Contracts 2 Outline
I. Remedies
A. Expectation Interest: put plaintiff into the position as if the contract had been performed.
1. “The benefit of the bargain.” Based, not on the hopes at the time of making the contract (foolish oil prospector), but on the actual value that the contract would have had it been performed.
2. The breach must be the cause in fact of the loss.
· Cotton Cases: Farmers contracted to sell cotton for 30 cents a pound. By the time the cotton was harvested, the market price had risen to 80 cents per pound. The issue was whether there was an enforceable promise to buy for each promise to sell. The farmers were bound by “contracts,” (e.g. promises) to sell cotton… promises (executory) the law will enforce.
· The buyers had relied on the farmer’s promises by not making other arrangements to get cotton.
· Sullivan v. Connor—Held: Expectation recovery may well be excessive; limited recovery to patient’s reliance interest, including “her out-of-pocket- expenditures,” damages “for worsening her condition, and for the pain, suffering, and mental distress” resulting from the additional operation.”
· Under the breach of contract theory, she can conceivably recover the value of the nose she contracted to receive.
· (a) Expectancy damages: Though this is the
usual theory of remedy in contract, here
her expectancy damages are vague and
uncertain. Would be hard to put a value on her
new perfect nose or what it would have
Achieved for her as an entertainer.
· (b) Reliance damages: similar to a tort remedy.
You sue for the expenses you incurred as a
result of your justified reliance on the
contract. The goal still is to put her in
the position she would have occupied with
her new nose, but now the Burden Of Proof
shifts to the defendant to show that what she asks in
reliance damages exceeds expectation damages.
B. Reliance Interest: put promisee in position before contract was made
1. Reliance damages compensate the injured party for expenses or loss incurred in reasonable reliance on the contract that was breached. Reliance damages are only awarded when expectation damages cannot be proven, and may not exceed the anticipated benefit of the bargain.
2. Reliance consisting in preparation and performance (“essential reliance”).
3. Measuring reliance damages: out-of-pocket loss, lost opportunities.
C. Restitution Interest: Take away the benefit to avoid unjust enrichment; put promisor in position before contract was made.
Restitution damages may be measured by:
1. The reasonable value of the benefit received in terms of what it would have cost to obtain such benefit from another source.
2. The extent to which the value of the party’s property has been increased or his other interests advanced.
· U.S. Naval Institute v. Charter Comm. (1991)–The court held that as to the quantification of that loss, it was within the prerogative of the court as finder of fact to look to plaintiff’s sales. The court looked to plaintiff’s loss; plaintiff wanted them to look toward defendant’s gain (Restitution).
o Court said to award greater than loss would be punitive.
a) Restitution by Injured Party: A party injured by a breach is entitled to restitution for any benefit he conferred on the breaching party by way of partial performance or reliance.
· Restitution is not available, however, if the injured party has performed all of his contractual duties and the breaching party owes no performance other than payment for a definite sum of money for the injured party’s performance. [Restatement § 373]
b) Restitution by Breaching Party: Where the aggrieved party justifiably suspends his performance on the ground that other party’s breach discharged his remaining duties, the breaching party is entitled to restitution for any benefit he conferred by way of part performance or reliance in excess of the loss that he caused the aggrieved party by his breach. [Restatement § 374(1)]
D. Types of remedies:
1. Legal: principal remedy to enforce a promise is a judgment to award a sum of money
2. Equitable: to enforce a contract by requiring specific performance or enjoining its nonperformance.
3. Specific: gives the injured party the very performance that was promised, as when the court orders a defaulting seller of goods to deliver them to the buyer.
a) A court will not order a performance that has become impossible, unreasonably burdensome, or unlawful, or one that can be frustrated by the defendant.
b) Injunction: direct a party to refrain from doing a specified act (often used indirectly to enforce a duty to act).
c) Denial of specific relief or injunction does not prohibit the award of damages or restitution in the same proceeding.
4. Substitution: give the promisee something in substitution for the promised performan
(cover). If a substitute can be readily obtained, the damage remedy is ordinarily regarded as adequate.
· Klein v. PepsiCo (1988) –Held: The court concluded that the district court’s extensive findings of fact, leading to the determination that a contract did exist, were consistent, were corroborated by extrinsic evidence, and were not clearly erroneous. The court, however, determined that the district court’s grant of specific performance was inappropriate. The court observed that the aircraft in question was not so unique, within the meaning of the V-UCC as to merit an order of specific performance. Further, the court observed that money damages were available to the buyer and would be clearly adequate.
o Under UCC 2-716 the “total situation” may be evaluated to make an item unique (particular or peculiar).
6. Other Limitations:
a) Indefiniteness: Specific performance cannot be granted unless the terms of the contract are sufficiently definite to provide the basis for an appropriate order.
b) Personal Service Contract: a court will not grant specific performance of a contract to provide a service personal in nature. This is based on the difficulty of passing judgment on the quality of performance and on the undesirability of compelling the continuance of personal relations after disputes have arisen (involuntary servitude).
c) Public Policy: Specific performance may be refused if the act or forbearance that would be compelled is against public policy, even though the contract itself is not so offensive to public policy as to be unenforceable.
H. Measuring Expectation: all loss is recoverable
· Vitex v. Carbitex– Held: The appeals court concluded that under the facts presented, the district court was not compelled to consider appellee’s overhead costs (cost avoided).
o Since overhead is fixed and non-performance of the contract produced no overhead cost savings, no deduction from profits should result.
Formula A: general measure = loss in value + other loss – cost
