Bar Exam — MBE (Multistate Bar Exam)ContractsEasy
A software developer agreed to create a custom inventory management system for a client for $50,000, with an expected completion date in six months. Three months into the project, after the developer had spent considerable time and resources on design and initial coding, the client informed the developer that due to unexpected business changes, they no longer needed the system and were terminating the contract. The developer had incurred $15,000 in costs and could not easily re-use the specialized work. What is the most appropriate measure of damages for the developer?
- AReliance damages of $15,000, representing the costs incurred by the developer.
- BExpectation damages of $50,000, representing the full contract price.
- CNominal damages, as the project was incomplete and no profit was realized yet.
- DRestitution damages, limited to the fair market value of the work performed.
Show answer & explanationAnswer & explanation
Correct answer: A. Reliance damages of $15,000, representing the costs incurred by the developer.
Reliance damages aim to put the non-breaching party in the position they would have been in had the contract never been made, by reimbursing them for expenses incurred in reliance on the contract. Here, the developer's costs of $15,000 represent their reliance.
Why the other options are wrong
- B. This is incorrect. Expectation damages would be $50,000 minus costs saved, which isn't directly given and might be difficult to prove for an incomplete project, especially if additional costs were anticipated.
- C. This is incorrect. Nominal damages are awarded when a breach occurred but no actual loss can be proven, which is not the case here as actual costs were incurred.
- D. This is incorrect. Restitution aims to prevent unjust enrichment of the breaching party, often by returning benefits conferred. Here, the client received no direct benefit from the incomplete system.
Reliance Damages
Reliance damages aim to compensate the non-breaching party for losses suffered by reasonably relying on the contract. They seek to restore the injured party to the position they were in before the contract was made.
- Awarded when expectation damages are too speculative or difficult to prove.
- Cover expenses incurred in preparation for or performance of the contract.
- Cannot exceed the contract price.
Memory trick: Every Rightful Remedy Restores.