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Contracts
Rutgers University, Newark School of Law
Hyde, Alan

 
Contracts
Hyde
Fall 2013



Remedies for Breach of Promise
Seller’s Remedies – UCC §2-703                              Buyer’s Remedies – UCC §2-711
1 – Lost Profits §2-708(2)                                         1 – Cover §2-712
2 – Market Damages §2-708(1)                                2 – Market Damages §2-713
3 – Incidental §2-710                                                 3 – Incidental and Consequential §2-715
4 – Resale §2-706(1)                                                  4 – Specific Performance §2-716

A. The Expectation Principle
1. Some formulas for measuring “expectation” in money (“legal”) damages
The Expectation Principle: the normal remedy for breach of contract is an award of money damages designed to put the aggrieved party into the economic position that full performance would have.

Hawkins v. McGee: “hairy hand”- doctor was ordered to pay damages based on the economic worth of what the hand was supposed to be had the surgery gone according to plan and the value of the actual status of the hand after the surgery
D = Value to P of good/perfect hand – Value of P’s hand in present condition
P had been willing to suffer pain involved with surgery so no damages there
No damages for any worsening condition of the hand

Peevyhouse v. Garland Coal: Accepted expectation principle, but limited the amount of awardable damages b/c the cost of performing the breached contract duty (specific performance principle) grossly outweighed the economic value change to the (P) if the performance were to be carried out (“cost of performance vs diminution value”)
D Diminution Value = Value of land after specific performance – Present value of land

Acme Mills v. Johnson: D contracted to sell P bushels of wheat and failed to deliver wheat at agreed upon time. 
Unless someone is economically harmed by breach of K, no reprieve is available
Estoppel- if a party mistakes a fact, and the other party relies on that fact to a detriment
Expectation formulas
1.       Value rule: the difference between the value of the contract v. what you have now.
2.       Cover: the cost of substituted performance rule
3.       Market damages:
i.      Db = Pm – Pk
ii.      Ds = Pk –Pm (UCC §2-708 (1))
4.       Damages = Sunk cost + ANP or Kp-cost avoided (expenses saved)
5.       Full contract price
Cases:
Parker v. 20th Century Fox pg.1:51
Shirley McClain. The court held in this case that the formula was Pk-ES.  But in actual case the ∏ received full contract price
6.       Specific performance (Equitable damages) Curtice Bros. V. Catts  handout pg.7

2. Equitable remedies where legal damages are inadequate
Equitable remedy: court-ordered action that directs parties to do or not to do something; such remedies include injunctive relief and Specific Performance. Alternatively, a non-monetary remedy, such as an Injunction or specific performance, obtained when a legal remedy such as money damages cannot adequately redress the injury.

Curtice Bros. v. Catts:  P in canning business and contracted to receive D’s tomato crop.  D breached.  Court ruled for D’s breach put the P in a vulnerable position and court mandates an equitable remedy for P so that D is required to sell his crop to P. 

Manchester Dairy Assoc v. Hayward:  D farmer contracted with P to sell all dairy products produced on his farm.  K had severe stipulations and penalties if D breached.  D breached, and court held that case should be remanded to decide whether enforcement of K will impose a burden on the D that is out of proportion with the benefit accrued by the P.

B. Limitations on Protection of the Expectation Interest
1. Refusing to award damages that were avoidable
Rockingham County (D) v. Luten Bridge Co. (P): D contracted with P to build a bridge.  D tells P to stop working midway through project b/c they intended to breach K.  D continued to finish the bridge.  Does Breach of K with notice midway through a party’s performance of contractual duties limit damages to that point.  Held for D- After a party receives notice of a breach of K, it is the party’s duty to do nothing that will increase those damages.
D(seller) construction comp. = CU + ANP
[sunk cost] + [Anticipated Net Profit- profit realized if K would have been carried out]
Parker v. Twentieth Century-Fox: Shirley McClain. The court held in this case that the formula was Pk-ES.  But in actual case the ∏ received full contract price

Jordan v. WorldCom:

2. Foreseeability: only foreseeable damages are recoverable
Hadley v. Baxendale: Broken mill case.
Was not foreseeable to the D. had to have reason to know UCC §2-715 (2)

3. Certainty: damages must be provable with certainty to be recoverable
Chung v Kaonohi Plaza: Chinese restaurant in the mall case. Even though it was a new business, based expert testimony they were able to prove lost profits.

New Business Rule: Profits resulting from a new businesses can’t be measured because there is no previous profits. Too difficult to prove profits.
Note: In recent decades most states have abandoned the new business rule and permit new business often through expert testimony to estimate their lost profits.

4. Damages for emotional distress are normally not awarded

5. How important are these rules anyway?
Campbell and Collins, Discovering the Implicit Dimensions
of Contracts                                                                                        133-136
Llewellyn, What Price Contract?                                                          136-138

r 29 days (very unusual) Dr. fires lawyer and only pays him $450.  Oliver sued Cambpell’s estate for the value of his services, which was $5,000.  The court threw out the contract because it was so unfair to the plaintiff

DeLeon v. Aldrete: Property sold to buyer who paid late. Owner then resells.
Courts rescinded contract in order to allow the Π to receive restitution.












Exchange Justice: Unfair or Unequal Exchange

A.  The equity approach: contracts must be equal before equitable remedies are granted.
Woollums v. Horsley: The courts found that the contract was not fair therefore they not grant specific performance.


B.  Law refuses to weigh equivalence: “consideration” is just a form
Consideration is a “bargain for exchange”.
4 steps
1 – What is the promise?
2 – Identify promisor and promisee
3 – What was the promisor asking for in exchange for the promise?
Performance
Promise for a promise
Foreberance
Hamer v. Sidway (p 1:294)
Uncle promises nephew $5000 to stop drinking and cursing. 
4 – Was it a benefit to promisor or a detriment to promisee?

3 situations where there is no consideration
1-       Past Consideration (Pooh saves Lisa Simpson) promise to pay for an act that had already been done
2-       Pre Existing legal duty – doing something that you are already legally obligated to do isn’t consideration for a promise to pay you more to do it.
3-       Partial Payment on a Debt – a creditor’s promise to release the rest of the claim on part payment of a debt that is due and undisputed, is not consideration for a release. Unless the payment is made early, here the partial payment is consideration.

C. Alternative approaches to the problem of the unfair or unequal exchange: escape devices from the rule that consideration may exit (2d Restatement) (=be legally “sufficient”, 1st Restatement) without being factually “adequate”; mostly, how to get people out of bad deals, with some contrasting cases of how to create obligation.
Is there any reason why courts shouldn’t enforce a deal?