Deck 13: Damages

Question 1

What is the primary method for measuring damages in contract?

A) Damages are equal to the gains the contract breaker has made from breaching the contract.
B) Damages are equal to the loss the innocent party has suffered by relying upon the contract breaker's promise to perform the contract.
C) Damages are equal to the gain the innocent party expected to obtain if the contract had been properly performed.
D) Damages are equal to a sum determined by the courts as necessary to punish the contract breaker for his breach of contract.

Answer 1

C

Question 2

Which of the following statements is true?

A) An innocent party always has the choice between claiming the reliance interest and claiming the expectation interest.
B) The expectation measure will always lead to a higher award of damages than the reliance measure.
C) The restitution measure will only be awarded where the contract has been terminated or rescinded.
D) All of the options given are correct.

Answer 2

C

Question 3

Alex buys a picture for £50,000 from Betty, a dealer, who sells it as the work of Constable, a famous painter. Had the picture been genuine, as Betty had promised, it would have been worth at least £70,000. In fact, it is a work by a lesser-known disciple of Constable worth only £1,000. If Alex retains the picture, what is his expectation interest?

A) £69,000.
B) £50,000.
C) £49,000.
D) £20,000.

Answer 3

A

Question 4

Alison buys a picture for £50,000 from Bruce, a dealer, who sells it as the work of Andy Warhol, a famous painter. Had the picture been genuine, as Bruce had represented, it would have been worth only £20,000. In fact it is a work by a lesser-known disciple of Andy Warhol worth only £1,000. If Alex retains the picture, what is his reliance interest?

A) £50,000.
B) £49,000.
C) £30,000.
D) £19,000.

Question 5

When measuring expectation damages, the courts have the choice between awarding the 'cost of cure' (the cost of buying substitute exact performance from another) or the 'diminution of value' (the market value of the performance the defendant undertook minus that actually given). The courts will always award the lower of the two measures.

Question 6

Allhomes contracts with Baker Contractors for the construction of 75 housing units for £17 million. The contract specifies that Baker must use foam insulation for the hot water pipes. Instead, Baker uses foil-faced fiberglass insulation as he usually does. Replacing the insulation would entail demolishing all inner walls of the constructed house, costing £11 million. The two types of insulation are equal in value and are identical for all practical purposes. What damages can Betterhomes claim for the breach?

A) The cost of cure, being the cost of replacing the insulation (£11 million).
B) The diminution of value (nominal).
C) The loss of amenities (a just sum determined by the courts).

Question 7

In which of the following situation is A unlikely to be entitled to substantial damages for non-pecuniary loss?

A) Anthony's lawyer misadvised him on an important aspect of his company's finances. As a result, he went out of business, is reliant on social security benefit, his wife left him, and his son is reluctant to see him. He claims damages for his distress.
B) Due to a negligent survey, Alice bought a house that required extensive remedial work to the foundations. During the 12 months required for the work she had to live with her insufferable mother-in-law in a very cramped flat. She claims damages for distress.
C) Anna commissioned an enormous sandpit to be built in her backyard. She had always wanted one big enough to drive a digger in. Unfortunately, the contractor made it smaller than she had specified, although it was still large enough to drive a digger in. She claims damages to compensate her.
D) Adam was injured in an accident. His claim under his disability insurance policy is well supported by medical evidence but the insurance company denied his claim for six years and then paid what it owed him in arrears. He now claims damages for distress.

Question 8

Clara decides to surprise her parents with a new bathroom for their 30^th wedding anniversary. She contracts Bathtubs Inc. to install a bathroom when they are away for the weekend. Clara chooses the 'Mediterranean Model' (cost £7,000), which features a blue and white alternating tile pattern. As work progresses, Bathtubs Inc's workmen realize they've ordered too few tiles to complete the job. Fearing liability for late delivery, Bathtubs Inc. decides to install the less popular 'Real Sea Model' (cost £7,000), which features a turquoise and white alternating tile pattern. When Clara sees the bathroom, she is furious. Can Clara claim damages from Bathrooms Inc for her own loss?

A) No, only her parents can sue for breach.
B) No, she has suffered no loss.
C) Yes, but damages will be nominal.
D) Yes, and damages will be substantial.

Question 9

If an innocent party fails to mitigate his losses suffered upon the contract breaker's breach, this will reduce his otherwise recoverable expectation damages. This is known as the duty to mitigate. In which of the following cases will a court not question whether B has mitigated his losses?

