Today, we're going to learn about the three types of Contractual Damage Remedies through the case of Sullivan versus O'Connor, which was decided by the Supreme Judicial Court of Massachusetts in 1973. Alice Sullivan was a professional entertainer and she had a problem. Her nose was excessively long and prominent. She found the plastic surgeon, Dr. James O'Connor, who promised to "enhance her beauty and improve her appearance." Legend has it, he promised her a nose just like the movie star, Hedy Lamarr. Sullivan was supposed to undergo two surgeries in order to achieve this effect for a fee of $622. Instead however, Sullivan underwent three surgeries that went badly, and ended up with an uglier nose than the one she had started with. It was bulbus, flattened, and broadened in the middle and the tip had lost symmetry. Sullivan sued Dr. O'Connor for both breach of contract and for medical malpractice. The jury ruled for the doctor on the medical malpractice claim that is it found that he had exercised the care and judgment that could be expected from a professional like him, but awarded the plaintiff, $13,500 of damages for breach of contract. The opinion we have read is the decision of the highest court of the state of Massachusetts on appeal. The justices cannot evaluate questions of fact, but instead are looking at whether the judge instructed the jury correctly on how to calculate damages. The judge had instructed them, that Sullivan could recover out-of-pocket expenses, direct damages from the disfigurement of her nose, and pain and suffering from the third operation (the extra one that she was not supposed to undergo). The defendant, Dr. O'Connor took exception to the judge's instructions saying they were flawed, that Sullivan should at most be able to recover just her out-of-pocket expenses. The court must decide whether that argument is correct. If it decides in favor of the defendant, Sullivan can receive at most $622 in direct costs and not anything else that the jury awarded her. The central issue then is, "Can a patient receive damages based on anything other than the direct expenses?" The fees she paid in particular for pain and suffering and for the failure to achieve the promised result. Originally, Sullivan also took exception to the judge's instructions. The judge have suggested that she could receive damages based on the difference between the nose with which she began and the nose she ended up with. But she thought, she should be able to receive the difference between Hedy Lamarr's nose, the nose she was promised, and the nose she ended up with. However, by the time this opinion was written, she had waived to this objection, and so Justice Kaplan had no ability to change the award in her favor. She might have been able to get a larger award if she had preserved her objection on appeal. So Justice Kaplan first asks, whether the enforcement of the physician's promise is against public policy. Courts have been skeptical for a couple of reasons about enforcing such promises. First, doctors can seldom in good faith promise specific results, the court said. And so they typically do not make such promises. Courts do not want to turn every enthusiastic remark about a procedure into a guarantee that will lead to litigation. Second, courts have been suspicious that patients bring contract claims are merely lying to get around the statute of limitations for medical malpractice claims which are more appropriate in such matters. But Justice Kaplan also recognizes that some doctors may on occasion, guarantee results, and he thinks that the jury could find that to be the case for Dr. O'Connor. He therefore concludes that contractual remedies are not forbidden for all medical cases. This position makes sense because at least some of the time, positions may be the least cost avoiders. Other providers of goods and services sometimes give guarantees that their products will work consistently even if they do occasionally fail, and we think that it's a good policy since the manufacturers or service providers are often in the best position to control the risks of failure. So for some medical operations, this may also be the case with regard to physicians. In this case, Justice Kaplan considered different purposes of contract remedies in order to determine what damages Sullivan is entitled to receive. Section 344 of the restatements summarizes the three main interests that contract damages protect. Judicial remedies under the rule stated in the restatement serve to protect one or more of the following interests of a promisee: (a) his "expectation interest," which is his or her interests in having the benefit of the bargain by being put in as good a position as he or she would have been in had the contract been performed. (b) the "reliance interest," which is his or her interest in being reimbursed for the loss caused by relying on the contract. And you do this by being put in as good a position as he or she would have been in had the contract not been made. And finally, there is something called the "restitution interest," which is of plaintiff's interest in having restored to him any benefit that he converged on the defendant. Let's look at each of these damaged interests in turn. First, the expectation interest is the one that is most commonly awarded as damages in contract law. When a court awards a plaintiff expectation damages, it tries to put the plaintiff in as good a position as she would have been in had the defendant perform the contract as promised. To assess expectation damages, we have to compare the position of the plaintiff that the plaintiff would have been in if the defendant had perfectly performed his promise with the position we find the plaintiff in now. The idea is that when one party breaches the contract, he has no right to worsen the other parties relative position to what it would have been if the contract had been performed. In law and economics, this principle is connected to the idea of efficient breach. A party should breach a contract only when he receives benefits from doing so, that are enough to compensate the other party for her losses from the