Professor Richard Carlson
Contracts II
Summer 2014
A. Remedies for Breach (Restatement §§ 344, 347. 349, 370, 371).
1. Expectation: meant to put the non-breaching party in position they would have being but for the breach. Step two. Parties have 3 duties:
(1) The breach of contract was the cause in fact of its loss.
(2) A party’s loss must be foreseeable and proved with reasonable certainty.
(3) Act reasonably to avoid unnecessary damages (i.e. Mitigate loss).
2. Restitution*: disgorge the breaching party from benefit conferred when the parties where acting like there was a K. To prevent unjust enrichment
3. Reliance*: reimburse the non-breaching party for expenditure in reliance on the K. put back to square one.
4. expectation impractical, becos plaintiff seeks to avoid (undo) contract, or contract unenforceable
B. Efficient breach is one where the party in breach gains enough from the breach to have a net benefit, even after compensating the injured party for its loss. Court nearly always rejects disgorgement. Expect where a wrongdoer gain profit by engaging in wrongful conduct. E.g. breach property or fiduciary duties.
C. Specific Performance: §§ 359, 360, 364 – 368; UCC § 2-716(1), (2);
Specific Performance: is an equitable relief. No juries. More flexible and result oriented. Judges refer to themselves as chancellor when rendering equitable relief. When money damage is inadequate because of uniqueness or sentimental value. Old rule – DAS cannot be calculated impracticable, inadequate or unique. Code rule 2-716- impracticable, inadequate, unique or proper circumstance i.e. efficiency. Restrictive v. Expansive view. If k is one sided, skillfully drawn with plaintiff’s interest in mind no SP from court of conscience “Campbell case”
Pros
–Avoids need to compare inexact comparables.
–Avoids lengthy battle of experts and facts re the “fair market value.”
–If Seller still possesses it, ordering delivery is simple.
–Specific performance of sale of goods usually does not require “monitoring.”
Cons
–monitoring
–coercion is disfavored
Award DAS
–Appraising even non-fungible good is possible based on comparables.
–If a comparable is still different, modify it and recover cost as damages.
–If Seller free to sell the thing before/during trial, resale evidences value.
–Permits efficient breach.
*When DAS is impracticable/ inadequate and SP is not possible look for intrinsic/sentimental value
1. Real estate – SP every parcel of land is unique
2. Goods – “Keno” good is unique and money is inadequate because not a sufficient substitute
3. Services – (1) is unique and extraordinary and cannot be rendered by another, (2) negative promise in K, (3) loss other that loss in value/loss of benefit of bargain. Negative injunction as a deterrence
4. Long term agreement for sale of goods – for efficiency and public interest at stake “propane case”
Exam Tip: analysis both
Restrictive view: It restates “cover or DAS impractical.”
Expansive view: UCC grants greater judicial discretion to consider other proper circumstances,
D. SP under international law CISG art. 28; UNIDROIT art. 7.2.2.
Int’l law must accommodate common law with civil law.
Civil law is more liberal in granting specific performance.
CISG allows order of specific performance unless the buyer resorts to inconsistent remedy (cover) or forum law denies it.
UNIDROIT: Allows specific performance unless promisee may reasonably obtain performance from another source.
E. Negative Injunctions
Injunctive relief can be used to enforce a promise not to render personal services (Lumley v. Wagner). Can’t compel SP of personal services but can compel ∆ to abstain from acts they promised not to commit in an express, prohibitory K
– Promise was of service by Unique & Extraordinary person, Can’t be rendered by another
– Contract expressly prohibits action a court’s order can actually enjoin.
– DAS based on cover or other loss (lost profit/competitor’s gain) inadequate or impractical to prove.
-In most states, must show prove of other loss to be enjoined negative injunction. Not required to show other loss in TX
-Ensures that even if promise #1 not enforced, promise #2 would be.
F. Expectation Relief: 347
1. Injured buyer’s Loss in Value Because of Non-Performance §§ 2-713; 2-712, 1-305.
Formula: value of unperformed promise – cost Avoided + other losses (incidental/consequential)
(FMV of cost of cover) (amount not paid ‘cos of breach)
FMV: Convert promise to a dollar value (considering time and place of delivery and other provisions of the contract).
Cover is § 2-712: Cover must be reasonable, in good faith (but good faith presumed). Buyer can still opt for market value. Buyer may cover in good faith without unreasonable delay any reasonable purchase of goods in substitution for those due from the seller.
Anticipatory repudiation:
1. Learns of repudiation 2-713
2. Learns of repudiation + commercially reasonable time §2-610
e).
• Is next job a true substitute? Every job is arguably unique.
• Old law: zero cost avoided unless employee did accept true substitute employment.
• 20th Century: Cost avoided is what she could have earned in substitute job, whether she accepted it or not.
• Modern rule: If employee could substitute with reasonable effort, “cost avoided” is what she could have earned
• Potential substitute must be comparable or substantially similar to the contract job.
• Is job with person who fired you substantially similar, comparable? Bait and switch
6. Injured Supplier Selling in the Ordinary Course of Business UCC §2-708(2)
Profit = Contract price ̶ actual cost of full performance.
Formula: Profit Plaintiff + costs already – amounts
would have incurred at defendant
earned time of breach has paid.
– UCC § 2-708(2), Overhead/ fixed price – fixed expenses that would have to pay whether or not there was a breach are not subtracted.
– An injured party must reasonably avoid losses. Can’t continue performance after repudiation
– Cost needlessly incurred will not count as “cost already incurred” in profit formula OR is treated as if “avoided” in main formula
– Difference between goods and construction: Finishing goods may give half-done goods resale value
– Finishing goods may reduce supplier’s loss if it can resell after completion. EFFICIENT!
Section 2-704(2) grants seller reasonable discretion to decide whether to finish.
7. Loss volume dealer
– Test: did breach create opportunity for sale seller would not have had? Yes not loss volume
– But for breach would have 2 sales. Thus, use profit formula
– Personal Service & Lost Volume
–Service provider can be lost volume dealer if it can serve more than one buyer at time.
–Service required by particular individual (non-delegable) hours of work limit capacity.
–seeking to expand volume
–If firm can delegate, capacity expands by hiring new worker.
