally preferred. Reliance damages may be preferred when:

Plaintiff cannot prove profits The evidence shows the plaintiff would have lost profits on the contract Plaintiff (non-breaching party) has a problem with _______________________________

part of a contract claim

Example 4: Lack of consideration, noncompliance with the Statute of Frauds

Compelling public policy reasons for limiting expectation damages Plaintiff (non-breaching party) cannot prove reasonable expectation damages with

certainty

Exam Tip 10: Analyze expectation damages first. If these damages seem unfair or do not make the plaintiff whole, consider reliance damages.

3. Restitutionary Damages

o An alternative to expectation damages in contract o The plaintiff may be awarded money damages based on the benefit

__________________________________ on the defendant by their own conduct o Gains-Based Recovery: What the defendant gained by breaching the contract o Restitution involves unjust enrichment and how to compensate the plaintiff

Note 17: Restitution is both a cause of action and a type of damages. Both involve unjust enrichment.

o Appropriate where there is a ___________________________________ of contract by the defendant and the defendant gains from the breach

4. Nominal Damages

o Alternative to expectation damages in tort or in contract o The plaintiff has established all other elements of a cause of action but cannot show great

harm or loss o Why are nominal damages ($1) available?


It can give the plaintiff a ___________________________________ judgment or entitle the plaintiff to litigation costs, if those costs are part of the cause of action.

o Remember: Nominal damages are not available in some causes of action

5. Punitive Damages

a. In Tort

Meant to _____________________ a defendant who engages in serious or wanton misconduct with an improper state of mind

You usually ___________ compensatory damages in tort to receive punitive damages Not meant to restore the plaintiff, they are meant to punish and deter Punitive damages cannot violate the Fourteenth Amendment Due Process Clause by

imposing a ____________________ excessive punishment.

a) The following facts are considered in determining whether punitive damages are grossly excessive:

i) __________________ of reprehensibility of defendant's conduct;

ii) Difference or _______________________ between the harm and potential harm suffered by the plaintiff and the damages awarded; and

iii) Difference between this award and the _______________ penalties awarded in other similar cases

b) In determining reprehensibility, look for:

o Harm that was _________________________ rather than purely economic o Tortious conduct that demonstrated an indifference to or __________________

___________________________ for the health and safety of others o Particularly vulnerable defendants or victims (financially or physically) o Conduct happening multiple times o Intentional malice, trickery, or deceit rather than mere negligence

c) Proportionality: A punitive damages award that exceeds a ____________________ _______________ ratio to the compensatory damages likely violates Due Process

d) Consider the defendant's wealth or net worth

b. In Contract

Punitive damages are not frequently awarded in contract Punitive damages may arise in contract if:

• The defendant's conduct is also tortious; or • There is a _____________________________ or body parts involved


Example 5: If a funeral home failed to properly dispose of a body. If the family sues the funeral home in a contract action, you might want to raise punitive damages (after discussing compensatory damages).

o Remember to "hook" punitive damages onto another type of damages

Punitive damages must general attach to another type of damages. Punitive damages can hook onto a nominal damage award.

6. Liquidated Damages

o Damages ____________________ upon by the parties in the formation of the contract

Damages that are part of the bargain

Example 6: Revisit the apples example. When Bob contracted with Sally to purchase $1000 worth of apples on Oct. 2. The parties recognized that there is a high demand for apples in the fall, that there was a virulent pest coming through California, and that apples may be impacted by drought. It would be reasonable for them to include a liquidated damages clause in their contract that set forth that Bob could lose a predictable amount of profits if Sally was unable to deliver.

o Liquidated damages must be reasonable

Reasonable in the __________________________________ loss at the time of the contract or the actual loss the parties had as a result of the breach

Courts will not enforce an unreasonable liquidated damages clause

o Courts will not enforce a liquidated damages clause that requires ______________________ enforcement

Exception: agreements to arbitrate are enforceable

B. Review of Damages based on Cause of Action

1. Contract Damages Available:

o Compensatory/Expectation Damages (as if the contract had been completed)

(MP – KP) + (CD/ID) – ($ saved) = Expectation Damages

o Reliance Damages (alternative to expectation damages) o Restitutionary Damages (alternative to expectation damages) o Nominal Damages (alternative to expectation damages) o Bargained-for Liquidated Damages

2. Torts Damages Available:

o Compensatory Damages (as if the tort had never happened)

Pain and suffering (including loss of enjoyment or hedonic damages)


Medical expenses Other expenses (loss of income) Emotional damages (can always "hook" onto physical damages)

o Nominal Damages (alternative to compensatory damages) o Punitive Damages (hooked to nominal or compensatory damages) o Restitutionary Damages (alternative to compensatory damages)

C. Practice from July 2013 California Bar Exam

Paul owns a 50-acre lot in the country. Doug owns a smaller unimproved lot to the north. A stream runs through Paul’s lot near the boundary line with Doug’s lot. Paul has a house at the south end of his lot and uses it for summer vacations.

