MBE Tip of the Day: Contracts and Sales

Answer to the Contracts MBE Question

Subject: Contracts

Legal Issue: Expectation Damages

Legal Rule and Analysis: Under the common law, the general measure of damages is expectation damages.  The goal is to put the non-breaching party in the same spot they would have been if the contract had been fully performed and the other party had not breached.  The formula for expectation damages is the loss of value of the breaching party’s performance + incidental costs + consequential costs – any expenses saved as a result of the breach.  A non-breaching party must mitigate damages when possible.

In this question, the goal would be to put the man in the same position he would have been in had Painter A not breached the contract.  If Painter A had fully performed, the man would have had a painted house and he would have been out $450 ($400 for the paint job and $50 for the paint that the man was required to provide). This is the situation we are attempting to replicate through expectation damages, as this is the position the man would have been in if the contract had been performed.  The man properly attempted to mitigate damages by having someone else complete the paint job.  Painter B painted the man’s house for $600.  Therefore in the end, the man ended up with a painted house and was out $600.  This means that the man is entitled to $150 in damages from Painter A in order to put himself in the position he would have been had the original contract been fully performed. In other words, the man expected to have the job done for a total of $450. Here, it cost him $600. Thus, $150 puts him in the place he expected to be in — that is, only spending $450 total.

Conclusion: The man will recover $150 from Painter A.

Look at the answer choices provided. Choose an answer choice that matches your conclusion. Review the other answer choices provided.  The answer choice (A) is therefore correct. (B) is incorrect because it does not recognize that the man saved $50 by not having to purchase the paint that Painter A would have used to complete the job. (C) is incorrect because while it does acknowledge that the man saved $50 by not having to provide paint, it does not account for the fact that the man ended up with his house paid after all.  An award of $350 would be compensating the man for the value of the breaching party’s performance (assuming the value of performance equals the contract price) – costs saved.  But since the man did end up with his house painted, it would be unfair to compensate him for this “value” twice.  (D) is incorrect for the same reason as (C), as well as the fact that it doesn’t account for the $50 that the man saved by not having to purchase the paint.

MBE Tip: It’s a good idea to try to answer the question in your mind before you read the answer choices.  A lot of times the incorrect answer choices will try to trick you or lure you into a trap.  You can avoid this trap by doing your best to answer the question yourself before you let the choices influence you.  In the question above, the incorrect answer choices common traps that one might fall into if they haven’t really thought the question through.  Before looking at the choices, you should have calculated the position that the man would have been in if Painter A had performed and then compared it to the position he was in after Painter B performed.  You would then have been able to come up with the correct number and avoided being sent down the wrong path by distracting answer choices.