Professor Richard Carlson
Contracts II
Summer 2011
I. Promisor Fails to deliver
A. Enforcement Paths
1. Specific performance
a. court orders injunction forcing breaching party to perform)
2. Substitution Relief: money(Courts Prefer)
a. Expectation interest (Courts prefer)
i. Formula: Damages= Value of [Unperformed Part of] Promise – Cost Avoided + other losses
ii. Give plaintiff the dollar value of the breach
b. Reliance interest
i. Cost that plaintiff incurred because of reliance on promise
c. Restitution Interest
i. Value of benefit conferred
a. cost avoided: amount plaintiff would have had to pay someone else
b. wealth enhancement: defendant must give back the wealth given to him
B. Courts prefer substitution relief over specific performance
1. If third party has object will have to join them to the law suit and my discourage people from purchases
a. Like to keep disputes between original parties
C. Motives for Paying more than fair market value
1. 1 up-ing, time constraints, insuring that competitor does not receive that product.
II. Expectation damages (Fed 1st slides)
A. Formulas
1. Formula“A” (Used for Supplier or buyers)
a. Value of promise (FMV –Contract Price) – Cost avoided + Other loss
b. Buyer Solution: Cover, and if cover cost more than sue
2. Formula “B” (Especially for suppliers)
a. Profit(price – cost of complete performance) + Reliance + Other loss
b. Lost Volume:
i. Must prove that injured party would have profited from both sales
ii. UCC 2-708: Two Methods of damage calculation
B. Suppliers Damages: Market Value of Undelivered goods (See slides)
1. Resale:
2. No Resale
3. Specialty Products: UCC 2-709: get the contract price
C. Calculating Expectation damages on complete breach
1. Market Value: Value of date to be delivered not value at time of contract
a. Prices may change over time.
2. Cost avoided: that which plaintiff doesn’t have to perform (i.e bills yet to be paid)
3. Other losses: additional losses suffered because of breach
a. Does not include loss that would have occurred independent of defendants promise. (would have had to buy picture frame anyway)
4. Overhead v Variable: (The question is: Is it overhead or Variable)
a. Overhead cost independent of amount of work preformed (Clerical salaries, property taxes, extra)
i. Not effected by non performance and is considered included (not added to) gross profits (SO JUST IGNORE IT)
b. Variable cost: materials and labor going into a particular job
D. Cover: injured party(buyer) obtains goods/service elsewhere (allows for avoidance of other loss and easier to prove damages)
1. Injured Party’s Choice
a. Market Value of goods –K price
b. Cost of cover—K price
2. UCC 2-712 Cover for Buyer: Cover must be reasonable and in good faith
a. Good Faith: can’t be sham contract with associates or upgrade product, change of warranties, delivery or payment terms
i. Presumption of Good faith(Seller must prove badfaith)
b. Buyer F “A”: Cost of cover—K price
3. Buyers cover is always more questionable of a substitute as what he brought and wanted to buy are more likely to be different
E. Resale: injured party(supplier) resells contracted for product
1. UCC 2-706 Resale for Suppliers: allows supplier to resale and recover based on resale price not FMV
a. (1) resale must be reasonable and good faith
i. Good faith: same as cover
2. Impossibility of resale: No FMV (i.e specialized goods, no other buyers, goods destroyed after risk of loss has passed to buyer)
a. UCC 2-709 Action for Price
i. Damages are the contracted price
3. Resale of product (depending on the product) can be substantially later than delivery date.
4. Injured party can sue for either resale or FMV: in absence of compelling reason to the contrary.
F. Incidental Damages: Damages reasonably related to actual damages, directing related to breach (Type of other loss i.e Cost of suspending performance, arranging substitute transaction)
1. UCC 2-710 Seller’s Incidental
2. UCC 2-715 Buyers Incidental
G. Deposits: Treat as liquidated damages clause
1. UCC 2-718
III. Restitution Interest: Value of benefit conferred (Jan 30 Slides)
A. Elements: (1) party conferred a benefit (2) it would be unjust to allow benefiting party to retain that benefit
B. Best used when: Underestimation of value and Partial completion of contract
C. Reasons to not to grant Expectation:
1. Expectation DAS are too difficult to calculate
2. Circumstances prevented performance of contract
D. Quantum Meruit: Reasonable value for services irrespective of rather he would have lost money. Price that a comparable provider or good would cost
E. Losing Contracts: one party would lose money if completed
1. Plaintiff can choose to pursue restitution and not contract price
2. 3 Scenario’s(See Slides)
a. Losi
especially hard to prove
a. Projecting Future FMV
ii. Price increase alone is not sufficient
2. Replevin Sec 3: temp possession of good until pending trial if party cannot find another good to “effect cover”
a. Engage in cover
i. Goods must be “identified to the contract” (the specific good not a good)(i.e that horse, not some horse)
ii. No replevin if can get goods from other sources.
b. Argument for denying Replevin and allowing resale
i. Allows the court to determine what the FMV of the product is
C. Efficient Breach and Spec Performance: (See slides)
1. Efficient Breach Defendant’s gain by breaching exceeds plaintiff’s damages (Benefit more from breach than from performance)
2. 1
3. 2
4. 3
5. 4
6. Posner’s Solution: Judicial Discretion
a. Treat of injunction works better than actual injunction
i. Encourages parties to negotiate on their own to stay uncertainty of a ruling
D. Matter to Right: when requirements are met and contract is fair and plain
E. Restatement 359& 360(Factors)
1. 359 Effect of adequacy of damages
a. No Specific performance if money is adequate
b. Just because money is adequate for part of the breach does not preclude Specific performance for the contract as a whole
2. 360 Determining Factors
a. Difficulty in proving damages if they are uncertain
b. Difficulty of procuring a suitable substitute performance by means of money awarded as damages
c. Likelihood that damages could not be collected
F. UNIDROIT 7.2.2 Performance of Non Monetary Obligation (Equivalent to RS)
1. Similar to Restatement is not a ratified treaty
G. CISG Art 28 and 46:
1. 28Specific Performance not required unless court would do so under its own law
2. 46: Presumption for specific unless buyer has resorted to inconsistent remedy (Civil law countries like specific performance i.e France)
