57 Contract Remedies

Somewhere in an e-resource agreement, likely within a clause regarding “Limitations on Damages” or “Limitations on Warranties,” you will see language that is either more or less restrictive than the following:

Notwithstanding anything else in this Agreement, neither party shall be liable for any indirect, special, incidental, punitive or consequential damages, including but not limited to loss of data, business interruption, or loss of profits, that arise from the use of the Licensed Materials, or the inability to use the Licensed Materials.

What does it mean to exclude liability for those types of damages? First, what are those damages? If all those kinds of damages are excluded, what kind of damages does this “leave behind” as recoverable? To answer that, let’s take a look at the kind of monetary (and some non-monetary) relief that contractual remedies might provide.

Expectation Damages

The most basic remedy for another party’s contractual breach is being awarded the dollar value of the benefits you would have received had the breaching party performed—minus any expenditures or investment you saved by not having to perform or finish performing yourself (if your performance is not yet complete). The result is that you are compensated so as to be placed in as close to the position you would have been in had the contract actually been performed. This remedy can be set by case law, Uniform Commercial Code, or state statute—or a combination of all three.

To illustrate its effect, let’s imagine you pay a vendor $12,000 for year-long access to a data package. After one week of access, the vendor’s platform through which you download data breaks and they are unable to restore access for the remaining 51 weeks of your agreement. What are your expectation damages? Here, you have already spent $12,000 for access. But you received only 1 week of access when the parties expected the provision of 52 weeks. So your expectation damages are the monetary value of what you would have received for 51 more weeks of access. The math looks like:

$12,000/52 weeks = $X/51 weeks

X= $11,769.23

Notably, everything just described would be considered “general” damages, which are also sometimes called “direct” damages. General, or direct, damages are presumed to follow from the breach of contract ^[1], or in other words are the “natural and probable” consequence of the contractual breach ^[2]. In other words, “the breaching party could contemplate being liable for such damages when the contract was made” ^[3]. With the example above, if you don’t receive 51 weeks of access you paid for, your loss of $11,769.23 above is a natural and probable consequence of the vendor having failed to provide you those weeks of access.

However, another potential component of expectation damages are what are referred to as “special,” “indirect,” or “consequential” damages. Sidebar: Yes, it would be helpful if the law just picked one word to refer to these, but “special,” “indirect,” and “consequential” damages do refer to the same thing. ^[4] (Actually, “indirect” damages can be subdivided further into “consequential” and “incidental”.) For the sake of ease in contrast to our discussion of “direct” expectation damages above, we’ll refer to all of these types of damages as “indirect” damages.

Unlike direct damages from a contract, which the parties are presumed to have anticipated, in order to qualify for indirect damages, you need to demonstrate that the damages were foreseeable at the time the contract was made, and also that they were fairly certain and known/knowable in scope or amount. ^[5] What does it mean to be foreseeable with respect to a contract? The indirect damages need to have occurred as a consequence of special facts already known (or special facts that should have been known) to the breaching party at the time of contracting. ^[6]. Using our above example, let’s say that as a result of not having 51 weeks of unlimited electronic access to the journal package, over the course of that year certain faculty members at your institution wound up purchasing individual journal articles to read, or your library incurred additional interlibrary loan costs to secure access to those articles. These would be considered indirect damages because they are a consequence of the vendor’s breach, but likely not recoverable due to lack of foreseeability unless you can prove that a vendor should have known these were likely.

The reason we have spent so much time distinguishing between general/direct damages vs. consequential/indirect damages is because most e-resource license agreements expressly exclude liability for consequential damages. Courts do try to uphold the parties’ intentions here. Moreover, for jurisdictions that look to the Uniform Commercial Code for contract interpretation, or to the extent a court considers license agreements subject to the Uniform Commercial Code anyway (all of which we discuss more in this chapter)  such clauses are typically considered valid and enforceable. ^[7]. So if your agreement excludes liability (and recovery) for indirect damages, it is important that you understand the difference between the two.

Reliance Damages

Let’s say you negotiate that same $12,000 contract for data access. The vendor tells you that if you want to enter into the contract, you’ll separately need to upgrade your data security system to conform to vendor requirements. You’ve priced out that upgrade and it will cost you $2,000 on top of the $12,000 you owe the vendor under the agreement. You sign the agreement for $12K and invest in the new data security platform to get up to par. While you are awaiting an invoice for the $12,000, the vendor decides not to license the data to academic institutions anymore and cancels the agreement. Except, you have already also spent $2,000 upgrading the security of your data storage system to accommodate security protections that would have been required under the agreement.

Expectation damages would have afforded you the “benefit of the bargain”—the value of what you would have obtained through performance, minus the cost of your own performance. In this case, the value of the data would be $12,000 but you saved $12,000 by not performing. So the expectation damages would be zero. But what about your $2,000 investment in performing? This is where reliance damages might—in some situations—come in.

As explained in Contracts in a Nutshell ^[8]:

“Reliance damages are measured by the amount of money necessary to compensate the aggrieved party for expenses or loss incurred in reasonable reliance upon the contract that was breached. Whereas expectation or “benefit of the bargain” damages are designed to place the aggrieved party in the position the party would have occupied had the contract been performed, reliance damages are designed to place that party in the position occupied before the contract was made.”

