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

Contracts II Carlson Summer 2018
Enforcement of Contracts
Methods of enforcement, measures of damages and their calculations
Specific Performance (an equitable remedy).
No 7th amendment right to a jury trial in equitable suit.
Injunctive Relief is a disfavored contract remedy when:
                1) “thing” no longer in supplier’s possession,
2) substitute transaction much simpler,
3) money DAS compensate buyer for cost of sub,
4) 1 hearing & 1 order v. ongoing supervision,
5) coercion yields poorly motivated performance
 
Rule – SP only if common law remedy (money) is inadequate.
Inadequate = DAS impractical OR thing is unique
Impractical if cover is useless
Land is always unique
Goods: possibly unique
May be objectively unique (Elvis’ Car) or subjectively unique (Grandpa’s car)
Equity won’t normally order delivery of personal property, but may do so where special peculiar reasons exist making it impossible for P to get adequate relief (worker trained and loved horse)
 
Injunctive relief must also be practical: supplier’s possession, simplicity of delivery are factors
Even where SP would otherwise be appropriate, court in equity may refuse to assist a party who negotiated unconscionable terms.
Equity considers fairness of the whole K
 
If SP not allowed, ask for expectation damages!
 
UCC 2-716 SP permitted if:
1) Goods unique, OR
2) in other proper circumstances such as
a) cover impractical, or
b) SP more efficient than money DAS.
Restrictive view (Klein v. Pepsico) proper circumstances = cover impractical
Expansive View – discretion to order SP for new reasons including judicial efficiency
Factors for awarding DAS:
                1) appraising good is possible based on comparables,
                2) if no near comparable, modify one, sue for costs
                                                3) Resale proves value,
                                                4) permits efficient breach
Factors for awarding SP:
                1) seller still possesses thing
                                                2) SP does NOT require monitoring
                                                3) avoids need to compare inexact “comparables”
                                                4) avoids lengthy battle of experts/facts re the “FMV”
 
Specific Performance in International Contracts (civil law more permissive in allowing SP)
CISG allows SP unless buyer has resorted to inconsistent remedy, or forum law denies SP
UNIDROIT allows SP unless promissee may reasonably obtain perf from other source
 
Long Term (Output/Req) contracts for the sale of goods – money damages for indefinite requirements would require wild speculation to calculate
 
SP for Personal Services – not subject to UCC (But beware of mixed K)
Services are often unique (talented opera singer)
Cover often impractical
BUT compelling good service violates 13 Amd (involuntary servitude)
 
Negative Injunctions (Mod: covenant not to compete)
No substitute (service unique) AND proof of other DAS impractical
Other DAS: loss of business/profits 
But injunction is impractical too!
Solution: this K not only requires conduct; it also prohibits conduct
It is practical to prohibit conduct
 
Factors for neg inj:
Service unique,
“other loss” hard to prove,
K prohibits an act, AND
Inj will prevent the other loss
*** equity may consider reason for the breach, fairness of K, effect on 3rd parties
 
Substitutional Relief (money damages). Usually embodied in one of three measures of damages:
+

Other Loss
Injured Party’s CA
Value of unperformed portion of the promise
Expectation Interest – Puts P where he would have been if K had been performed
                  DAS =
3 Principles:
1) injured party bears burden of proving the breach caused a loss
2) injured party must prove the amount of loss with reasonable certainty
3) injured party cannot recover for a loss it reasonably should’ve avoided
Value of the promise is FMV (NOT K PRICE) OR cost of a cover
Loss avoided is money buyer is excused from paying
DAS = value of thing – K price
 
Reliance Interest – Where P would be if promise not made (loss incurred due to reliance on promise)
Restitution – Value of any benefit P conferred on D
 
 
 
 
 
 
 
Finding FMV of a commodity – get experts to come up with figures
Actual cover price is often fair evidence of value and avoids costly trial
Buyer has option to prove DAS between FMV and actual cover, (though proof based on cover could be unfair):
1) Sub. could really be an upgrade,
2) warranties, delivery terms may be different,
3) buyer may also be dealer, which transaction is cover?
4) buyer may create sham contract with associates
UCC 2-712 – cover must be reasonable and in good faith (good faith presumed)
Breach of a promise for a thing for which there is no sub – (sperm sample, wedding pictures) – jury may need to assign an intrinsic value (value to a reasonable person in buyer’s shoes).
What could you buy that would make you equally happy (swimming pool, happy pills?)
 
Value of Supplier’s promise in the case of non-performance (difficulty of delivery is no defense)
Pacta Sunt Servanda – Agreements must be kept period. There are no excuses.
 
1: What date matters for purpose of market value? It may take time for buyer to discover breach or arrange for cover.
UCC 2-713 – Use FMV on date buyer “learned” of the breach (by non-delivery or repudiation)
sec. 2-610 – buyer may wait reasonable time to cover
2: Did Buyer “Cover?”
Buyer has a right to try to use market value, if another pu

as available job comparable or substantially similar?
Viewed subjectively
Job equivalence may depend on workers unique situation, status
If substitute offered by breaching party – may be bad faith
Working for one who fired you may be considered inferior on its face
 
 
 
Injured supplier’s loss in value when cost avoided is the cost of making a thing
Lost profit formula:
DAS =            Expected profit                       +    Cost incurred at breach – amount already paid
           (K Price – expected cost of perf)
Should ONLY be used when there is no substitute
 
To est profit builder will earn on K:
Profit = K price – variable costs of that job – 10% of overhead
To est profit when buyer breaches:
Profit = K price – variable costs
 
Injured party must reasonably avoid, mitigate losses
Cts seek rules that discourage economic waste
Builder’s continuing work after breach exacerbates its loss and is economically wasteful
 
Finishing goods may give them resale value (sub transaction possible)
Finishing goods may reduce loss if supplier can resell goods after completion à EFFICIENT!
UCC § 2-704 – seller has reasonable discretion to decide whether to finish
 
Lost Volume Dealers – those who can
1) make as many goods as they sell, AND
2) breach did not make next sale possible
It would have had 2 sales
 
UCC § 2-708 in Lost Volume Cases –
(1) DAS = K price – FMV (or resale)
(2) If (1) “fails to compensate,” apply expected profit formula:
DAS = profit + cost incurred (with due credit for proceeds of resale)
Courts generally ignore (2)
But apply it to manufacturer who ceases work and sells leftover materials
 
NOT LVD where seller is selling used cars (all different) and it is possible 2nd buyer only bought the car because of breach (makes it a substitute)
Also NOT LVD where there is a quota and seller has sold their entire allotment for the period.
 
Personal service & lost volume
Injured party has no lost V if it reached its final “capacity”
No loss V if no intent to sell more
Retirement, lack of any later Ks may rebut claim of lost volume
       ***Michael Jordan had no intention to do other commercials
Sum: if breach made sub possible, that opportunity is CA