Doug began to clear his land to build a house. To do so, he had to fell trees and haul them to a nearby lumber mill. He asked Paul if he could take a short cut across Paul’s lot to the mill, and Paul agreed. On his first trip, Doug dumped his trees on Paul’s land near the stream, in a wooded area Paul was unlikely to see, much less use. Some of the trees rolled into the stream, blocking its natural flow.

Paul left for the winter. As a result of the winter’s normal rainfall, the stream overflowed, causing water to rush down to Paul’s house at the other end of the lot, flooding his garage and damaging a 3-year-old motorcycle.

Paul returned in the summer and learned what had happened. It will cost $30,000 to remove the trees. The trees’ presence on the lot has depressed its market value from $50,000 to $40,000. It will cost $5,000 to repair the motorcycle, and $4,000 to buy a new one.

What torts did Doug commit? What remedies can Paul seek?

a. Compensatory damages first:

i. Doug will argue he is only liable for the $10,000 reduction in the market value of the property. Because Paul does not use or see the wooded area, the damage is only $10,000.

ii. Paul will argue that the trees caused a host of other damages including damages to the motorcycle and his garage. Because this was a natural result of normal rainfall, the damage could occur again in the future. So, Doug should pay the $30,000 for the tree removal to put Paul back in the position he would have been in but-for Doug's tortious conduct.

b. Restitutionary damages:

i. Doug received a benefit by not hauling the trees to the nearby lumber mill. Doug was given a gift (or unjustly enriched) by not taking the trees all the way to the mill.


Editor's Note 1: The Professor mixed up the parties when speaking about restitutionary damages. Doug benefited from his tortious conduct.

c. Punitive damages:

i. Assuming you discussed the available torts, and established compensatory damages, punitive damages could be awarded if proportional to the actual damages (a single-digit ratio to either $10,000 or $30,000).

d. Nominal damages:

i. Not an issue because we are told the actual damages are either $10,000 or $30,000.

ii. Assume that the fact pattern did not provide an amount of damages and there was no actual damage to the property. It might be appropriate to discuss nominal damages. Paul could seek nominal damages to get declaratory judgment and to "hook" punitive damages.

CHAPTER 4: LIMITATIONS ON DAMAGES

• There are several types of limitations on damages

Note 18: Try this mnemonic: Friendly Cows Create Cheese And Buttery Eats

1) Foreseeability in torts

2) Causation

3) Consequential damages naturally arising from

4) Certainty

5) _______________________________ Consequences

6) Benefits (the reduction for)

7) _________________________________

D. Foreseeability in Torts (“Friendly”)

• A plaintiff is required to establish both proximate cause and actual cause • Discuss whether the harm to the plaintiff was reasonably

______________________________________ at the time the defendant breached its duty • If the plaintiff’s harm comes from a risk that was not reasonably foreseeable, the defendant is

not liable for this harm

E. Causation (“Cows”)

• The defendant must have caused the plaintiff’s injury • ______________________ the defendant’s conduct, the plaintiff would not have suffered injury


F. Consequential Damages Naturally Arising From (“Create”)

• Damages that _______________________ arise from the breach are recoverable

Example 7: Bob and Sally apple example. The second seller’s rush fee and lost profits were consequential damages.

• Consequential damages may be recovered only if they were within the parties’ ____________________________________ or reasonably should have been at the time of the contract

Example 8: A travel company put an ad in the phonebook saying every person listed in the phonebook was entered to win a free golf trip to Scotland. Polly listed her name in the phone book and was informed that she had one the free trip. Polly purchased a bottle of champagne, new luggage, and golf clubs. She also quit her job after her boss declined to give her two weeks of unpaid vacation. The travel company then told Polly that it could not send her on the trip. All of the harms to Polly were consequential (resulting from the travel company’s breach).

a. Purchasing the champagne, luggage, and golf clubs were foreseeable and reasonably within the travel company’s contemplation at the time it ran the advertisement.

b. Polly’s loss of income was not reasonably foreseeable. The travel company did not expect that she would quit her job to go on a free two-week vacation. So, Polly should not receive damages for her loss of income.

G. Certainty (“Cheese”)

Exam Tip 11: Certainty is one of the most frequently tested damages limitation.

• To recover damages in tort or contract, the plaintiff must establish these damages with ___________________________ certainty.

