Chapter 11-5 Contractual Damages and Remedies

• Jurisdiction: United States

11-5 Contractual Damages and Remedies

11-5:1 Uniform Commercial Code Statutory Remedies

Both sellers and buyers are afforded a wide ranging set of remedies for the breach of a contract for the sale of goods. Several of these remedies are more in line with self-help rights, as opposed to remedies that must be pleaded in a lawsuit.²⁷ This topic will first briefly outline all of the rights and remedies that the Uniform Commercial Code (UCC) makes available to aggrieved sellers and buyers. This topic will conclude by outlining any pleading requirements for those remedies that must be pleaded in a lawsuit to be obtained.

11-5:2 Seller's Uniform Commercial Code Statutory Remedies

When the seller discovers that the buyer is insolvent, the seller may refuse or stop delivery²⁸ or may reclaim goods sold on credit.²⁹ If the buyer wrongfully rejects or revokes acceptance of goods, fails to make a payment or repudiates the contract, the seller may withhold delivery of such goods,³⁰ stop delivery,³¹ identify previously unidentified goods and resell them,³² resell and recover damages,³³ recover damages for non-acceptance,³⁴ in a proper case recover the contract price,³⁵ or cancel the con-tract.³⁶ A seller may rescind the contract if the buyer fraudulently induced the seller to enter into it.³⁷

A seller may also recover incidental damages in connection with the return or resale of goods resulting from the buyer's breach.³⁸

11-5:3 Buyer's UCC Statutory Remedies

When the seller fails to deliver the goods, repudiates the contract, or the buyer rightfully rejects goods, a buyer may cancel the contract,³⁹ cover and have damages awarded,⁴⁰ or recover damages.⁴¹ A buyer may also recover incidental or consequential damages.⁴² When the seller fails to deliver goods or repudiates the contract, the buyer may recover the goods,⁴³ obtain specific performance,⁴⁴ or replevy the goods.⁴⁵ A buyer may rescind the contract if it was fraudulently induced to enter into it.⁴⁶

11-5:4 Pleading UCC Statutory Remedies

11-5:4.1 Seller's Remedies

A plaintiff must generally only provide the defendant with fair notice of its cause of action.⁴⁷ Moreover, a plaintiff may generally aver that all conditions precedent to the contract have been performed or have occurred.⁴⁸ However, a plaintiff must specifically plead special damage elements.⁴⁹ A plaintiff must also plead into one of four ranges of monetary and non-monetary relief.⁵⁰ Generally in the Uniform Commercial Code context, a plaintiff may plead more than one remedy without making a prejudgment election.⁵¹ However, whether the pursuit of one remedy bars another remedy is entirely dependent on the facts of each case.⁵²

When pleading for seller's remedies under the Uniform Commercial Code, a plaintiff may generally plead:

• The existence of a contract;⁵³
• The performance or occurrence of conditions precedent, including whether the resale was commercially reasonable;⁵⁴
• One or more Uniform Commercial Code remedies.⁵⁵

When pleading for seller's remedies under the Uniform Commercial Code, a plaintiff must specifically plead:

• For special damage elements, including incidental and consequential damages;⁵⁶
• That the plaintiff's claim for relief falls into one of four ranges of monetary relief;⁵⁷
• For attorney's fees;⁵⁸
• Grounds establishing fraud.⁵⁹

11-5:4.2 Buyer's Remedies

A plaintiff must generally only provide the defendant with fair notice of its cause of action.⁶⁰ Moreover, a plaintiff may generally aver that all conditions precedent to the contract have been performed or have occurred.⁶¹ However, a plaintiff must specifically plead special damage elements.⁶² A plaintiff must also plead into one of five ranges of monetary and non-monetary relief.⁶³

When pleading for buyer's remedies under the Uniform Commercial Code, a plaintiff may generally plead:

• The existence of a contract;⁶⁴
• The performance or occurrence of conditions precedent, including whether the resale was commercially reasonable;⁶⁵
• One or more Uniform Commercial Code remedies.⁶⁶

When pleading for buyer's remedies under the Uniform Commercial Code, a plaintiff must specifically plead:

• For special damage elements, including incidental and consequential damages;⁶⁷
• That the plaintiff's claim for relief falls into one of five ranges of monetary relief;⁶⁸
• For attorney's fees;⁶⁹
• Grounds establishing fraud;⁷⁰
• Grounds supporting specific performance.⁷¹

