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Contracts II
South Texas College of Law Houston
Carlson, Richard R.

Contracts II Outline
Summer 2012 – Carlson
 
Chapter One: How Does a Court “Enforce” a Contract?
 
A.      Overview: What Are the Different Methods of Enforcement?
 
a.       Specific Performance versus Substitutional Relief
 
                                                               i.      Two methods in enforcing contracts:
 
1.       Ordering defendant to perform his promise(s) (Specific Performance or Injunctive Relief);
 
2.       Awarding plaintiff money “damages”
 
                                                              ii.      Courts Prefer “Substitutional” Relief
 
1.       Coercion is disfavored in U.S. law
 
2.       Passive aggressive compliance
 
a.       Possibility that product will not be good; performance will be performed half-way; performer will annoy/sabotage performance
 
                                                            iii.      Money is usually a substitute for promised performance
 
1.       Expectation Interest
 
a.       Where P would be if D performed
 
b.       Value of promise (+ compensation for loss caused by breach)
 
c.        Usually what P always wants for damages (REMEMBER, other damages are “backups”)
 
2.       Reliance Interest
 
a.       Where P would be if promise was not made
 
b.       Loss caused by promise
 
c.        Difference – with expectation, compensating breach; reliance is compensation for the promise
 
3.       Restitution Interest
 
a.       Value of any benefit D “conferred” on P
 
b.       “Give my stuff back”
 
c.        Can be money, goods, services, etc.
 
d.       Need to prove that something of benefit was given
 
                                                            iv.      Formula for damages based on expectation interest (loss in value: difference b/t what was promised and what was delivered)
 
1.       DAS = [Value of unperformed promise – cost/loss avoided] + other loss caused by breach
 
2.       First two (value, cost/loss) gives injured party’s “loss in value” of the contract
 
3.       Need to convert promise to a dollar value – can be based on time, place of delivery, other contract details
 
                                                             v.      Steps for completing damage formula
 
1.       What is the dollar value of D’s promise?
 
a.       REMEMBER – Not the contract price; if contract price, then damages will always be zero
 
b.       Fungible, regularly traded goods – easy valuation
 
c.        Realty or unique goods – valuation less certain
 
d.       Fair market value differs from price one particular buyer may pay (Trump)
 
e.        Contract details (e.g. time, place of delivery) affect value
 
2.       What costs/losses were avoided
 
a.       P may be avoiding paying the balance of the contract price b/c of D’s breach
 
3.       Add any “other loss” caused by breach
 
a.       Consequential/Incidental losses caused by the breach
 
b.       Damages must cover loss to put P where he would have been but for the breach
 
b.       Disgorgement, Punishment and Efficient Breach
 
                                                               i.      Efficient breach theory holds that some breaches can be good for all concerned
 
1.       It is therefore acceptable for a breaching supplier to keep any “surplus” profit
 
                                                              ii.      Punitive damages and disgorgement are not awarded
 
1.       Disgorgement is a measure of damages based no the profit a wrongdoer gained by engaging in wrongful conduct
 
a.       May be an appropriate remedy against a person who has breached property or fiduciary duties, it is not an appropriate contract remedy
 
                                                            iii.      Why punitive damages and disgorgement are not favored:
 
1.       Contract law is amoral – do not care if you breach
 
2.       Fault is irrelevant – contrast with fault-based tort law
 
3.       Profit by breach is not condemned as long as P is compensated
 
4.       Efficient breach can make three winners
 
c.        Overview
 
                                                               i.      Intrinsic Value
 
1.       Some things have value that is only because of a special attachment to a thing (i.e. pet)
 
2.       This can make determining the value difficult so we ask the jury, or get an expert to testify (depending on the “thing”)
 
                                                              ii.      When a seller breaches, it is much easier to calculate the value of the unperformed promise for the buyer, the cost avoided is much more difficult
 
1.       Need to look at the market value at the time of breach and subtract from the original value of the unperformed promise
 
2.       The price the average buyer would pay = fair market value
 
B.      Specific Performance
 
a.       Specific Performance as an Equitable Remedy
 
                                                               i.      History divides equity from common law
 
1.       Specific performance is an equitable remedy
 
2.       Modern courts tend to merge law and equity
 
3.       Seventh Amendment doesn’t apply to equity
 
4.       Judges speak of equity as a separate set of rules
 
5.       Equity may permit wider appeal to conscience
 
                                                              ii.      Equity bypasses the court, end up pleading directly to the king
 
                                                            iii.      Appeal was to the King’s authority, not “the law”
 
                                                            iv.      King more powerful than judge; could issue order (injunction) against conduct; enforced through coercion
 
                                                             v.      Chancellor became King’s surrogate in equity cases
 
                                                            vi.      Why is injunctive relief disfavored?
 
1.       “Thing” is often no longer in supplier’s possession
 
2.       Coercion yields poorly motivated performance
 
3.       A substitute transaction is usually a simpler solution
 
4.       Money damages ay the buyer for cost of substitute
 
5.       One hearing and one order v. ongoing supervision
 
b.       When Is Specific Performance Appropriate?
 
                                                               i.      Specific performance is available when the common law remedy (money) is “inadequate”
 
1.       To be “inadequate,” the damages need to be impractical OR the thing must be unique (subjectively or objectively unique)
 
                                                              ii.      Real Estate
 
1.       Every parcel of land is said to be “unique”
 
2.       Therefore the awarding of damages for the breach of a contract for real property is inadequate
 
3.       Specific performance is always appropriate in cases of real estate
 
                                                            iii.      Goods (”Chattels”)
 
1.       The irrebuttable presumption for specific performance that applies to real estate does not apply to “goods.”
 
2.       Goods are likely not to be “fungible”
 
a.       Meaning that one good is as good as the other and is completely interchangeable with the other
 
3.       If want specific performance for a contract for goods, must prove some special circumstance such that an award of damages would be inadequate
 
a.   

dence
 
e.        Judge should weigh all costs/benefits before deciding whether to issue injunction, or withhold an injunction
 
7.       Expansive view of 2-716 (PP slide)
 
a.       When to Award Damages:
 
                                                                                                                                       i.      Appraising even non-fungible good is possible based on comparables
 
                                                                                                                                      ii.      If no near comparable, modify one, sue for cost
 
                                                                                                                                    iii.      If seller is free to sell the thing before/during trial, resale evidences value
 
                                                                                                                                    iv.      Permits efficient breach
 
b.       When to Award Specific Performance
 
                                                                                                                                       i.      If seller still possesses it, ordering delivery is simple
 
                                                                                                                                      ii.      Specific performance will not require monitoring
 
                                                                                                                                    iii.      Avoids need to compare inexact “comparables”
 
                                                                                                                                    iv.      Avoids lengthy battle of experts and facts regarding the “fair market value”
 
8.       Specific performance in International Transactions
 
a.       The need to accommodate common law with civil law
 
b.       Civil law is more permissive for specific performance
 
c.        CISG (UN law) would allow specific performance unless buyer resorts to inconsistent remedy (cover); or forum law denies such a remedy
 
d.       UNIDROIT (like Restatement, not law; international arbitrators like to follow): allows specific performance unless promisee may reasonably obtain performance from other source  
 
                                                            iv.      Long Term Agreements for Sale of Goods
 
1.       An outputs or requirements contract may present a special case for specific performance
 
2.       Can propane be unique?
 
a.       CL damages impractical; OR
 
                                                                                                                                       i.      How can something be impractical?
 
a.       P’s DAS = an eternal supply of P’s requirements [price (unknown, too difficult to project) X quantity (equally uncertain)]  
b.       Specific performance is more efficient that damages?