• In tort: damages must be proven by a preponderance of the evidence (more likely than not)

o Both parties will likely call experts to prove ____________________ damages (medical costs, lost wages, etc.)

• In contract: damages must be proven with a greater degree of ___________________________ than in torts cases

o Business claiming __________________________

Established business: plaintiff can more easily show lost profits using previous years New business or new line of business: it may be difficult for the plaintiff to prove lost

profits damages with reasonable certainty


H. Avoidable Consequences (“And”)

Exam Tip 12: Avoidable consequences is also frequently tested.

• The plaintiff can be denied recovery for any harm or loss she could have _______________________________ avoided.

Exam Tip 13: If all else fails, discuss whether each potential category of damages in the fact pattern is reasonable.

• The burden is on the ___________________________ to show that the plaintiff could have reasonably avoided the harm or loss.

• There is no affirmative duty for the plaintiff to avoid future harms or losses. However, the defendant can raise it to reduce damages.

Example 9: A boy kicked another boy in the leg. The plaintiff was an eggshell plaintiff and lost his entire leg. The defendant was liable for the loss because in general, an injury was foreseeable, even though the specific type of harm (losing a leg) was not foreseeable by the defendant.

Example 10: Instead of being an eggshell plaintiff, the boy had a more normal response to being kicked (bruises and cuts). If that injury became infected and plaintiff did not seek medical attention, and as a result of not seeking treatment, the plaintiff then lost his leg, the defendant might seek a reduction in damages. The defendant can argue that the plaintiff could have reasonably avoided losing his leg by seeking medical attention.

Example 11: A city contracted with a company to build a bridge. The company spent $1,900 in labor and materials in anticipation of building the bridge. The city breached the contract because the bridge was no longer needed. The city repudiated the contract. What was the company entitled to?

a. The company was entitled to recover the $1,900 in labor and materials.

b. The company was also entitled to lost profits ($8,000 in anticipated profits).

Example 12: If the company continued to build the bridge despite the repudiation and spent an additional $10,000, the avoidable consequences rule would limit their damages. The company could have reasonably avoided these additional costs.

• If the plaintiff makes reasonable _________________________ to avoid the harm or loss, she can still be awarded damages even if her efforts are unsuccessful.

o Her costs incurred in trying to avoid additional damages can also be recovered as damages

• A plaintiff is not required to do everything in order to reduce damages.

Example 13: Shirley MaClaine had a contract with Twentieth Century Fox to star in a musical filmed in California. Fox breached the contract and offered her


a part in a western filmed in Australia. She sued Fox for her expectation damages. The court held that she was not required to film the western because it was different and inferior.

I. Benefits (reduction for) (“Buttery”)

• The plaintiff’s recovery is reduced by the benefits that result from the defendant’s ___________________. But not by the benefits obtained from collateral sources or other sources.

• If the defendant’s breach results in a savings to the plaintiff, this savings is subtracted from the overall damages recovery.

Example 14: Bob saved $100 on the delivery charges because the second seller was closer to Bob’s store.

• In tort: look for the benefit being a __________________ consequence of the defendant’s tortious conduct

o Close nexus: The benefit must causally stem from the tort, relate to the same interest of the plaintiff that was injured, and be a benefit the plaintiff wants.

• Collateral source benefits: In a tort action in California, payments made by a _______________ ________________ as a result of the defendant’s conduct, ___________________ reduce the plaintiff’s overall recovery.

Example 15: Insurance companies make payments for the plaintiff.

o Policy: we want to incentive individuals to carry insurance o Rate differential: a plaintiff cannot recover more for medical expenses than what the

medical provider accepted as payment in full from an insurance company o Collateral source rule is not frequently applied in contract actions. It can arise in cases of

breached employment contracts where the plaintiff receives unemployment benefits or insurance.

J. Emotional (“Eats”)

• In general, emotional damages will not arise in a contract action unless:

1) There is a parallel tort claim in which emotional damages are recoverable; or

2) The breach of contract is particularly likely to cause emotional distress (mishandling of dead body or utility services cutting off a critical utility)

Example 16: Polly’s cancelled trip to Scotland. Polly cannot sue for her sadness or emotional distress because this was a contract action.

K. Interest

• Post-judgment interest will almost always be awarded.


• Pre-judgment interest is sometimes available in contract actions (liquidated damages clause) or a specific number of goods at a set price.

L. Litigation Expenses

• Expenses for litigating, including ________________________________ and attorney’s fees, are generally recoverable if contracted for or provided by statute.

• Expenses from previous lawsuits are recoverable as damages if the defendant’s tortious conduct caused the litigation.

