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Contracts II
Elon University School of Law
Gabriel, Henry Deeb

Contracts 2
Henry Gabriel
Spring 2010

Specific Performance – 2 – 3.
Direct, incidental, consequential Damages – 3
Expectancy Damages – 4
Repudiation – 4 – 5
Mitigation – 6
Damages – 6 – 9
Expectancy Damages – 9
SOF – 10-12
Surety Contracts – 13
Equitable Estoppel – 13
Parole Evidence Rule – 14 – 20
Mistake, Impracticability and frustration – 20-25
Assignment vs. 3rd party beneficiary – 25
3rd Party Beneficiary – 25 – 28
Assignment and Delegation– 28 – 31
Conditions – 31
Mitigating Doctrines– waiver, estoppel and election – 33 – 34
Substantial Performance and Divisibility – 34 – 39
Prospecgive Non-Performance and Anticipatory Repudiation – 39 – 43

Class 1

Specific Perfromance – Campbell and farmer went into agreement for him to sell all the carrots he can grow. This was for a season, at end of season price jumps. He tells Campbell he’s not going to sell it to Campbell at the price. Contract and breach, court decides proper remedy. Trial court denies specific performance because carrots are not unique, Campbell wants specific performance. In common law you don’t get specific performance, they use substitutional, monetary damages. Specific performance is an exception to the general rule. Trial court says you would be entitled to specific performance if the goods were unique. Court of Appeals awards specific performance because there is a shortage of that type of carrot. Distinction between the two courts. Specific performance if legal remedy is inadequate. Equitable remedy is monetary. Law vs. equity – different courts. Specific performance (equitable remedy) as opposed to legal remedy (money). Shortage of open market shows they cant get legal remedy. Even if we gave them the monetary difference, they still cant run their business if they don’t have those types of carrots. Trial court says carrots are not unique. It is often mistaken as a principle of law that goods that are unique provides a basis for legal remedy. It is the fact that often when goods are unique they are unique to only you. The term unique isn’t a basis for a legal remedy. Specific performance is allowable when you don’t have an adequate legal remedy. P. 585. The question is will money make you whole. In the case here it doesn’t. In order to have adequate legal remedy you have to put a monetary sign on your item, and calculate damages. Uniqueness is a basis in and of itself for SP. Uniqueness shows you an example of where something can’t be given a specific monetary value. Klein v. PepsiCo, Inc. – Pepsi was going to sell Klein a jet. We don’t care if this plane is unique because we have an adequate monetary damage. Uniqueness is a proxy for not having an adequate legal remedy. UCC – 2-716, p. 100 – entitled to SP when goods are unique and other proper circumstances. In and of itself being uniqueness may raise the flag, but it’s not definitive in and of itself, when goods are unique you might be entitled to SP, not always. Revised 2-716 p. 168 – in a contract other than consumer contract, SP may be awarded if agreed to by parties. Freedom of contract. We have a contract, you assume the risks. P. 592 – Car case – shortage of cars. Dealers agreed to sell someone a care at a specific price. Legal damages are 0 because contract price and value of car is the same. Don’t sue for monetary damages. Didn’t award SP if you cant perform the award. (sold it to someone else, other person has nothing to do with that person). Morris v. Sparrow – Morris promised Sparrow a horse if Sparrow did satisfactory work. Hard to put a monetary value on the love the man had for that horse (sparrow, he trained it, he expected it when Morris got back). Laclede Gas Co. v. Amoco Oil Co. – Contract to supply variable amount of gas until an unknown variable amount of time. Price is variable as well. XxYxZ=$. Impossible to determine price, no legal remedy so award SP. Rule – don’t have adequate legal remedy if you don’t have a way to measure damages. We would know what damages are in the future, but the case is right now, so proper to award SP. Gas is not unique, but it is proper to award SP, have to keep supplying gas because no way to award dollar sign.

