These notes discusst the remedies available for contract damages. The topic of the notes covers the measure of damages for land sale contracts, liquidated damages, and consequential damages.
CL770: Remedies – Contract Damages: Land Sale Contracts, Liquidated
Damages, and Consequential Damages
1. Land Sale Contracts – Breach by Buyer or Seller
Rule (Breach by Buyer): The seller’s damages are measured by contract
price minus market price. If the market price is lower than the contract
price, the seller is entitled to the difference.
o Example: Buyer contracts to purchase a property for $150,000, but
breaches. At the time of breach, the market value of the property is
$130,000. The seller can recover $20,000 (contract price of $150,000
minus the market price of $130,000).
o If the property’s market price is higher or equal to the contract price,
the seller suffers no loss and would only be entitled to nominal
damages.
Rule (Breach by Seller): The buyer’s damages are measured by market
price minus contract price. If the buyer was purchasing below the market
price, they can recover the difference.
o Example: Buyer contracts to purchase property for $100,000, but at
the time of breach by the seller, the market value is $125,000. The
buyer would recover $25,000 (market price of $125,000 minus the
contract price of $100,000).
o If the property’s market price falls below the contract price, the buyer
is not harmed and would only be entitled to nominal damages.
2. Liquidated Damages
Rule: A liquidated damages clause is valid if:
1. Uncertainty: Damages are difficult to forecast at the time of contract
formation.
2. Reasonable Estimate: The parties made a reasonable attempt to
estimate damages.
If these two prongs are met, the liquidated damages clause is valid and
controls the damages to be awarded. If either prong fails, the clause is
considered a penalty and ignored.
o Example: A buyer and seller include a clause in their contract stating
that if the buyer breaches, the seller will recover $10,000 as liquidated
damages. If it was difficult to foresee the seller's damages and $10,000
is a reasonable estimate, the clause is enforceable. If it turns out that
$10,000 is disproportionately high compared to the actual harm, the
court might invalidate it as a penalty.
3. Consequential Damages
Rule: Consequential damages compensate for losses that were a
reasonably foreseeable consequence of the breach. These damages must be
foreseeable at the time of contract formation, based on the knowledge of
both parties.
o Example: Buyer breaches a land sale contract. The seller now has to
find another buyer in a down market and incurs additional holding
costs, such as maintenance expenses. If the buyer knew or should
have known about these potential costs at the time of contract
formation, the seller can recover those as consequential damages.
o Example: A seller breaches a land sale contract, and as a result, the
buyer must rent an apartment because they cannot move into the
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