INTRO
· Uniform Commercial Code
· Only covers the sales of good
· Services contracts, leases, and sales of land are governed by common law
· 49 states have adopted it
· Mixed Transactions involving services and goods (painting a house) → apply an “all or nothing” test. If the good is the bigger part of the K apply UCC. If services are bigger part of K apply common law.
· Contract
· R2K§1 – A promise or set of promises for the breach of which the law gives remedy, or the performance of which the law recognizes as a duty
· R2K§4 – Promise may be stated in words, either written or oral, or me be inferred wholly or partly from the parties’ conduct
· R2K§3 Agreement – a manifestation of mutual assent on part of two or more persons
· R2K§3 Bargain – agreement to exchange promises or to exchange a promise for a performance or to exchange performance
· Shaheen v. Knight (1957) pg 11 – botched vasectomy leads to birth of child
· Court found that the doctor had breached the contract but the court held that having a child was a blessing and no damages were awarded.
· Awarding damages for the “fun and joy” of rearing the child would be against public policy
Damages
R2K§346 Availability of Damages (pg 125)
· Injured party has a right to damages for any breach by a party, if breach caused no loss or loss cannot be proved, court will award nominal damages
o In general, damages must be determined with certainty
o The purpose of damages in Contract Law is to compensate, not punish → punitive damages are not usually given in contract disputes unless the conduct constituting the breach is also a tort (R2K§355 – Punitive Damages)
o Three Damage Interests: Expectation, Restitution, Reliance (Farnsworth, pg 62)
§ Expectation – damages that put the promisee in the condition that he would have been in had the K been performed
· This is the normal damages offered in Contract Law
· These measures are preferred because it cause people to breach only when it makes at least one party better off and not one worse off (encourages only efficient breaches)
§ Restitution – damages that put the promisor (breaching party) back into the position he would have been in had the K never been made
· Relinquishes benefits gained by promisor derived from promise
· NOT available when P has fully performed
§ Reliance – damages that put the promisee in position had he never entered into the K at all
· Usually used in non-commercial settings
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· Expectation Interest (compensatory)
R2K§347 Measure of Damages in General (pg 70)
Expectation = (Loss in value) + (other loss such as incidental and consequential damages cause by breach) – (cost or other loss avoided by the breach)
· Hawkins v. McGee (1929) pg 63 – hairy hand case, 100% hand was promised
1. The court held that the damages are the difference between the result that was contracted for (perfect hand) and what he actually received (hairy hand). Expectancy Damages
Expectation = value of hand promised (100% perfect) – value of current hand + incidental damages
· McGee v. United States Fidelity (1931) pg 66 – Doctor’s insurance company disclaimed liability
1. McGee’s insurance policy did not cover the special contract created by Dr. McGee by guaranteeing Hawkins a perfect hand.
· Nurse v. Barnes (1664) pg 71 – D promised to let P use iron mill. Special damages were awarded for breach
· Special damages for the breach of contract by including the lost profits of the non-breaching party
1. Special Damages – those that aren’t obvious to the breacher
· Public policy: Why do courts award expectation damages rather than reliance?