Class 2

Northern Deleware v. Bliss – Contractor contracted to modernize a plant, plant was over 60 acres, work didn’t progress as rapidly as it should. Court denied specific performance. Court said it could have done it but chose not to because it would be difficult for the court to enforce it. They would have to monitor the men day in and day out. Court has no enforcing power, but they could get someone else to do it. No real way for court to make sure it’s done correctly. As a principle they wouldn’t order specific performance because there is no way to enforce it. P. 602 – note 1. Section 359 – Specific performance or an injunction will not be ordered if damages would be adequate to protect the expectation interest of the injured party. Can’t have SP if damages would be an adequate remedy. You wont award Sp because normally monetary damages can be reward and normally parties expect if they don’t do what they have to do they will have to pay money. Walgreens v. Sarah Creek – Sara Creek is leasing space to Walgreens, and promises not to lease space in the mall to other pharmacies and they do. They want an injunction, ordering the court to not allow them to move in. Trial court grants an injunction until the lease expires. Injunction vs. damages. Court says cant measure damages so give injunction, court of appeals affirms that. Why would lessor want damages? It’s an efficient breach, they chose to breach. They’re trying to buy their way out of a contract. In the long haul its better to pay off these guys and they have free range to do whatever they want with their property. They’re hoping the damages they make will be less than the profits they make. You would be inclined to award damages because it best opens up the legal opportunities for the parties. The issue under the court of appeals is was the trial court erroneous saying there wasn’t an accurate basis for finding monetary damages. No they weren’t erroneous. We don’t SP, because we leave the parties with as much freedom as they can have, they’re not restricted to doing or not doing something. Generally, you don’t restrict parties when you don’t need to if the law can compensate them. Sarah creek is going to tell Walgreens how much will it take to get that injunction to go away. This shifts the decision of how much the breach is worth from the court to the parties, who are better to understand their self-interest. There is not a restriction per se against SP, there is a principle that damages are more likely to be in the general interest of the parties. SP is appropriate when the goods are unique (one of a kind, no way to value the goods, etc). Generally uncertainty of value would tilt towards SP too (when you cant find a value). When it would be impossible/difficult for the court to monitor SP, the court wont grants it because the court can’t control the remedy. Broader principles usually guide us away from SP and towards monetary damages. Measuring Expectation – Expectancy is what you would have received had the contract been performed. Difference between what you promised and what you received. P. 607 S 347 Hypo – bottle cap company doesn’t perform as it should. The machine you sold me underperforms. We have a breach. The machine should have been worth 100k if it did what its’ supposed to but its only worth 75k (a). because the machine doesn’t work as it should I am producing less bottles, losing profits (b). Because I bottle less beer I use less electricity and use less employees, expenses are less had the contract been performed correctly (c). You can either keep the machine or send it back. If you send the machine back you might get one from someone else at a different price. 347 works with the hypo but not what you would have to figure out allocating money back in forth. Measure damages on p. 395 of UCC, article 7.4 – Replacement Transaction by Aggrieved Party – I am entitled as aggrieved party the losses I suffered because of the breach. What damages are suffered is a factual question. We want some method to try to give some guidance the actual loss suffered. The formula on p.347 doesn’t work. There are little chunks to the formula. Hypo – selling liquor, its no good. It isn’t what it’s supposed to be. It should have been worth x, now its worth less than x. Those are your direct damages (direct economic harm). The goods are no good so you have to return it, resell it, etc. That costs you some money related to the breach. Who pays? Seller should pay. That is called incidental damages, damages incidental to the breach that is separate from its actual worth, costs associated with the breach. Third category, had you had real liquor you would sell it for a profit. Since you don’t have that you lost profit (but for you breaching I would have sold for a profit), called consequential damages. Vitex v. Caribtex – this is part c from the formula (losses that you avoided). Vitex processes wool but close down. Carbitex gives them a contract to work with 125K yards of wool. They open back up the plant and the wool never comes. Argument of whether or not overhead costs should be considered in the damages. S 347 (p.607 in casebook) – relationship with b and c. Talking about consequential damages, lost profits. Profits are how much money you actually make from performance. What are the profits? The answer is b and c, how much money you would have made if resold minus cost of performance. The problem is they didn’t subtract the fixed costs from the damages. Hypo – you give $1, I sell for $2, damages are the amount of stuff you have to get to the sell. Damages are $1 minus costs of production. The fight with Vitex is the factual question of what should count as the costs of production. Equation is Contract price minus cost of performance. Worried about fixed overhead, court says Carbitex has to pay for the fixed overhead. If there wasn’t a contract, the plant wouldn’t be opened up to begin with. Equation – Contrat price – entire cost of performance (1. How much it cost to acquire goods 2. Cost of production, costs to prepare to sell). In cost of performance do we include fixed overhead (costs you entail irrespective of contract)? In order to run factory for a year regardless of hoe much you produce it costs 100. I’m going to produce 5 units. For every one you produce it costs you 20. Need to sell for more than 20. He was going to buy but he breached, therefore you produce 4 so you have to allocate 25, each one of the 4 is 5 less profitable because of the breach. You should pay me 20 to make it even. That’s the Vitex case. What makes it expectancy and not reliance? Reliance is put me back in position had we not have done this. That doesn’t include lost profits. We are only interest in had they not been defected I would have sold them for a profit – expectancy. Laredo Hides v. H&H Meat Products – Loredo contracted with H&H to get hides. H&H breaches because didn’t get check in time. Loredo bought it from someone else at a higher price. She either doesn’t deliver them, won’t give them, or gives defective goods, that’s the same as non-delivery for purposes of damages. Measure of damages should be the additional funds it takes to get the hides. Looking at direct economic harm. (not expectancy or reliance). Court says look at UCC, Section 2-712 – seller pays difference with cover price and contract price. Hypo – buy 100 widgets march 1st. Price fluctuates, don’t know what price will be on March 1st. You enter into a contract that says price to be $100. Buyer wants market price to go up, seller wants it to go down. We assume the risk it may go up or down. Both parties don’t have grounds to complain, there is a risk in the contract that one party will take a hit. Assume on March 1st, value of widgets are $120. You have 2 choices, deliver or not deliver. You don’t deliver. Your damages are $120. That is section 2-714. You are likely to buy from someone else for $115. You are entitled to $15 under 2-712 (difference between contract price and price purchased at). But if we actually measured damages as pure contract theory you would be entitled to $120. The UCC plugs in a separate measure of damages. Traditional contract theory is value of price on March 1st, 2nd theory says its reasonable to buy replacement goods….look through 706, 708, 712, 713