A) Ben is wrongfully dismissed from his work. His employer, Angela, apologizes for the mistake and offers him his old job back. Ben refuses the offer
B) Brianne is injured by her employer's breach of contract regarding safe working hours. A simple operation can reduce or eliminate the injury. Brianne refuses to undergo the operation.
C) Avery orders a pair of glasses at Byfocals Opticians. The next day, he sees the same frames for half price at another store. He immediately passes by Byfocals to tell them he will not be needing the glasses after all. Byfocal's assembles the glasses the following day and claims the contract price from Avery.

Question 10

In the event of breach of contract, a claimant's contributory negligence may contribute to his losses suffered without breaking the chain of causation. Where the claimant's action in damages is contractual, when will his contributory negligence reduce his award under the Law Reform (Contributory Negligence) Act 1945?

A) At all times.
B) Whenever the contract breaker has a contractual duty of care.
C) Only where the contract breaker has a contractual duty of care which coexists with a tortious duty of care.
D) Never.

Question 11

Ben rents a wide screen television with satellite hook up from Antonio for the purposes of showing the final of the World Darts Championship in his pub on Saturday. Antonio agrees to install the unit on Friday and tells Ben he will be picking it up on Monday morning. On Saturday, minutes before the start of the final, the pub is packed but the television screen goes blank. Antonio is called in to repair it, but cannot find the source of the problem and cannot provide a replacement this weekend. In the meantime, all of Ben's customers have left and most of his drink and food is unsold. Antonio offers him a free hook up for next weekend, but Ben refuses, telling him that he had also planned to show the Arsenal vs. Chelsea match to a full house on Sunday and will need a television immediately. Which of the following losses is too remote for Ben to claim from Antonio?

A) The cost of installation.
B) The loss of profits Ben has suffered from not being able to show the final of the World Darts Championships on Saturday.
C) The loss of profits Ben has suffered from not being able to show the Arsenal vs. Chelsea match on Sunday.
D) None of the above, all these losses can be claimed.

Question 12

According to the remoteness test in contractual actions, an innocent party can only recover damages for types of loss that were reasonably contemplated by the defendant as a serious possibility at the time of contracting. In tortuous actions, an injured party is only entitled to recover damages for types of loss that were reasonably contemplated by the defendant as a slight possibility of arising. What is the test of remoteness where concurrent actions exist in contract and tort?

A) The difference between the two tests is semantic, not substantial. The same test applies.
B) This depends on the nature of the loss. For physical damage, the remoteness test of tort applies; for loss of profit, the remoteness test of contract.
C) The remoteness test of tort.
D) The remoteness test of contract

Question 13

What is the significance of the House of Lord's decision in Attorney-General v. Blake (2000) for the traditional rules governing the award of damages?

A) It allows a claim for the reliance interest in exceptional cases where the claimant has made a bad bargain (the costs of performance would exceed his expected gains) and the expectation interest is inadequate.
B) It allows a claim for non-pecuniary losses in exceptional cases where the provision of enjoyment, peace of mind, or alleviation of distress is a distinct and important obligation under the contract.
C) It allows a claim for the contract breaker's gains or savings from breach in exceptional cases where contract remedies are inadequate and the claimant has a 'legitimate interest' in preventing breach.
D) In contracts for the benefit of third parties, it allows the promisee to claim substantial damages for the loss performance of the obligations for which he has contracted.

Question 14

Cases subsequent to AG v. Blake (2000) have clarified some points. Which of the following is false?

A) The justification of the remedy given in AG v. Blake is to protect claimants from inadequate contract remedies.
B) The remedy of account of profits is 'gain-based' in that it is aimed at stripping the contract-breaker of the profits made from his breach.
C) The remedy of account of profits is merely an extreme of the Wrotham Park remedy, which awards the claimant the sum he would have negotiated to release the defendant from his contractual obligation (loss of bargain damages).
D) The remedy may be less than a full account of profits. It must take account of all the circumstances in assessing the claimant's loss of bargain.

Question 15

The 'broad ground' in McAlpine v. Panatown provides support for the protection of the performance interest in the sense of the entitlement to literal performance.

Question 16

Mari and Ned want to buy a window-cleaning company, WhistleStop Ltd. The buyer, Tam, insists that he will not sell for less than £150,000. Although Mari and Ned are keen to secure a reduction in the price, they are desperate to acquire WhistleStop, as they think it has great potential. Mari and Ned's lawyer, Sholto, in breach of contract, negligently misses certain facts about the company while carrying out due diligence, including a minor fraud carried out by an employee. Soon afterwards, WhistleStop Ltd starts losing business to a new competition, Sparkle Ltd. Can Mari and Ned recover from Sholto any loss they might have suffered?

A) Yes, they can recover for loss of a chance to bargain with Tam for a lower price and also for loss caused by competition by Sparkle Ltd.
B) No, they cannot recover for any loss because it is unclear that Sholto's breach of contract has caused them any loss.