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

 
Contracts II
Richard Carlson
Summer 2015
 
       I.      How does a court ENFORCE a contract?
a.       Specific Relief (Specific performance)
                                                              i.      An equitable remedy (ex: injunctive relief)
1.      7th amendment right to trial does not apply to cases in equity.
2.      Ask for remedy in equity = no jury trial
                                                            ii.      Injunctive relief still disfavored remedy.
1.      Promised “thing” often no longer in supplier’s possession.
2.      Coercion by the court yields a poorly motivated performance.
3.      Substitute transaction afforded by money damages is usually more efficient.
                                                          iii.      Allow Specific Performance if Damages are inadequate
1.      Proof of the loss is impractical, OR (family dog has no value)
2.      Substitution is impossible. (cannot replace family dog)
3.      One type of Inadequacy is: Thing is unique (Subjectively or objectively)
a.       Real estate is always unique! (Legally speaking)
                                                                                                                                      i.      Cookie cutter condos = each condo is unique.
b.      Collector’s items can be unique.
                                                                                                                                      i.      ex: Elvis Pressley’s pink Cadillac
                                                          iv.      Courts in equity will not enforce an unfair contract.
1.      Ex: Campbell Soup v. Wentz – Wentz was not able to sell carrots even if Campbell’s did not buy it.
b.      Morris v. Sparrow
                                                              i.      Sparrow’s contract = 16 weeks for $400 / plus horse [horse at issue]                                                             ii.      Are damages inadequate?
1.      The goods are unique (objectively or subjectively):
a.       Loss is difficult to prove
b.      “cover”  (substitute) is impractical
                                                                                                                                      i.      ex: You could give me market value in cash, but it still wouldn’t allow me to substitute that horse. [Because I’ve trained it and developed a relationship with it] c.       Campbell Soup v. Wentz
                                                              i.      The “goods” Chantenay Red Cored Carrots.
1.      Seeds were supplied by Campbell Soup.
                                                            ii.      Wentzes breached contract because prices rose drastically and thought the contract price was too low.
                                                          iii.      Trial court denied injunction.
1.      Appeal is not too late to do anything (even though carrots are dead) but still important to Campbell to set a precedent for future cases.
                                                          iv.      Are money damages inadequate?
1.      Inadequate? 
a.       May not be unique (can go back to Chantenay) BUT
b.      “cover” is impractical because Campbells would have to go to Chantenay to get new carrots.
c.       Loss is difficult to prove
                                                            v.      NOTE: no punitive damages against Wentz because K.  YES punitive damages against third party for selling carrots (intentional interference) because that is a tort.
d.      Klein v. PepsiCo, Inc.
                                                              i.      Pepsi promised to sell Jet.  CEO needed the jet.  PepsiCo sent the jet that was supposed to be prepared for sale to the CEO.
                                                            ii.      Specific relief if DAS are inadequate (cover or proof of DAS impractical)
1.      Now Sec. 2-716: (1) unique or (2) other proper circumstances.
a.       (1) Is used jet unique? Any adequate substitute?
                                                                                                                                      i.      Substitute jet need not be identical provided it serves buyer’s essential purpose.
b.      (2) Are there “other proper circumstances?” [UCC]                                                                                                                                       i.      Restrictive View – restates “cover or DAS impractical.”
1.      HERE, cover AND proof of DAS are practical here.
                                                                                                                                    ii.      Expansive view – UCC grants greater judicial discretion to consider other circumstances, including efficiency.
1.      Efficiency – what gets the judge to the golf course faster?
2.      Ex: Award DAS
a.       Appraising non-fungible good is possible.
b.      If substitute is different, modify it and recover cost as damages.
c.       Leaving Seller free to sell thing before/during trial, creates evidence of value.
d.      Permits efficient breach.
3.      Ex: Award Specific Performance
a.       Avoids need to compare inexact “comparables.”
b.      Avoids lengthy battle of experts and facts re the “fair market value”
c.       If Seller possesses thing, ordering delivery is simple.
d.      Delivery of goods does not require judicial monitoring.
e.       Laclede Gas Co. v. Amoco Oil Co.
                                                              i.      Unsure how long Laclede will need propane.
                                                            ii.      Needs to set price for future deliveries which requires prediction by the parties.
                                                          iii.      Parties thought Wood River posted price would continue to reflect future changes in price of propane.
                                                          iv.      Laclede has right to renew / Amoco can’t terminate
1.      Propane is a good so UCC applies
a.       1) Propane is not unique
b.      2) Other proper circumstances?
                                                                                                                                      i.      Narrow view – DAS are inadequate (cover/proof impractical because don’t know how many homes will service, price of future propane impossible to predict, etc…
                                                                                                                                    ii.      Expansive view – Is S.P. more efficient than award of DAS? (order already prepared, just sign it! Rather than listen to weeks of testimony on each side…)
f.       Lumley v. Wagner
                                                              i.      Contract for SERVICE = COMMON LAW
                                                            ii.      K – 3 months.  Cannot perform anywhere else without written consent
1.      Breach – scheduled a performance at another venue
2.      P wants injunction to stop second performance
                                                          iii.      Is she unique? (Yes famous singer. People buy tickets to see her)
                                                          iv.      Loss may be difficult to prove (ticket sales and advantage over competitor) impractical to prove.
                                                            v.      BUT S.P. requiring not to perform may be more practical.
g.      MISD V. Diserens *may not be good Texas law now
                                                              i.      Teacher of extraordinary and unique talents
                                                            ii.      AND hiring a substitute would be impractical
                                                          iii.      Contract has affirmative (to teach) and negative (can’t teach elsewhere) duty.
                                                          iv.      BUT there is no evidence that teaching in Cisco HARMS Mission
                                 