Example 17: Malicious prosecution

CHAPTER 5: INJUNCTIONS; EQUITABLE DEFENSES

• Goal: maintain the ___________________________________ • Injunction: __________________________________ directing a person to do something or to

________________________ from doing something • It can serve as a final remedy for the plaintiff (permanent injunction) or as a stop gap to

__________________________ the status quo through litigation

M. Prejudgment Injunctions

• Often sought to prevent irreparable harm or maintain the status quo until the action is resolved

1. Temporary Restraining Orders (TROs)

o An injunction for a very short amount of time; typically no more than __________________ o May be applied for ex parte so the defendant might not have notice o Primary purpose: ____________________ the status quo until a preliminary injunction can

be decided o A TRO cannot be appealed o A TRO is not effective until the defendant has notice

1. Preliminary Injunctions

o An injunction issued before or during a trial that is generally effective until there is a __________________ judgment by the court

o The preliminary injunction is also known as a temporary or interlocutory injunction o Cannot be issued unless the defendant has been given ___________________ of the

hearing and an opportunity to be heard

2. Five factors in determining whether to grant a prejudgment injunction:

o Use mnemonic: I Put Five Bucks Down.

1) _____________________________ harm;

2) Probability of success on the merits;


3) Feasibility of enforcement;

4) Balancing of __________________________;

5) Defenses

o The burden is on the plaintiff seeking the injunction. o Equitable Remedy: the court has discretion in issuing the injunction and the extent of the

injunction

a. Irreparable harm (I)

Why is there not an adequate remedy at law?

Damages are preferred, partially because damages require less court oversight

Look for items that have special value that cannot be replaced easily

Example 18: Family heirlooms, 1989 Porsche Targa in mint condition, Real property, voting rights cases

b. Probability of success on the merits (Put)

Analyze the underlying claim and determine whether there is a likelihood that P will win.

Exam Tip 14: If you already addressed the underlying claim in your essay, say, “see above.”

c. Feasibility of enforcement (Five)

Request can be denied if the it is not feasible for the court to enforce the injunction.

Courts do not want to be involved with the parties outside of court.

Look out for fact patterns that require affirmative action rather than prohibiting action

• If the court requires action it will necessarily have to monitor compliance continually

• If the court prohibits action, the court is not required to intervene unless the defendant violates the injunction

When the underlying rights are sufficiently important, the court is more likely to issue injunctions requiring affirmative action

Example 19: Voting rights, desegregation

d. Balancing of hardships (Bucks)

The plaintiff’s hardship will be ___________________________ greater than the defendant’s hardship if the injunction is issued.


e. Defenses (Down)

1) Violation of fundamental rights

Example 20: Freedom of Speech

2) Other equitable remedy defenses (Laches, Unclean Hands)

N. Equitable Defenses

• The court can refuse to apply these if there are countervailing equitable considerations

• These defenses are not related to the plaintiff’s substantive legal claim

• These defenses do not prevent a plaintiff from bringing an action for damages

1. Laches

o The plaintiff unreasonably ______________________ in pursuing an equitable remedy, and o This delay caused _____________________________ to the defendant

2. Unclean Hands

o The plaintiff is not entitled to an equitable remedy because he has acted in bad faith with respect to the subject of the complaint

1) Misconduct (unethical or immoral)

2) The conduct must closely relate to the claim

O. Permanent Injunction

• Issued to prevent the violation of the plaintiff’s rights or to ____________________ the plaintiff’s rights that have been violated

• Permanent injunctions are awarded after the plaintiff has won on the merits

• The factors are the same (excluding the probability of success on the merits):

o Irreparable harm o Feasibility of enforcement o Balancing of hardships o Defenses

CHAPTER 6: CONTRACT SPECIFIC EQUITABLE REMEDIES

P. Specific Performance

• A party to a contract is compelled by court order to render the promised ___________________________________ or to substitute performance

• Generally, it is not available unless a defendant has breached a contract through nonperformance or repudiation.


• Six requirements to grant specific performance • Mnemonic: Valid Contract Can’t Force Defendant (to) Do (unless):

1) Valid Contract (Valid)

• Offer, acceptance, consideration

2) Certainty of Terms (Contract)

• Sufficiently certain for the court to make an order

3) Conditions Precedent (Can’t)

• All conditions required to compel the defendant’s performance must be satisfied or ____________________________

• If the plaintiff was required to perform, the plaintiff must have completed performance or provided sufficient security that the plaintiff would complete her contract obligation

4) Feasibility of Enforcement (Force)

• Consider whether the specific enforcement would impose burdens on the court that are disproportionate to the advantages gained by its enforcement

• Look for facts that require the court to be involved for a long time or intrusively involved.

