Select Page

Contracts II
Faulkner Law - Thomas Goode Jones School of Law
See, Brenda

I. Remedies for Breach
A. Equitable Remedies
1. Specific Performance- available only when damages are inadequate.
a. Three Categories Specific Performance does not apply:
                                                                                                                    i.                        Personal service k- would be form of involuntary servitude;   specific performance not applicable.
Exception: personal service k for one time event. Could lead to an injunction.
                                                                                                                  ii.                        K for fungible items- concept of cover or seller’s right to re-sale. If k calls to acquire something that you could acquire elsewhere, court won’t use specific performance. Must be for unique goods/property/services. Damages would be difference b/t new cost and original k price. UCC §2-716; R2K§358(2); 359(2).
b.                  Most common form of specific performance is a party breaching land sale k. Specific performance usually invoked. Theory is that every piece of property is unique.
c.                   Restatement Sections:
i.    §359- no specific performance if money damages are adequate.
ii.   §360- 3 Factors to determine if damages at law are   adequate:
1. Difficulty in proving damages w/ reasonable certainty
2. Difficulty of producing a suitable substitute performance
3. Likelihood that award of money damages is uncollectable
iii.        §362- Specific performance not granted where terms of k aren’t sufficiently certain- important k terms left to negotiate.
iv.        §364- Specific performance refused if unfair b/c
                                                1. K induced by mistake or unfair prices
2. Relief would cause unreasonable hardship to breaching party or third party.
3. Exchange is grossly inadequate of k terms are otherwise unfair.
v.         §366- Specific Performance won’t be ordered where it would be too difficult for a court to supervise or enforce k. e.g.- personal service k for one year work period; construction k, etc. See Bliss
                                   
B. Remedies at Law
            1. Three Basic Measures of Damages:
i. Expectation damages- usual means of compensating victim breached bargain. Represents the potential gain from the k.
ii. Reliance damages- detriment incurred by changing position. Generally used where a promise is enforceable only b/c of reliance.
                        iii. Resitutionary- benefits incurred by changing position.
 
C. Expectation Damages
            a. Generally
i. The general approach to damages is that he party should be placed in the position had the k been performed.
ii. Damages must have been reasonably foreseeable in order to collect or award (special/ consequential damages).
iii. The general rule for measuring damages for a vendor in the breach of a real estate transaction is the difference between the k price and the fair market value (FMV) of the property at the time of the breach.
iv. If the resale price exceeds the k price and the P sues for damages, then the damage awards will be nominal but they can recover special damages.
            v. Concept of Fair Market Value (FMV)
1. Courts typically define it as what a willing buyer would pay to a willing seller.
2. Engage appraiser who is often looking for comparables
3. The sale price is the important price, not the listing price.
b. Damages = Loss in value + Other loss – Cost Avoided – Loss avoided. (Rest. §347)
i. Loss in Value: breach deprives P of expected performance in the k. This is the difference b/t the value to the party that should have been received and the value to the party that actually received.
ii. Other loss: Breach causes P a loss other than a loss in value. That party can recover incidental and consequential damages.
1. Incidental damages: additional costs incurred after the breach in a reasonable attempt to avoid loss, even if the attempt is unsuccessful (2-710- Seller: place a billboard or post in the newspaper, advertising; 2-715 Buyer: cost to obtain substitute goods; commission & transportation costs)
2. Consequential damages: items as injury to person or property cause by the breach, breaching party knows about this (happens a lot in construction k’s)
iii. Cost avoided: P terminates and claims damages for a total breach. That breach may have a beneficial effect to the P by saving in further expenditures that would otherwise have been incurred.
iv. Loss avoided: Same as above, but this time the breach allows the P to avoid some loss by SALVAGING or RELOCATING resources that would have otherwise been performed under the , he k.
                        c. Computation of Damages
i. Damages = loss in value (difference in k price) + other loss (special/consequential, incidental damages) – cost avoided (total cost – cost to date) – loss avoided.
                                    ii. Hypos:
Suppose JC Co. agrees to sell Ben an XYZ copier for $8,000. Later, JC Co. repudiates (decides not to go through with) the k. Ben has paid $1,000 down. Ben purchases a comparable copier from ABC Corp. for $9,500. He is entitled to $2,500 in damages.
 
Calculate the damages:
                                                            9,500 – $8,000 = $1,500 cost of cover

the company’s profits been?
                        g. Non-recoverable damages
                                    i. General limitations on damages
1. P should not receive windfall- P should only recover up to point where P is made whole, not past that point
2. P shouldn’t recover voidable losses- P has duty to mitigate losses- cost or loss avoidance
3. P should only be able to recover damages that meet Hadley test of foreseeability
 
D. Buyer’s Remedies
o       2-711 General- If Seller fails to deliver or repudiates k, buyer can cancel. Buyer who cancels can recover any portion of k price already paid AND damages (market price or cover). Cover is the default approach under the UCC. (3) Buyer can have security interest for any payments made on purchase price.
o       2-712 Cover- A substitute made in good faith without reasonable delay; A reasonable purchase (or K) in substitution.
§         Damages = K price – Cover price + Incidental or Consequential damages – (LESS) expenses saved in consequences of seller’s breach. Where buyer complies with 2-712, his purchase is presumed proper. BOP is on seller to prove otherwise.
§         Advantages of Cover:
·         Don’t have to prove market price (which might require experts)
·         Can recover actual additional costs of substitution instead of a hypothetical market price.
o       2-713 Damages-Goods Not Accepted: Two measures: market value & cover
§         Market Value- difference b/t market price at time of discovery of breach and the k price.
§         Cover- mitigation of damages. Difference b/t new price from other seller and original k price. Buyer has to go out in market and seek goods from other seller. Laredo, Tongish
o       2-714 (1): If goods accepted, buyer can recover damages that result in ordinary course of events from seller’s breach. (2) If breach of warranty, buyer can also recover general damages for breach of warranty.
o       2-715
o       2-716 Specific Performance- If goods are impossible to cover, unique, courts will invoke specific performance.
2-717 Deduction of damages (Right to set-off)- defect in goods, but doesn’t