over a year.
2.      DAS = value of seller’s promise – buyer’s Cost avoided.  HERE:
a.       Value of promised hides – unpaid K price.
b.      Buyer has probably already “covered” by the time of trial.
c.       Actual cover price is often fair and easy evidence of a thing’s fiar market value.
d.      Sum: Buyer usually…
3.      Cover unfair to supplier
a.       Was substitute an upgrade
b.      Did it come with extra warranties or better terms?
c.       Can we know which later purchase was a cover?
d.      Risk of sham contract with associates
e.       § 2-712: Cover must be reasonable, in good faith (but good faith presumed) *Seller must prove
f.       Buyer can still opt for market value.
                                                      viii.      EXAMPLES:
1.      Builder breaches contract fails to complete building. Buyer’s “loss in value” damages
a.       What it cost to hire another
2.      Seller of land breaches contract to deliver deed and possession, how is Buyer’s “loss in value” calculated:
a.       .
3.      Employee (supplier of service) breaches a contract to serve for a one year term, what is the “loss in value” for Employer (a buyer of service)?
a.       Ex: professor walks out mid class for the rest of the semester.
b.      DAS measured –How much does the substitute cost?
                                                          ix.      Breach of Promise of a thing for which there is no substitute:
1.      Sperm donor donates due to testicular cancer.  Survives cancer, gets married.  Goes to retrieve sperm, but it was inadvertently destroyed.
2.      No true substitute
3.      DAS based on market value are inadequate to buyer.
4.      Specific performance is impossible
5.      Can court award intrinsic (sentimental) value?  CASES SPLIT
                                                            x.      Cosden Oil & Chemical Co. v. Karl O. Helm Aktiengl….
1.      Cosden’s performance became difficult
a.       NO excuse in Contract Law.  Contract = guarantee of performance.
2.      Weeks before delivery was due, Cosden stated intent to cancel most deliveries (it repudiated part of contract)
3.      Helm continued to buy from other sellers.
4.      First: What day should we look at FMV?
a.       § 2-713 – Use market price when Buyer learned of breach (buyer may “learn” of a breach immediately or much later)
                                                                                                                                      i.      Learning can occur before or after delivery date and buyer is free to cover from that point.
b.      Theory: market price is price at which injured party can then substitute.
c.       §2-610 –says buyer must wait for a reasonable time to cover
d.      Reconciliation: Finder of fact selects day when buyer reasonably should cover to reduce loss. (See Rule III)
5.      Second: Which if any of many later purchases were “cover”?
a.       Did Buyer cover? Is Cover a ceiling?
b.      Helm regularly buys for quick reselling
c.       Helm bought whenever it sensed a good bargain
d.      Was any purchase cover?
e.       SOLUTION: Buyer normally has option to use market value.
                                                          xi.      Tongish v. Thomas