You might now think the $2,000 you invested in the security platform could be recovered in reliance on the agreement, to put you in the position you were in before the contract was made. However, reliance damages cannot exceed expectation damages. If the vendor were to introduce evidence to the court that expectation damages are indeed calculable (i.e. knowable), and also that in this case that calculable number is zero (as explained above, because you saved all the $12,000 you would have paid), then you likely would not be able to recover the $2,000 security platform investment. Reliance damages thus typically only come into play in other situations when expectation damages cannot be proven, such as due to lack of certainty.

Liquidated Damages

To a certain extent, the law allows parties to decide what they want their monetary or other remedies to be. Using our $12,000 data license example, perhaps you and the vendor reach agreement that the maximum amount either party can owe under the agreement for any kind of breach will not exceed $6,000. This reduces the overall scope of risk for both parties.

This type of stipulated remedy would be referred to as “liquidated damages”—i.e. a fixed sum of money, or a formula for determining that amount, due in the event of a particular kind of breach. If the liquidated damages provision is enforceable, this recovery would be in lieu of whatever other recovery may have been available to the parties under the agreement. In our example of the $12,000 for a year of data access, if the vendor breached after one week of providing access, you would only be able to recover $6,000 rather than $11,769.23 you’d otherwise have gotten through expectation damages. (Of course, you’d also be liable only up to $6,000 in the event you had been the breaching party.)

Liquidated damages provisions are enforceable in the U.S. provided they are compensatory and not punitive: They must “reflect an honest effort by the parties to anticipate the probable damage that would result from a breach. If the court concludes that liquidated damages were set at a high figure to compel performance, the provision for liquidated damages will be held to be void.” ^[9]. This avoids a punitive windfall for either party.

Punitive Damages

Speaking of punitive windfalls, punitive damages typically are precluded in contract claims. Punitive damages are efforts to punish the breaching party, or discourage similar conduct by that party again or by others through making an example of the breaching party. Because punitive damages are not based on actual or anticipated damages suffered, however, courts generally eschew them in contract claims unless the breaching party also committed a tort (e.g. made fraudulent representations). Even though punitive damages typically would not be available anyway, most e-resource license agreements expressly exclude them.

Restitution

Finally, there is another remedy that is not actually based on damages for contractual breach. “Restitution” is available in lieu of contractual damages, when the contract itself has been rescinded or revoked. Restitution is premised upon the equitable theory of unjust enrichment: It is meant to disgorge the monetary benefit that the non-performing or partially-performing party received before the contract was rebuked or rescinded. It is measured by the value conferred to the defendant rather than the harm or loss suffered by the plaintiff.

Let’s return to our example with your having paid $12,000 for a year’s access to data; then vendor breaches after a week and fails to restore access for the remainder of the year. You could bring a breach claim under the agreement and seek expectation damages (or reliance damages, if they were available as discussed above). Alternatively, you could rescind the agreement after the vendor’s material breach and instead bring a claim asserting the defendant will be unjustly enriched if not compelled to disgorge its ill-gotten gains. Now, in the case of your $12,000 paid for data access, it may very well be the case that the direct expectation damages of $11,769.23 for 51 unserviced weeks constitute the same dollar value to which the vendor was unjustly enriched. Expectation damages would equal restitution. But in other factual scenarios, the expenses incurred by the non-breaching party may not mirror the unjust benefit enjoyed by the breaching party.

Specific Performance

We return to our situation in which you received a week’s worth of access to data when what you really wanted was a year of access. The vendor offers you your money back for the remaining 51 weeks, but…you really want the data, not the money! Your faculty needs the data for their research! Can you have the court compel the vendor to provide the access promised, rather than its monetary value? In most cases, no.

A decree of specific performance is a court order that compels the contractually-promised performance “when monetary damages are inappropriate or inadequate,” or unascertainable. ^[10]. As with restitution to disgorge ill-gotten gains, specific performance is an equitable remedy intended only when a common-law remedy (i.e. expectation or reliance damages) is insufficient.

What might satisfy the conditions of monetary damages being inadequate? Imagine, slightly different circumstances: You contract with the vendor not only for data access, but also the development of a custom data-hosting portal that meets the vendor’s highly-specific security specifications. You pay the fee and the vendor provides you with access to the data, but then reneges on its obligations to create the custom portal when it suddenly realizes it will be too much work. The vendor offers you a portion of the contract price back if you find other ways to securely access the data, but you want the custom portal! Can you petition the court to force the vendor to create it? Well, if there is another supplier in the world who could build you a comparable portal, then the court will likely deem common law (i.e. damages) to be sufficient. In other words, you could simply go hire this other party, and might be eligible for damages if the new builder costs more. In any event, a judgment in equity would be unnecessary. However, if the data vendor is the only (or only practical) provider of this secure portal, there is some chance you could ask for enforcement of the contract’s terms rather than monetary remedies for its breach.

Arguably too, specific performance might be available if the nature of the e-resource you’re licensing is the only content of its kind (i.e. the only source of data on a certain topic). If a vendor pulls out of providing the data after contracting with you because they suddenly decided not to license to academic institutions anymore, you could try to convince a court to enforce the agreement’s terms if you can’t actually get the data anywhere else. Section 2–716 of the Uniform Commercial Code ^[11]provides for specific enforcement of contracts for the sale of goods “where the goods are unique or in other proper circumstances.” Case law helps explain “other proper circumstances,” and notably these have included “long-term supply contracts for goods that are in short supply. In these cases, the goods themselves were not unique (petroleum products for example), but if a seller breaches during a time of shortage, the buyer may be able to prove that no market existed in which the buyer could enter into a comparable long-term contract with another party” ^[12]. You could potentially make similar arguments with unique e-resources.