Example 21: Construction contract, employment contract for personal services

5) Damages Inadequate (Defendant)

• Damages must be inadequate to impose an equitable remedy • Look for unique items, land, work of art, rare manuscripts • Goods:

o If the buyer cannot cover by purchasing other goods, the buyer can seek specific performance under the UCC

• Liquidated damages provision:

o If the contract allows for liquidated damages instead of specific performance, then the court will award the liquidated damages

o If the liquidated damages provision does not preclude specific performance, analyze both

• The availability of other equitable remedies does not bar performance, although courts generally disfavor specific performance.

6) Defenses (Do)

• Equitable defenses: estoppel, laches, and unclean hands


• Additional contract defenses:

o Unfairness from sharp practices (unconscionable) o Misrepresentation o Duress or Undue Influence

Q. Rescission

• Rescission is the ________________________________ or unmaking of a contract • Usually rescission is followed by restitution • Rescission is an equitable remedy and a legal remedy • Rescission at law: plaintiff must, prior to filing the suit, and promptly upon the discovery of

grounds for rescission (mistake or fraud), give ______________________ of rescission to the defendant and _____________________ or tender the benefits

o A plaintiff that fails to act promptly may nevertheless rescind the contract if the defendant has not been prejudiced by the delay.

o In addition, the plaintiff may be excused from retuning the benefit if:

The benefit has been disposed of prior to discovery of grounds for rescission; The benefit is presently worthless; or The benefit was money and in proportion to the amount owed by the defendant to the

plaintiff

• Equitable Rescission: plaintiff is required to return any ____________________________ received from the defendant and the legal remedy must be inadequate

• Once a contract has been rescinded, the plaintiff may pursue a subsequent action at law

o Replevin—return of specific property o Restitution—monetary compensation for unjust enrichment

R. Reformation

• The judicial rewriting of an agreement (contract) or another document (deed) to generally reflect the parties’ true _______________________

• Usually reformation is a stepping stone to other remedies such as damages or restitution • Requirements for reformation:

a. The parties must have entered into an ______________________________

The agreement must not be voidable for other reasons (such as misrepresentation or fraud)

b. There must be _________________________ with respect to the terms of the agreement

Sufficiently certain for the court to restate the writing in accordance with the intended agreement


c. There must be a __________________________

Mutual mistake: the writing does not match the agreement and both parties are unaware of the discrepancy

• Look for content mistakes:

o Omission of an agreed upon term; o Inclusion of a term not agreed upon; or o Alteration of agreed terms

• Effect mistakes: a mistake by both parties about what the effect is of the writing • Where there is a mutual mistake, any party to the contract can seek reformation,

including an intended beneficiary or successor-in-interest • The party does not have to show that the mistake resulted in an inequity adversely

impacting him (unlike when a contract is avoided entirely) • Misrepresentation: a party’s nonfraudulent or innocent misrepresentation

regarding the content or effect of a writing does not prevent reformation if both parties were mistaken as to the content or effect of the writing

Unilateral mistake: when only one of the parties is mistaken as to the content or effect of a writing, reformation turns on whether the other party was aware of the mistake;

• If the other party was aware of the mistake and either fraudulently induced the mistaken party or does nothing to correct the mistaken party’s erroneous belief the mistaken party may be able to reform the contract

• If the other party was not aware of the mistake, reformation is not allowed

• Defenses to Reformation

o Laches, unclean hands o Look for when a reformation will affect the rights of an innocent third party such as a good

faith purchaser

Innocent third parties can prevent the court from reforming the contract if doing so would adversely affect the party’s rights

• Not defenses to reformation:

o The parol evidence rule does not prevent a party from presenting evidence of a prior agreement to establish fraud or mistake

o The Statute of Frauds does not prevent the reformation of a contract

Example 22: Reformation is not foreclosed by the Statute of Frauds when the parties mistakenly omitted or incorrectly stated an essential term required by the Statute of Frauds

o Negligence of the party seeking reformation


A party who, due to negligence, failed to avoid a mistake, can still seek reformation of a writing

CHAPTER 7: DECLARATORY JUDGMENT; RESTITUTION

A. Declaratory Judgment

• A judgment that declares the plaintiff’s _________________, status, or other legal relations • These arise out of a deed, will, ______________________, statute, or ordinance • In contract: the action may be brought before or after breach • Declaratory judgment can be combined with other forms of relief (such as injunctive relief)

B. Restitution (Unjust Enrichment)

• In either case (whether a cause of action or as part of damages) restitution is available when the defendant has been unjustly enriched at the plaintiff’s expense

• Conferred a Benefit: a measurable increase in the defendant’s income or defendant’s wealth

o The defendant has received money, real or personal property, services, a debt satisfied, savings that would otherwise have been spent

• Unjust: the defendant’s retention of the benefit must be unjust

o The mere fact that the defendant received a benefit is not sufficient o Look for facts where the defendant has wrongfully acquired the benefit

Theft, fraud, duress, undue influence

o Even if the defendant acquired the benefit without any fault, it can still be unjust enrichment

Example 23: An unconscious accident victim receives free medical care. She would be unjustly enriched from this medical care even though she did not do anything wrong.