breach. We can consider what expectation damages would look like in this case. In the world promised by the contract, Sullivan would have paid $622, experienced pain and suffering from two operations and wound up with an doze like Hedy Lamarr's. Instead, she paid the fee, experienced pain and suffering from three operations and wound up with a disfigured nose. The difference between these two positions which she would recover under the expectation damage measure is the pain and suffering from the third operation and the difference between a beautiful nose and a disfigured one. Justice Kaplan describes, the general and enthusiasm or skepticism of courts about applying expectation damages in medical cases. The judges think that doctors promises of cures are just statements of opinions with some optimistic coloring, and that enforcing the expectation interests could lead doctors to practice defensive medicine. It's also very difficult to calculate the value of a purely hypothetical end result. But Kaplan also cites the famous case of Hawkins versus McGee from New Hampshire in 1929 in which a man did recover expectation damages from a physician. The doctor had promised to give him a good or perfect hand, and so his damages were based on the difference in value between such a hand and the mangled and hairy one that he ended up in. So, Justice Kaplan cannot rule out the expectation interest as a possible damage measure. When a worrying reliance damages, in contrast, the goal is to put the plaintiffs back in the position she occupied just before the parties entered in upon the agreement. So, to assess reliance damages we have to compare the plaintiffs position just before entering the contract with the position we find her in now. In this case, Ms. Sullivan would never have paid $622. She would never have experienced pain and suffering from any of the operations and she would still have her old nose. She would be entitled to the value of all of three of these in damages under a reliance measure of damages. Justice Kaplan points out that New York courts have begun to apply this type of damages in patient physician contract cases, and he seems to favor this because of the reasons he gave for being skeptical about large expectation awards in medical cases. He also cites contemporary research by Fuller and Perdu, who argued that expectation damages make the most sense in commercial context, but that reliance damages should be the default form of damages in other contexts. While that view has never fully caught on, Justice Kaplan found it persuasive, it's worth noticing that in some situations the difference between expectation and reliance damages vanishes. Suppose, for example, that there had been a second doctor who would have made a similar promise and would have succeeded in giving Sullivan a Hedy Lamarr like nose. Then, the plaintiff could argue that in reliance on Dr. O'Connors promise, she turned down the alternative offer from the other physician. Her position if she had not entered into the contract with Dr. O'Connor is that she would have entered into a successful contract with the other doctor. So the alternative situation that forms the basis for calculating damages looks the same for both reliance and expectation. We compare Sullivan's disfigured nose to the perfect nose. That is the reliance damages end up incorporating Sullivan's opportunity cost in selecting Dr. O'Connor over the competing physician. The restitution interest, the third measure of damages, is discussed less frequently and is concerned with ensuring that the party that has breached a contract doesn't get to keep the benefits he or she received from the contract. In this case, that would mean that Dr. O'Connor would have to pay back the $622 fee he received from Sullivan. Well, this is the sort of damages that Dr O'Connor argues for Justice Kaplan never seriously contemplates this as an option as it would be plainly too meager. While expectation and reliance focus on the plaintiff's positions, restitution focuses on the defendant's positions. The more standard type of restitution attempts to put the defendant in the position he or she would have been in had the contract not been made. It thus compares the position we find the defendant in with the position the doctor was in just before making the contract. We find the doctor in the position of having received fees and having expended effort in three operations. To put the doctor in the ex-anti position, we would need to force the doctor disgorge the fees paid less some discount for the physician's effort, but restitution often for simplicity might just force the disgorgement of the fees paid. By the way, if you should be able to create a two by two chart with expectation, reliance and restitution in three of the four boxes and realize that there is a fourth measure of damages which would that would strive to put the doctor in the ex-post position. That is in that position as if the contract had been fully performed. I discussed just that possibility in my two-by-two lecture in A Law Student's Toolkit course. This table provides a summary of the conclusions we've come to over the past few slides, along with the judge's instruction to the jury. As you can see, his instructions don't quite match either reliance damages or expectation damages. Let's go through a few of the categories. First of all, with regard to the doctor's fees, the doctor's fees are available as damages under the reliance measure since Sullivan wouldn't have paid them if not for the existence of the contract, if not for her reliance on the contract. She cannot recover them, however, under the expectation measure because she would've paid them if the operation had been successful. Here, the trial judge's instructions match the reliance measure. Now, with regard to out-of-pocket fees and the pain and suffering, they both work in the same way. Under the reliance measure, the plaintiff can recover for all three operations since none of the operations would've happened without contract existing, without her reliance on the contract. However, under the expectation measure, the plaintiff can only