CONTRACTS II
CROSS
SPRING 2015
1. Introduction; Sources of Contract Law
A) UCC Article II:
1) UCC 2-102: Rules over contracts for the sale of goods.
2) UCC 2-105: Goods are all things that are moveable at the time of identification to the contract for sale.
3) Does NOT include real estate, service contracts or employment contracts.
HYPOS:
1) Contract to sell an apartment = NOT UCC, because it’s not a good as defined under moveable goods.
2) Contract to paint a house = NOT UCC, because it’s for services.
3) Contract to install wood flooring in living room = MIXED contract – some services, but also a contract for the sale of goods.
CASES:
1) Princess Cruises – GE’s form had limiting liability and disclaimer negligence of apply the Bonebrake test and determine whether the predominant factor is for the sale of goods and if not, then the common law applies. Predominant purpose looks at 1) language of the contract; 2) primary business of manufacturer; 3) intrinsic worth of the goods. UCC didn’t apply, as service K, and “LAST SHOT” rule applies and last K exchanged applied.
*When there is a sale of goods, the common law comes into play when it supplements the UCC and doesn’t come into conflict with it.
B) CISG:
1) Tries to promote uniformity among countries rather than states.
2) Automatically applies unless the parties opt out of it. In order to opt out there must be specific language.
3) Article 1(1): Applies to parties whose places of business are in different states (India, Brazil, UK, and Japan have not signed on). Look to place of business, not place of incorporation.
4) Article 6: The parties may exclude the application of this convention or subject to Article 12, derogate from or vary the effect of any of its provisions. MUST be expressly stated.
5) Article 10: If a party has more than 1 place of business, the place of business is that which has the closest relationship to the K and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the K.
5) A treaty is self-executing – no additional laws need to be enacted to make the treaty binding law.
HYPOS:
1) A has a computer store and has a contract with a foreign company to purchase 100 computers. Delivery is scheduled for 9/1. A agrees to make a payment for the computers. 9/1 comes and computers aren’t there. A wants to bring a breach of contract against the foreign company. There was a clause that said Illinois law would govern the contract. What would the Court look to to determine if there was a contract and if there was a breach?
ANSWER: The Court would look to the CISG, because as a treaty, it preempts Illinois law.
CASES:
1) Asante Technologies – The Court said Article 10 applied, “if a party has more than one place of business, the one that has its closest relationship to the contract and its performance is the one that governs.
2. Remedies
Three types of interest:
1) Restitution – D has received some sort of value from the P. Awarded to prevent unjust enrichment. Requires the benefitted party to pay an award of damages that represents the value of the benefit conferred upon that party.
Example – If B gave C money for a bike but never received the bike.
2) Reliance – Restoring the injured party to the pre-contract position. Awarding a sum of money to give redress for the harm.
Example – If after paying for the bike, B buys a helmet for $30, he should be able to recover it.
3) Expectation – Protecting the value of the promise. Put the party in the position she would have been in had the contract been fully performed. This is the standard for determining damages for breach of contract cases.
* These are alternative ways to measure damages; generally one cannot claim both reliance and expectation damages, or restitution and expectation.
HYPO:
1) Seller agrees to sell laptop for $450. Seller breaches. What remedies are available?
ANSWER: Damages (substitute for performance) or specific performance (injunction requiring seller to go forward with the contract).
A) Measuring Expectation
· ALWAYS TELL YOUR PROFESSOR THAT THE GENERAL MEASURE OF MONEY DAMAGES IS PROTECTING THE NON-BREACHING PARTY’S ECONOMIC EXPECTATION.
· Restatement 347: Measure of Damages in general – the injured party has a right to damages based on his expectation interest as measured by:
o A) The loss in value to him of the other party’s performance caused by its failure or deficiency, plus
o B) Any other loss, including incidental or consequential loss, caused by the breach, minus
o C) Any cost or other loss that he has avoided by not having to perform.
· FORMULA: Loss in value + Other loss – Loss avoided – Cost avoided
· Loss in value: Difference between the value to the injured party of the performance that should have been received and the value to that party of what, if anything, actually has been received.
· Other loss: Loss other than the loss in value (consequential and incidental).
o Consequential: Injury to a person or property caused by the breach.