Class 3

In the damages structure, 2 theories, both for seller and buyer. One damage based on response of non-breaching party (reselling or buying replacement goods). 2-706 – Seller’s Resale Including Contract for Resale – sellers resale. Buyer doesn’t buy so you resell. If you resell for less than what you were going to take them for, entitled to difference between the resale price and the contract price…When parties enter into a contract, they are obligated to do something, you are entitled to the value of that bargain. You sold in a commercially reasonable manor, but still got less. VS. 2-708 – Seller’s damages for Non-acceptance or Repudiation– difference between contract price and market price. 2-712 – buyers procurement of substitute goods – equivalent to buyers side. If seller doesn’t deliver, you go out and buy replacement goods, entitled the difference between contract price and the higher price you had to pay to get replacement goods. Seller pays difference with cover price and contract price. Common law – measure of damages is diff between contract price and market price at value of time they were to be delivered. 2-713 – Buyers Damages for Non-delivery or Repudiation – difference between market price when the buyer learned of the breach and the contract price. Don’t measure value of goods at time they would have been delivered, but at the time the buyer learned of the breach. That measure doesn’t reflect the bargain. It’s difficult to prove when the buyer learned of the breach. Revised 2-713 says time AND place, not just place like unrevised section. Problem between 2-706 and 2-708. K price is 100, 706 – $90 (resale), 708(1) – $80 (market). If you screw up the resale, you’d be in 708, but what if you’d rather be in 708? 2-713 comments say you only get damages if you have not covered. Seller has burden of proof to knock out of 2-713, and prove cover was for thos

