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Contracts
Rutgers University, Newark School of Law
Hyde, Alan

CONTRACTS HYDE FALL 2017

Incidental damages (2-715): damages incurred in lining up other landfill. Egerer doesn’t have any, otherwise he would have claimed. Example: owner of fashion boutique sends buyer to Milan and gets hotel.

Consequential damages (2-715): losses buyer had because supplier didn’t deliver. Example: as buyer, if supplier is late, loses 6 months of profit

UCC Seller Remedies:

2-706 Resale: original sales price (K price) – resale price = damages 2-708(1) market damages

2-708(2) lost profits – Unless you[re a lost volume seller (would have sold anyway), the damages would be lost profits. 2-709 action for the price

Sellers: not entitled to damages for loss of a deal at market price.

______________ A Expectation______________________________ ^^__ _________________________________________________________

1. Hawkins v. McGee (NH 1929): D promised P “a 100 per cent perfect hand”. D breached K by making hand worse. D brought to Supreme Ct. and wants (1) nonsuit/directed verdict (case thrown out); (2) nothing in excess of $500. P wants (1) jury trial with old verdict back; (2) no new trial.

People can form K without intending to. Usually for breach of K, the goal is to put the aggrieved party in position promised fi^om K.

D — Vpromised in K – V as is, delivered + incidental D + Consequential D

The correct measure of damages is the value of the “perfect hand” minus value of hand in current condition.

B, Eormulas for Awarding Expectation Dartages__________________________ _________________________________________________________________

hfiHccn k price and market pricc____ __ _______

■jjyijSSSftv.’^’CSR (WA, 2003): P, buyer, had K with D, seller, for $0.50/yard. D sells land fill to State for $33/yard instead. P got pit run for $8.25/yard, but too expensive. Actually bought $6.39/yard gravel pit.

$8.25/cubic yd. price for pit run was the relevant market price. If P covered at the time of breach, higher-priced pit run would have been reasonable substitute.

Expectation Damage Formulas

• “COVER”: buyer may purchase substitute goods and recover as damages the difference between cost of this cover and K price.

“HYPOTHETICAL COVER”: buyer may recover as damages from the seller the difference between market price at time when buyer learned of breach and K price.
Court said P is limited to damages reflecting the difference between CSR K price and the price he could have obtained replacement material for the time of the breach in ’97. (UCC 2-713 (1)). Court says P limited to $8.25/cubic yd.
P says that $8.25/cubic yd. was not the price for goods of the same kind (UCC comment 2) because pit run is superior. D argues that court should have used $1.10/cubic yard.
Cotirt may use market price of goods different in quality from those buyer contracted, as long as they would serve as a “reasonable substitute”.

cost of’compkti64.&-:B3. !t/0ss itt value of property , ■

i7’§lBSi5^^^iApaeKe’toro1 (Okl. 1994): Apache leases Schneberger farm for drilling reasons and promises to clean up operations when they finish. Apache breached the contract and didn’t clean up. The estimated cost to fix is $1.3 million, but the market value of the land is only $5,175.

-> The court adheres to the diminution in value rule since the value is grossly disproportionate. The parties were free to specify in K what the measure of damages would be if a breach occurred.

In Peevyhouse, the court held that n’s recovery should be limited to the diminution in value since remediation costs are grossly disproportionate to the loss in value of the land. But modem changes in Oklahoma policy in regards to pollution indicate that Peevyhouse is outdated and that cost of remediation is proper measure of damages, n cannot be put in a better position than if A actually performed the terms ofK.

1B4. Suiifccosts^ius aritlcipated^net’pirofit…………….. … ……………………………………………………………………………… ■ .

irRO^mlSm^oan^?^Sen”Bndgi (1929): Luten Bridge/P wants to recover fi-omRockingham County/D an amount due under K for the construction of a bridge. D says that there was a notice of cancellation before the bridge building began, so D, is only responsible for.damages P would have sustained if P stopped building bridge at that time. At the time of cancellation, only $1,900, but P continued building until the sum increased to $18,000.

-> Luten should have stopped building bridge upon notice because bridge was no longer of value.

The coimty had no right to rescind K, and notice to cancel constituted a breach. But Luten also had a duty to stop increasing damages once it received notice of breach. The remedy is to treat K as broken at the point of notice, and sue for recovery of damages sustained from breach INCLUDING future profits and losses.

Ds = Anticipated Net Profit + Cost Used (unavoidable sunk costs) = Pk – Expenses Saved (costs avoided)

C. Limitations on Protecting Expectations.

A plaintiff in a K case can expect to recover damages if they were not:

avoidable with reasonable effort
not foreseeable
not provable with certainty

CI. Avoidable

Victims of breaches of Ks cannot recover damages unless they make reasonable efforts under the circumstances to “resell” (if you are a seller).

ITp^ct V lO^Centurv Fo?^ (Cal. 1970): There was a contract to pay Parker/P $750K for a movie, but D decided not to produce the movie. D offered to employ P in a different movie that was substantially different from initial movie.

-> The 2°’^ movie was inferior to the P’ movie, so it could not be used to mitigate damages, n acted reasonably in refusing the substitute offer.

A’

Recovery for wrongfully discharged employee is the salary agreed upon for the period of service, minus the amount employee earned or with reasonable effort could have earned from other employment. A must show that the other employment was comparable to initial employment. Inferior work or employment cannot be used to mitigate damages.

Hvpo: Fox breaches & Parker gets a new offer and makes more money.

She could have made both movies – she would have made the second movie anyway so you can’t use that to mitigate damages.

5. Jordan v. WorldC^ (2007): Jordan & MCI entered into a 10 year endorsement K promising Jordan $2 mill/year. MCI went bankrupt and could not pay Jordan for remaining 4 years in K. MCI argues that Jordan had obligation to mitigate damages, so it does not have to pay Jordan for the last 2 years.