§ SPECIAL DAMAGES. 1) Exam question MUST tell you something special about the P and 2) the other person must know about this special info at time of K.
§ Recoverable if FORESEEABLE by the other party at the time of the K.
§ As a result of your breach, I had to breach my K with third party and as a consequence, I lost profit.
o Incidental: Additional costs incurred after the breach in a reasonable attempt to avoid loss.
· Cost avoided: Saving the injured party by saving it further expenditure that would otherwise have been incurred.
o How much in costs would’ve been paid under the original K – amount innocent party had paid under K by time of breach.
· Loss avoided: Allows the injured party to avoid some loss by salvaging and reallocating some or all of the resources that otherwise it would have had to devote to performance of the contract.
o Raw materials or services put to a different use after the breach.
· *CANNOT RECOVER FOR DAMAGES THAT COULD’VE BEEN AVOIDABLE.
HYPOS:
· 1) Seller agrees to sell computer for $450, buyer breaches. What are seller’s damages?
o $450 – what was promised and not given is what was not performed.
· 2) Seller breaches. Buyer has paid the money but the seller hasn’t given her the computer. What are buyer’s damages?
o Market value of the computer.
· 3) Nobody has paid anything. But seller says she isn’t going to deliver computer. Seller has breached. What are buyer’s damages?
o Difference between market price (loss in value) and the contract price. It would put her in the position she would have been in had the contract been completed.
· 4) Owner hires builder to construct a building for a total price of $200,000. The estimated cost of construction is $180,000. The owner breaches by unjustifiably terminating the contract when
ANSWER: Depends on if her purchase was done in good faith and without unreasonable delay. It is immaterial that hindsight may later prove that the method of cover used was not the cheapest or the most effective.
CASES:
· 1) Crabby’s: Damages to an injured seller of real estate. “A seller’s measure of damages for a buyer’s breach of a contract for the sale of land with a structure on it is the difference between the purchase price and the fair market value of the property on the date of breach.” They also had other D’s of having to continue to pay on mortgage, interest, etc.
o Two ways to measure these damages:
§ 1) Market Value = Market price – K price at time of seller’s breach. If K price is higher at sale, there are no D’s.
a.) (Breach of buyer)=Loss in value + other loss – loss avoid=95K
b.) (Breach of seller)=
§ 2) Cover = Cost to cover – K price – expenses saved.
2) Lukaszewski: Damages for a breach of an employment contract include the cost of obtaining other services equivalent to that promised but not performed, plus any foreseeable consequential damages. And – unless a term is specified a K is presumed to be at will. Employer may recover damages from an employee who has failed to perform an employment K.
o Loss in value – cost avoided.
· WHEN LOOKING AT A LOSS IN VALUE, WE ARE LOOKING AT THE LOSS FROM THE SUBJECTIVE PERSPECTIVE OF THE PROMISEE (THE VICTIM OF THE BREACH) IN THIS CASE, THE SCHOOL DISTRICT…..
· 3) American Standard v. Schectman: Defective or incomplete performance. GENERAL RULE: Damages are measured from the perspective of the victim of the breach. The injured party may recover those damages which are the direct, natural and immediate consequence of the breach and which can reasonably be said to have been in the contemplation of the parties when the contract was made = cost to complete. Reasonable cost of replacement or completion is the measure of damages.
o ALTERNATIVE MEASURES OF LOSS IN VALUE:
o Two diferent ways to measure these damages:
§ Cost to Complete – Default
§ Difference in Market Value
· Factors in determining whether to use Market Value Formula:
o 1) Nature of breach (good faith v. willful)
§ Breach was innocent à Market Value
§ Breach was willful à Cost to Complete
o 2) “Economic Waste” (involves an excessive windfall to the P)
o 3) Disproportionate difference between amounts of damages under the two measures (Jacob & Youngs)
o 4) No idiosyncratic value to the performance (owner attaches particular value to what has been breached – cost to complete damages are appropriate. If there is an indication in the contract that there was a particular preference, an indication that the homeowner cares).
o 5) Whether the breach is “incidental” to main purpose of the K (Peevyhouse)