re these seeds are worth than B paid. C doesn’t lose anything if B doesn’t sell to him for the $455. Holding/Rule – how do you define the measure of damages? When a seller breaches by not delivering goods that the buyer has a contract for resale at the purchase price plus a fixed addition. What’s the proper measure of damages where the seller doesn’t deliver goods, value of goods is fluctuating and the buyer is going to resell the goods at the purchase price plus something else? There are two possible answer, but one more consistent. This is a fact specific case. Holding – when buyer sues seller for breach of contract for goods not deliver, if buyer has contract to resell goods at a fixed contract price is entitled to damages measured under 713. Parker v. Twentieth Century-Fox Film Corp – Fox repudiated a contract prior to performance and offered similar employment for same pay. Why should she be entitled to this money anyway? You don’t get paid something for nothing. Hypo – Fox says don’t show up, does she get the 750K contract price? In order to show up for work it would cost 25k that wouldn’t be reimbursed. She gets the contract price minus the price she saves of not having to do it. Your free time is worth something. 6 months of freedom is worth 25k. You deduct from K price the value of not having to work. Total price she gets is 75k (original K price (125K) – money saved – value of free time). This is irrelevant in our case, its contracted away. She should have taken another role. Mitigation principle, not recoverable for loss could have avoided. For purposes of suing for damages you need to mitigate damages. You don’t have to go out and seek a job, but if the job is reasonably available and you don’t take it you haven’t suffered the loss. Facts – was going to pay 125k, take equivalent job for 100K, you get 25K. If you don’t take it do you get 125K or 25k? If the other movie was to be found equivalent her options would be to take it and would have been paid 25k, and not take it and be paid $0. She doesn’t have to mitigate, but where it is reasonable to mitigate and you haven’t, you are deemed not to suffer those losses. Still entitled to $25 no matter what, you would sustain that loss if you took it or didn’t. She has to take the other job if she wants $125 (you’d have to make up the difference). If she wants 25k, she doesn’t have to do anything.

Class 5

Problem 1 on p. 644

Damages – generally get expectation, can seek reliance as an alternative but is limited, restitution only if full performance hasn’t been rendered. Mitigation principle. Which UCC section to choose, meaure of damages different. P. 644, problem 1 – First Bank repossessed classic cars, contracted with Fred to buy for $400k, didn’t and breached, sold to someone else for $1M. He sues, said they were worth $3M, damages in court were $2.6M. Defense was he could have mitigated it and his damages would be 2M (3M-1M). Court of appeals said it’s not reasonable to assume he could spend 1M to mitigate damages.

Separate breach form damages. Separate question of have you suffered any harm? Is breach willful or not? Mitigation principle – to the extent that I can reasonably do a substitute transaction and it would lesson the damages then the law expects you to do that. You contract and assume the risk of nonperformance or the value of performance.

Cost of damages. Jacob & Youngs v. Kent – Jacobs sued Kent because he installed the wrong pipe. The pipe was the same quality as he wanted, the only difference was the name. Two possible measure of damages are the difference in the value between pipes installed and ones contracted (zero) or to replace them. The owner is entitled to the money which will permit him to complete, unless the cost of completion is grossly and unfairly out of proportion to the good to be attained. Court says if cost of completion is grossly out of proportion to the goods to be completed we give the lesser amount of damages. If they gave him a check for the value of ripping out the walls he could just keep the pipes how they are and keep the money. Normal measure of damages is cost of completion; give you the value of having it done. It’s not this way if it’s grossly out of proportion. House cost 77K, cost of ripping out pipes is 25K, 10K, 5K, where is the line for grossly out of proportion? There is not, is below where it is grossly disproportionate. What about the non-willfulness of the breach? Doesn’t matter, matters only in the part about substantial performance, not damages. Contract law says he’s entitled to the difference between what he was promised and what he was received. The question is how do we value this difference? Yes you breached but didn’t suffer any damages, the value of the breach is the same. Section 348 2. ?? Standard – pay value of what you should have done vs. what you did do, you’re entitled to the difference in value. In this case, you don’t get what you’ve contracted for, you get what we think you need. Next two cases are the same issue. Groves v. John Wunder – Groves leased land and excavated gravel but didn’t leave the land in the condition he said he would. Difference in value for the land is 12,160 but you can fix it for 60k. Trial court gave him 12K, supreme court said not enough. The courts reasoning for the higher price was … Doctrine of economic waste. We assume in the last case he wont change the pipe because he wouldn’t benefit from it, we assume he keeps the money. They suffer the greater consequences than they had to. Peevyhouse v. Garland – Contract for company to strip coal on their property, contract called for restoration work, they didn’t restore so property owners sued. Farm owner reasonably expected farm to look like it did before they arrived. Cost of performance