1. Remedies

a. Monetary judgment

Brought under a variety of actions including quasi-contract, quantum meruit, money paid for defendant’s use, money had and received, and goods sold and delivered

Elements:

a) Plaintiff has conferred a benefit on the defendant, and

b) The defendant has been unjustly enriched by such benefit

Recovery is based on the extent to which defendant has been unjustly enriched at the plaintiff’s expense


• For payment of money: the increase in defendant’s net assets • For nonmonetary benefit (good or service):

o Value of benefit; o _______________ to the plaintiff of conferring the benefit; o The market value of that benefit; or o The price fixed in an agreement in a contract action

Conscious Wrongdoer: a person who acts with knowledge of or reason to know of the underlying wrong (such as a defendant who defrauds the plaintiff)

• Can be a fiduciary who does not fulfill obligations, even if the fiduciary is not at fault • The enrichment of the conscious wrongdoer is measured by the

____________________________ of:

i) The net profit obtained by the wrongdoing, or

ii) The market value of the benefits wrongfully obtained

• Typically called disgorgement, accounting, or accounting for profits • The plaintiff has the burden of producing a reasonable approximation of the amount

of gain that the defendant received

Wrongdoer Without Fault: a defendant who commits a tort but does not do so purposefully

Example 24: Innocent conversion, unconscious trespassers, unwitting donees of embezzled funds.

• Unjust enrichment of wrongdoer without fault is the ________________________ _____________ of the benefits obtained

Responsible Recipient: a defendant who is not a wrongdoer but is responsible for the transaction may be subject to greater liable than the innocent recipient

• Might arise out of lack of care, breach or repudiation of contract, bad faith, or other reprehensible conduct

b. Constructive Trust

Imposes a duty to convey property to the plaintiff if the defendant would be unjustly enriched by keeping it

It gives the plaintiff back the specific property, not money “As is, As if Trust”

• As if the defendant was keeping the property _________________________ for the plaintiff

• Returned to the plaintiff as is, regardless of increase or decrease in value property


Requirements:

a) The defendant’s retention of the property could unjustly enrich the defendant;

b) The plaintiff can ___________________ the unjust enrichment to the property the plaintiff wants a constructive trust over;

c) The defendant must hold __________________ over the property; and

o The plaintiff can obtain a constructive trust against a third party transferee who has title to the property, unless that party was a bona fide purchaser

d) Damages are inadequate

Example 25: The defendant is bankrupt. The plaintiff must compete with the defendant’s other creditors and might not recover. But, if the plaintiff can trace his property to an identifiable asset, the plaintiff might gain priority over it.

Example 26: The defendant has purchased an identifiable asset with the plaintiff’s property and now that asset has increased in value.

Example 27: The defendant has transferred the plaintiff’s property to a third person and the plaintiff wants to pursue a claim against the third person to return the item.

Effect: the plaintiff gets the property back as is

• The plaintiff is not required to account to the defendant for the increase in the value of the property

• The defendant ________________ liable to the plaintiff for any decrease in value during the defendant’s possession

Example 28: George steals Ruth’s diamond ring and sells it to a pawnshop for $3,000. With that money, George takes a trip to Vegas and while gambling, hits a $20,000 jackpot. He takes this $20,000 to buy a new car. George has used Ruth’s $3,000 to earn another $20,000. Ruth could seek monetary damages for the market value of the ring. The market value of the ring is $6,000. If George cannot pay the $6,000, a monetary judgment is inadequate.

a. Ruth can seek a constructive trust over the new car even if the car is worth more than Ruth’s ring.

b. Ruth could not get a constructive trust over something George owned before he stole from Ruth.

Look out for intermingling of funds, the plaintiff must trace the property

Example 29: George puts the $3,000 from the sale of Ruth’s ring into a bank account. The account already had $2,000. Then, George withdrew $3,000 from the bank account to go to Vegas. George would try to argue that Ruth should


not recover the entire $20,000 in gambling winnings because the first $2,000 in the bank account was his and he only used $1,000 of Ruth’s.