· Deter opportunistic behavior
· Psychological theory – breach of K arouses negative emotions in non-breaching party (non-breaching party feels wronged)
· Will Theory – both parties entered into a K and agreed on set terms. Expectancy tries to approximate what would have happened had the K been fulfilled
· Economic Theory – allows court to avoid under/over compensating (dominant theory for last 30 years)
· Reliance Interest
R2K§349 Damages based on Reliance Interest (pg 125)
Reliance = (expenditures made in prep. of perf.) – (expenses saved in breach)
· Used when:
1. profits are too uncertain to determine but P can show expenses
2. No enforceable contract → P is entitled to something under promissory estoppel
3. Failure to perform on land K and jurisdiction doesn’t allow expectation
· Sullivan v. O’Connor (1973) pg 72 – botched nose job on entertainer
1. It’s difficult to apply contract theory to doctor-patient situations because patients transform statements of medical opinion into firm promises
2. Court awarded out of pocket expenses, damages that were a direct result of the breach(including effects on P’s consciousness from being disfigured), and pain and suffering that was involved with the 3rd operation (but not the first two)
· Restitution Interest
R2K§371 Measure of Restitution Interest (pg 256)
If a sum of money is awarded to protect a party’s restitution interest, it may as justice requires be measured by either
A) The reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant’s position
B) The extent to which the other party’s property has been increased in value or his other interests advanced
Limitations when Calculated Damages
o J.O. Hooker & Sons v. Roberts cabinets (1996) pg 78 Roberts told Hooker they wanted more money for job. Dispute arose over disposal of old cabinets
§ Gen. Contractor breached but P could not recover for storage costs because it was space that was already rented
§ Mixed transaction → dispute arose from services part of K so UCC did not apply
§ UCC §2-105 (pg 85) – “goods” are all things which are moveable at the time of identification to the contract for sale
§ UCC §2-106 (pg 85) – Contract and Agreement are limited to those relating to the present or future sale of goods…
o Tongish v. Thomas (1992) pg 86 – sunflower seed K. D breached to sell the seeds to someone willing to pay a higher price because market prices rose
§ Court awarded difference between market damages and contract price → restitution damages
§ discourages efficient breach
§ Efficient Breach – a breach where the breaching party can improve his position while allowing the other party to be just as well off. This would cause the breaching party to make more money, the non-breaching party to be just as well off, and the 3rd party, who values the resources the most, would possess them
· Drawback → this theory would encourage people to break contracts in response to market fluctuations
Three Limitations on Damages
1. Remoteness or unforeseeability of harm
R2K§351 Unforeseeability and Related Limitations on Damages (pg 108)
§ Not foreseeable by breaching party → no damages
§ Forese
oidability of harm (mitigation of damages)
R2K§350 Avoidability Limitation on Damages (pg 153)
Damages not rewarded for loss that the injured party could have avoided without undue risk, burden, or humiliation except when injured party has made reasonable but unsuccessful efforst to avoid loss
§ Non-breaching party is required to mitigate their losses.
§ Mitigation forces people to behave in non-wasteful ways
§ Buyer’s duty to mitigate is embodied in the duty to cover, i.e. he must attempt to purchase substitute goods from another supplier – no attempt to recover limits damages to only the difference between the market price at the time with buy learned of the breach and the K price
§ Seller’s Duty to mitigate is much less than the buyer’s. If a buyer repudiates before delivery or rejects delivery, sells has a choice of remedies:
· Resell and recover difference between resale price and K price
· Not resell and recover difference between market price and unpaid K price
· Recover lost profits that do not require mitigation
o Rockingham County v. Luten Bridge (1929) pg 131- construction company continued to build bridge after it was informed that the county couldn’t pay
§ The only damages that can be awarded are those that were incurred up until the breach. If the non-breaching party continues to go through with the K after being notified of the breach, he cannot recover for the additional damages after the K was breached
§ P has a duty to not increase the damages flowing from the breach
Damages = expenses incurred prior to breach + expectancy interest (expected profits)
· Principal in Policy: party in breach should only be entitled to damages it caused. Party in breach should not be forced to accept performance that they no longer wished to receive (no longer of value to them)
o Shirley MacLaine Parker v. Twentieth Century Fox Film Corp (1970) pg 142 – Fox repudiated offer for “bloomer girl” and offered an alternative role in “big country.” MacLaince refused second offer and didn’t find work during the period when original film was to be made
§ P was not required to mitigate damages by taking the other role because it was substantially different than the one she contracted to do
§ The law only requires an employee to make a reasonable effort to secure other employment of the same type and quality
§ Expectancy was awarded but only for lost salary but not opportunity cost (too uncertain and complicated)
§ Hypo: Benforado is fired from Drexel; is he required to go to temple? Broad standpoint – both professors, same subjects, same city, etc. Narrow – north philly/university city, different faculty, new school; etc.
§ Burden on D to prove the P didn’t mitigate damages (that the alternative movie was comparable)
o Buyer’s Breach/ Seller’s Remedies
§ UCC §2-706 Seller’s Resale (pg 157)