recover damages for the third operation because she would've paid the fees and experienced the pain and suffering of the first two operations even if the operations had been successful. Note, however, that the trial judge's instructions match the reliance measure for out-of-pocket fees but the less generous expectancy measure for pain and suffering. This may reflect the judge's greater comfort in breach of contract cases with compensation for monetary costs than with compensation for pain and suffering. The damage categories relating to lost earnings and to the value of Sullivan's nose itself also form a similar pair. They work the same way. When protecting the reliance interest, we want to put Sullivan back in the position she was in before the contract was formed. And so, we calculate the difference between her situation then and her situation now. When protecting the expectation interest, we want to put Sullivan into the hypothetical position she would have been in had Dr O'Connor accomplished his promised operation. And so, we calculate the difference between the hypothetical situation of her having a better nose and Sullivan's actual situation. We don't have any evidence of the trial court's view on lost earnings, though it looks like reliance damages because the court did not contemplate how much Sullivan might have earned if she looked like Hedy Lamarr. But we know that the judge instructed the jury to calculate reliance damages for the value of her nose. The final result in the case reflects a general principle that common law judges apply in making decisions. They only answer to the questions that they absolutely must. Here, Justice Kaplan is only deciding whether Sullivan can receive damages for pain and suffering for the third operation and damages for the worsened condition of her nose. It turns out that whether Justice Kaplan chooses expectancy damages or reliance damages, she'd be entitled to these two forms of damages either way. So it's not necessary for him to pick expectation or reliance damages. First, let's think about the pain and suffering damages for the third operation. In the expectation damages view, Ms. Sullivan is entitled to these because she was only supposed to undergo two operations. In the reliance damages view, Sullivan would be entitled to these along with pain and suffering for the first two operations because we're trying to put her back in the position she was in before she made an agreement with Dr. O'Connor. Now, let's think about the damages from the worsened condition of her nose. It's clear that Sullivan is entitled to these on the reliance damages view because these damages simply reflect the harm O'Connor did to her, which we're trying to make right. In the expectancy view, on the other hand, she'd be entitled to the difference between the Hedy Lamarr perfect nose and the disfigured one she wound up with. But these damages would definitely be larger, and so, she's at least entitled to the amount the jury awarded her under the instruction the judge gave. So, again, Justice Kaplan doesn't even have to come to a conclusion about what types of damages are appropriate in this case because the plaintiff wins either way. He doesn't declare a general rule. Had Alice Sullivan not waived her rebuttal claims to the other types of damages, he might have had to come to a decision about whether she could receive expectation damages for the disfigurement of her nose. It's true that she received her out-of-pocket expenses for all three operations, which would only be valid under a reliance measure, but that issue was not before the Supreme Judicial Court, in this case, because neither of the parties challenged it. So let's take a little quiz. Imagine that Michael has yellow teeth and Dr. Smith promises to make them white, but instead they end up brown. Michael sues for breach of contract. Which of the following would be calculated for expectation damages? The answer is the second answer here. It's the difference in the value between the white and the brown teeth. It's the difference between, the position he ends up with is with brown teeth and the position he was promised was the white teeth, which is what is granted by expectation damages. Okay. Now, here's a related question. It's the same hypothetical, but the question is, which of the following would be calculated for reliance damages? The correct answer is number three, the difference in value between yellow and brown teeth. For reliance damages, we're trying to put the non-breaching party back in the position as if the contract had not been formed. The position that Michael was in before the contract was having yellow teeth, the position he ended up with was brown teeth, and so, we have to come up with a monetary value for the difference between having yellow and brown teeth. From reading Sullivan and O'Connor, we've learned about three different damage measures that may help protect people's contractual interests. Expectation damages try to put the non-breaching party in the same position she would have been in had the contract been carried out. These are most common in commercial contract cases. Reliance damages, in contrast, try to put the non-breaching party in the same position she would have been in had the contract never been entered. And restitution damages try to pull back from the breaching party any benefit that he or she received from the contract. The general rule is that plaintiffs can choose which of the three damage measures they want to pursue in contractual breach cases. Now, at least as initial starting point, defendants can have an ability to suggest that, under some circumstances there, that expectations would, for example, be over-compensatory. But as a starting matter, the plaintiffs have the right to choose among these three and often choose expectation as the most beneficial. In this case, Alice Sullivan waived some of the additional damages she might have received under the expectation measure. Had she pursued a different litigation strategy, she might have won more, or Justice Kaplan might have explicitly ruled against awarding expectation damages in medical cases.