11-5:5 Pleading Contractually Defined Damages

The contract in question may define the damages calculation, either by stating a formula for the determination of damages or by means of a liquidated damages clause. When the contract specifies the damages, plead the contractual terms by detailing them in the pleading or by attaching the contract to the pleading and incorporating its terms by reference.⁷² When the contract specifies the formula for the calculation of damages, the specified formula can potentially override even an incorrect statement of the measure of damages in the pleadings.⁷³ When the contract includes a liquidated damages clause, the liquidated damages clause is enforceable (i.e. overrides the applicability of damage models based on benefit-of-the-bargain or out-of-pocket amounts) provided (1) the harm caused by the breach is incapable or difficult to estimate, and (2) the amount of liquidated damages called for is a reasonable forecast of just com-pensation.⁷⁴

The party asserting that a liquidated damages clause is an unenforceable penalty bears the burden of pleading penalty as an affirmative defense (unless the illegality of the penalty is apparent from the opponent's pleadings) and of proving any fact issues necessary for the issue to be decided by the court as a question of law.⁷⁵

11-5:6 Pleading Damages on Sworn Accounts

Tex. R. Civ. P. 185 specifies that a claim "founded upon an open account or other claim for goods, wares and merchandise, including any claim for a liquidated money demand based upon written contract or founded on business dealings between the parties, or is for personal service rendered, or labor done or labor or materials furnished, on which a systematic record has been kept,"⁷⁶ qualifies for a special sworn account procedure which can simplify the proof needed for a prima facie case.

The plaintiff's pleadings must include:

• An itemization reflecting the details for each charge and including any offsets, payments, and credits;⁷⁷
• A sworn affidavit of the party, his agent, or his attorney "to the effect that such claim is, within the knowledge of affiant, just and true, that it is due, and that all just and lawful offsets, payments and credits have been allowed;"⁷⁸
• A request for attorney's fees pursuant either to the contract or Texas Civil Practice and Remedies Code Section 38.001.

Although the details for each charge should be itemized, Tex. R. Civ. P. 185 was amended in 1984 to place the burden on the defendant to specially except to any asserted deficiency in that regard.⁷⁹

Once the plaintiff pleads a sworn account, the pleading burden shifts to the defendant to properly deny under oath the details of the sworn account in whole or in part. In the absence of a sworn denial meeting the requirements of Tex. R. Civ. P. 185, the plaintiff is entitled to rely upon the sworn account petition as prima facie evidence, and the defendant is not entitled to dispute the sworn account or present controverting evidence.⁸⁰

In order to destroy the evidentiary effect of the sworn account and force the plaintiff to put on proof of his claim, the defendant's pleadings must include:

• A specific denial of each item disputed by the defendant;⁸¹
• A special exception to any item that defendant asserts has not been described with sufficient particularity;⁸² and
• A sworn affidavit of the party, his agent, or his attorney, that each specific denial is true and correct, and within the knowledge of the affiant.⁸³

Neither a general denial nor a sworn general denial will be sufficient to destroy the prima facie effect of the plaintiff's sworn account.⁸⁴ It can be sufficient, however, to specifically deny under oath each item in the plaintiff's sworn account, to wit: "Each and every item in Plaintiff's account attached to the Original Petition as Exhibit is not just or true in whole or in part. Defendant did not request Plaintiff to furnish the items listed therein or agree or promise to pay plaintiff for the charges shown therein."⁸⁵ Often only specific charges will be disputed, in which case the sworn denial should be specific regarding which items are in dispute.⁸⁶

11-5:7 Pleading Benefit-of-the-Bargain and Out-of-Pocket Damages

In most cases in which benefit-of-the-bargain damages are sought, the anticipated profits are the direct subject of the transaction and the failure of the transaction due to breach of contract or fraud will naturally and necessarily result in lost profits, constituting direct damages.⁸⁷ This means that details of the damages do not have to be pleaded.⁸⁸ Likewise, out-of-pocket damages usually constitute direct damages.⁸⁹

Benefit-of-the-bargain damages will need to be specified in the rarer circumstance where the plaintiff foreseeably engaged in the transaction to generate profits in other separate business pursuits, with a reasonable expectancy of achieving those profits.⁹⁰

Benefit-of-the-bargain damages and out-of-pocket damages may be pleaded in the alternative, and both theories of recovery may be submitted to the jury, although an election will be required for purposes of the judgment.⁹¹

Benefit-of-the-bargain and out-of-pocket damages may be proved by means of various measures of damage, such as lost profits, loss of value of a business, or property valuation.⁹² A party is not required to plead the specific measure of damages.⁹³

When pleading for benefit-of-the-bargain and/or out-of-pocket damages for breach of contract, a plaintiff should plead:

• The existence of a contract and breach by the defendant;⁹⁴
• The performance

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