-> Jordan loses b/c his people said he would not have entered into other Ks.

Lost volume seller: when the person could have entered into additional contracts even if defendant had not breached the original contract. Jordan argues that he is a lost volume seller, so he could have done the other endorsements on top of this one (not exclusive to MCI and free to pursue other endorsements). Breach is not an opportunity b/c I could have done both. Does not need to mitigate damages, but must demonstrate intent to enter into other agreements.
The courts are being hard on Jordan.

PuslSffiv. Oakland Raiders j

• The MFL K was an absolutely guaranteed K. The Raiders were responsible for Pastorini’s salary even though he played for a different team. So he got paid twice in one season.

Hvpo:

If there is proof that the seller would not have sold anyway, then not a lost volume seller, and seller is limited to resale, no lost profit b/c new sale result of breach.

C2 Unforeseeable;

Damages have to be foreseeable by defendants at the time of the contract. Otherwise, people would always hide their special circumstances so that they can get the cheapest rate. This forces people to disclose during the negotiation process.

Hadley v Baxendale (1854): The plaintiffs are millers whose mill stopped working b/c the crankshaft (which the mill needed to work) broke. They had to send the crankshaft as a pattern for a new one. The As said that if they sent the shaft by noon it would be delivered the following day. The plaintiffs took the shaft by noon, but they did not get it back for several days. So the mill couldn’t run for a few days and they lost profits.

The plaintiffs did not tell the defendants that the mill could not be run without the shaft – there is the possibility that they had an extra shaft in their possession. Unreasonable delay in the delivery of the shaft in this circumstance would not have an effect on the profits of the mill.
The lost profits came from not sending the shaft in proper time, but it was the plaintiff’s responsibility to communicate this special circumstance.

<>» *

Damages are limited to what both parties, at the time of K, thought would be a probable result fiom the breach of K. Special circumstances can only be considered when they have been communicated and known by both parties. Perhaps if A knew about the special circumstances, it would have been more careful about breaching.

__________________________________ t3. Not reasonably certain

A party may only recover damages for loss profits if it demonstrates w/ reasonable certainty that such damages may have been caused by the breach.

(NY, 1986): K to build dome stadium.

Damage award may not be based on projections. There were too many factors.

(Haw. 1980): There was a K to lease concession space for a fast-food Chinese kitchen in a mall. In anticipation of operating the kitchen, Chung ordered equipment and hired workers and advertised. But whenever Chung ask about the opening date, they were not told. During this period, A was negotiating w/other parties about the leasing the Chinese kitchen, but the i

ver and that they would not require an ongoing relationship then the courts will consider specific performance.

Copylease will be limited to recovery of damages for the breach of K, unless it shows that the goods are unique. Copylease must show that legal remedies are inadequate.
For the most part, courts don’t like to reward equitable remedies that cannot be enforced immediately. Memorex is saying that specific performance in this case will require continuing acts and cooperation between the parties. They will have to be back at court multiple times under contempt: Judges do not want this.

Hypo: n says that nothing is as good as A. A says that it’s all the same – but this also looks bad for them to say because they still want people to buy their goods. So parties will settle.

g* Creel (1992): Walgreens opened a pharmacy in the mall. Its current lease has a clause

diat states that landlord Sara Creek promises not to lease space in the mall to anyone else who wants to operate a pharmacy or a store containing a pharmacy. Sara Creek became afi^id that its largest tenant would close its store, so it wanted to buy out the largest tenant and put in a “deep discount” chain called Phar-Mor Corporation (v. Walgreen which is just a “discount” chain).

Is Walgreens eligible for equitable damages?

In this case, the value of having Phar-Mor may exceed the cost to Walgreens of facing increased competition. Therefore society might be better off if Walgreens is paid damages and Phar-Mor is allowed to move in. So Sara Creek argues that monetary damages are not inadequate and that an injunction should not be granted since the estimate loss of business due to competition will be calculated into the damage remedy. (“Efficient breach”: not a defense. The idea that A breached b/c it will make more money after the breach. The idea that courts shouldn’t penalize them for efficient breaches… so all the A should be penalized for is damages.)
It is costly for the courts to continue supervision, which many injunctions require. There is also the issue of bilateral monopoly in which two parties can only deal with each other, which is the situation that an injunction creates (sole seller and sole buyer). The lack of alternatives can make bargaining range to be at

the high end. With so much at stake, they are going to spend as much and as many resources to litigation. This can all be avoided if they just get damages.

• The courts conclude that damages would be a costly and inaccurate remedy. They also think this is a simple negative specific performance action, so the supervision costs would not exist. The more business Phar-Mor gets, the more it will be willing to pay for the mall for rent space, which then gives the mall more money to pay off Walgreens.

3. New England Patriots v. Mijiil^^ (Mass. 2008): NFS entered into agreement with A Minihane for the purchase of a ten-year license for two luxury seats while stadium was still under construction. A would have to pay $3,759/seat annually for each of the ten seasons from 2002-2011. It included a liquidated damages provision: in the event of a default, including failure to pay any amount due under the license agreement, payments would be accelerated so that A would be required to pay the balance for all the years remaining on K. A paid $7.5K security deposit and $2K toward license fee. he made no further payments.

Whether the liquidated damages provision was enforceable? Yes.

To enforce liquidated damages provision: at the time of K, the actual damages flowing ^om breach were difficult to ascertain; sum agreed on as liquidated damages represents a reasonable forecast of damages expected to occur in event of breach. If damages are easy to ascertain and are grossly disproportionate, then aggrieved party will award no more than actual damages.
If it is not disproportionate to anticipate damages then it is enforceable.
It matters how the deal looked at the time it was made.