• When a defendant comingles funds, the plaintiff is allowed to trace those funds in the bank account to her, as long as there is no break in the chain.

c. Equitable Lien

Recognizes the plaintiff’s claim against the defendant and imposes a lien on the defendant’s property as security for that claim

A lien is a monetary judgment secured by defendant’s property

• Like a car loan or a mortgage on a house

An equitable lien is issued by the court (as opposed to negotiated by the parties) Typically, arises in ________________________________ disputes Requirements:

a) Legal remedy is inadequate;

b) The defendant has title to the property;

c) The defendant would be unjustly enriched by keeping it; and

d) The unjust enrichment relates to the property

Example 30: George steals Ruth’s diamond ring and sells it to a pawnshop for $3,000. With that money, George take a trip to Vegas and while gambling, hits a $20,000 jackpot. He takes this $20,000 to buy a new car. Ruth can ask the court for an equitable lien on George’s car if he does not pay her the $6,000 market value for her ring.

Decline in Value:

Example 31: George crashes his new car and now it’s worth $1,000. If Ruth obtained a constructive trust over the car, she would only recoup $1,000.

• Use an equitable lien (money judgment secured by property) when the property has __________________________ in value

• The plaintiff can seek satisfaction of the remaining portion of the claim from the defendant ___________________________________ after the property has been sold and the proceeds given to the plaintiff

2. Practice from the February 2013 California Bar Exam

In 2004, Mary and Frank orally agreed to jointly purchase a small storefront space for $80,000. Mary contributed $40,000 of her own money. Frank contributed $40,000 he embezzled from his employer, Tanner. Mary and Frank put the property in Frank’s name alone because Mary had creditors seeking to enforce debts against her. They further agreed that Frank would occupy the


property and when he vacated the property, he would sell it and give her one half of the proceeds. He then occupied the property.

In 2005, Tanner discovered Frank’s embezzlement and fired him.

In 2012, Frank sold the property, obtaining $300,000 in net proceeds. Frank offered to pay Mary her initial $40,000 contribution, but Mary demanded $150,000.

Mary and Tanner both sue Frank for conversion and the court found him liable to both. Remedies and defenses?

a. Tanner’s remedies:

i. Note that Frank stole $40,000 from Tanner, commingled it with Mary’s money, and purchased property over which he has ________________.

ii. When he sold the property, it had increased in value from $40,000 to $300,000. Since Tanner can trace his property ($40,000), to something worth more in value, Tanner should seek a _______________________ _______________ over half the value of the $300,000 ($150,000).

iii. Tanner would not want to seek an equitable lien because he wants to take advantage of the increase in value.

iv. Frank’s defense of unclean hands will not work against Tanner because there is no evidence that Tanner has unclean hands.

v. Frank might assert the defense of laches. Tanner discovered the embezzlement in 2005 but did not seek an action until 2012.

d. Subrogation

Permits the plaintiff to stand in the shoes of a creditor or lien holder if the plaintiff’s property was used to discharge an obligation or lien on the property of the defendant

The defendant must be _________________________ enriched The enrichment takes the form of a ___________________ of an obligation or lien Commonly occurs as payment by a surety of the debt of another or the defendant

fraudulently obtains money to satisfy a debt Effect: The plaintiff enjoys any rights and remedies possessed by the creditor or

lienholder against the defendant.

• Frequently gives the plaintiff priority over the defendant’s other creditors • However, the plaintiff is also subject to any ________________________ that the

defendant has against the creditor or lienholder.


Example 32: George takes Ruth’s ring. He sells the ring to a pawnshop for $3,000. He uses that $3,000 to pay off his car loan. Ruth can stand in the shoes of the car lender.

3. Defenses and limitations

a. Defendant’s changed position

It may be inequitable to award restitution to the plaintiff when an ___________________________ defendant has changed position relying on the benefit received

• The defense is not available when the defendant is a conscious wrongdoer

Example 33: The defendant is an agent or trustee who receives property on behalf of a beneficiary. Then in good faith passes that property on to the beneficiary.

Example 34: The defendant mistakenly receives a benefit which the defendant expends or consumes and the expenditure or consumption would not have been undertaken if there had not been a mistake.

Example 35: The benefit has been lost, stolen, or destroyed and cannot be returned. If the benefit is merely damaged or diminished, the restitution may be reduced under the diminished value rule.

b. Bona fide purchaser

Equitable restitution is not available against a bona fide purchaser who takes the property without notice of all prior equities.

c. Discharge for value

When the plaintiff’s mistaken payment to the defendant is used by the defendant to discharge a debt owed or to otherwise satisfy a valid claim against a third party, the plaintiff _________________ seek restitution from the defendant unless:

• The defendant had notice of the mistake or made a representation that lead to that mistaken payment

d. Unsolicited benefit

A plaintiff who unconditionally confers a benefit on the defendant is not entitled to restitution if the benefit was conferred without mistake, coercion, or request

Exceptions all require:

a) Some necessity;

b) The plaintiff ______________________________ to charge for the goods or services; and


c) The plaintiff had no reason to know the defendant would not want that intervention

Specific Exceptions:

• Emergency

o A plaintiff who supplies goods or services without the defendant’s knowledge or consent is entitled to restitution if: (i) necessary to prevent serious pain or harm, (ii) the plaintiff intended to charge for services, (iii) the plaintiff had no reason to know the defendant would not want medical services, and (iv) consent by the defendant was impossible.

Example 36: An ER doctor providing medical services to an unconscious victim

• Provision of Necessities

o A plaintiff who provides a person with necessities can seek restitution from a defendant who was required by law to provide those necessities and failed to do so

• Public Health and Safety

Example 37: Burying a dead person, removing obstruction from a public road

• Preserve Personal Property

o A plaintiff who preserves goods belonging to the defendant from damage or destruction is entitled to restitution for services and expenses if:

o The plaintiff was in ____________________ possession of the goods; o Preservation was not made necessary by the plaintiff; o Preservation was reasonably _____________________________ before the

defendant could be contacted; o The plaintiff did not have reason to believe the defendant did not want such

preservation; o The plaintiff intended to charge for the services; and o The goods have been accepted by the defendant in their preserved state.

CHAPTER 8: REPLEVIN; EJECTMENT

C. Replevin

• When a plaintiff's _______________________ property is taken by a defendant • Plaintiff can regain possession of the property and recover _________________________ for

loss of use of that property (detention damages)

Example 38: My two children were arguing about who got to hold the book. One child takes it from the other and the first child says, "Give it back!" The first


part of the replevin action would be returning the book to the first child. The second part of the action would be any damages for not having the book for that period of time.

D. Ejectment

• Used to regain land possessed by another • Plaintiff must generally establish:

1) _____________________ to the land, and

2) The right to _____________________________ possession

• In addition to an ejectment, the plaintiff can also seek damages

o The general measure of these damages is the value of the use of the land. For example, its __________________________ value

o These damages may include profits related to defendant's use of the land

Example 39: If the defendant collected rent from tenants, the plaintiff might be entitled to those as well.

o Plaintiff is also entitled to damages for any ________________ caused to the land during defendant's possession

• Improvements to the land: In general, the defendant _________________________ entitled to compensation from the plaintiff for improvements he made to the land

o Exception: A defendant who acted in _________________________________ in possessing the property may be entitled to set off the value for such improvements when the plaintiff seeks damages in addition to ejectment

E. Election of Remedies

• A plaintiff cannot pursue a remedy that is inconsistent with another remedy already chosen by the plaintiff

• Typically applied when a contract was procured by fraud

o Prevents the plaintiff from affirming the contract and then subsequently seeking to rescind the contract

• Damages are typically inconsistent with:

o Specific performance, and o Restitution

Exam Tip 15: Discuss possible remedies "in the alternative" unless the facts indicate that the remedies are not inconsistent with each other.

Example 40: When the plaintiff seeks specific performance and then damages result from the defendant's delay or inadequacy of performance.


• The election of remedies rule is generally applied only when the defendant has materially changed position in _________________________ on the plaintiff's affirmation of the contract.

• The rule does not apply to the following situations (despite defendant's reliance):

1) Ignorance of a fact:

• The plaintiff may obtain another remedy if the plaintiff made his initial choice being ignorant of the facts or ignorant of the availability of an alternate remedy

• Might be due to mistake or misrepresentation

2) Subsequent breach:

• The plaintiff may obtain another remedy based on the defendant's breach of contract if the breach occurs __________________ the plaintiff's initial choice of remedy

• Plaintiffs may plead inconsistent remedies in the _______________________________ within the same complaint

F. Overall Summary

Contracts Torts Property

1. Damages 1. _______________________ 1. Damages

2. Specific Performance

2. _________________________ judgment

2. __________________________

3. __________________________ 3. Injunction

3. Declaratory judgment/Injunctions

4. Rescission 4. Restitution

a. Monetary Judgment

b. Constructive Trust

c. Equitable Liens

d. Subrogation

4. Replevin

5. __________________________

5. _________________________


• Refer to the Remedies Outline for other remedies within common causes of action including:

o Harm to reputation and privacy in tort o Financial harms resulting from fraud or misrepresentation o Employment contract

Exam Tip 16: The overall goal of the bar exam is to measure whether you are ready to advise clients. Focus on showing the examiners that you can adequately advise a client on all of her options.

Exam Tip 17: Use the numbers given to you and show your work.

VERY BEST OF LUCK!

[END OF HANDOUT]

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