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

Contracts II Outline Spring 2011 Carlson

· Use current, not proposed version of UCC

Chapter One: How Does a Court “Enforce” a Contract?

A. Overview: What are the Different Methods of Enforcement?

a. Why might someone want to pay more than market price?

i. Induce quick delivery

ii. Competition with another

iii. Might be worth more than market value to a particular person – willing to pay a premium

b. Specific Performance versus Substitutional Relief

i. Specific – ordering the D to perform his promise

1. Injunctive – a ct has the power to order you to do something

2. Easier to order sometimes – don’t have to calculate money damages in that case

3. May not be able to ensure the person does a good job

ii. Substitutional – awarding the P money damages to be paid by the D as a substitute for the D’s unperformed promise

1. Alternative measures of substitutional relief

a. Expectation interest – Put P were he would be if D had performed

i. Most generous

ii. It’s the value of the promise

iii. Formula for damages

1. DAS = Value of [unperformed part of] promise —

Cost/loss avoided b/c of breach + other loss

b. Reliance interest – where P would be if the promise was not made

i. The cost/loss incurred because of reliance on the promise

ii. Out of pocket costs: direct net costs incurred by a promisee in reliance on a promise prior to breach

iii. Opportunity costs: indirect net value that the promisee would have enjoyed if the promisee had taken an opportunity that the promise led the promisee to forego

c. Restitution interest – value of any benefit P conferred on D

2. Much more common in case of breached K

3. Allows you to buy or engage in a substituted transaction elsewhere

4. Usually by the time you get to court the goods are sold

c. Steps to try to convert the value of the promise into a money value

i. Determine what the dollar value of the item is!!

1. DON’T GO BACK TO THE CONTRACT PRICE!!!

a. The value wont be known until time for delivery has passed

2. Real estate and unique goods – value is less certain

3. Fungible, regularly traded goods – valuation is easy

4. Get an expert to determine the loss amnt

5. Dollar value is the amnt of money it take to buy same item, on same day, at same place

6. Determine based on

a. Time

b. Place of delivery

c. Other contract details

i. Variables judges look at

1. Quantity

2. Price

3. How long

ii. Determine the costs avoided by P

iii. Add any other loss caused by breach

1. Ex. Personal injury

d. Intentional interference with someone else’s contract – if you knowingly induce the breach of someone else’s contract

e. Two non-alternative measures

i. Punitive damages

1. K law doesn’t care why you breached

ii. Disgorgement

iii. Can’t get either in K law

1. K law is amoral

f. Disgorgement and the Theory of Efficient Breach

i. Efficient breach: gain by breach combined with award of expectation DAS

1. Makes all three parties happy

2. Profiting by breach is ok as long as P is compensated

ii. Disgorgement: a measure of damages based on the profit by a wrongdoer gained by engaging in wrongful conduct (you give the person whatever profit was made)

1. Cts nearly always reject as a measure of damages

B. Specific Performance

a. Specific Performance as an Equitable Remedy

i. Cts of equity – where the Kings were able to make decisions based more on morality/conscience; he could order people to do things

1. Judges sometimes act as Chancellors as well

2. No right to trial in a case in equity ct

ii. Why is injunctive relief a disfavored remedy in K law?

1. Coercion yields poorly motivated performance

iii. Specific performance when money DAS is inappropriate

1. Traditional rule: no specific performance unless CL (money) remedy is inappropriate

2. Most likely cause of inadequacy: unique subject

3. Land is always unique

iv. Sometimes a money jgmt is inadequate if damages cant be calculated

b. When is Specific Performance Appropriate?

i. Real Estate

1. Every parcel of land is unique

2. Awards of damages for K’s dealing with real estate are inadequate and enforced by SP

ii. Goods (“Chattels”)

1. Not likely to be fungible – goods are interchangeable

a. If a buyer wants SP for a K of goods, he must prove that a money damage award would be inadequate

2. Equity typically does not enforce, by specific performance, a contract for the sale of chattels. However, it does in the instance where special and peculiar reasons exist which render it impossible for the injured party to ob

ods

1. Specific performance will not be decreed unless the terms of the K are so expressed that the ct can determine with reasonable certainty what is the duty of each party and the conditions under which performance is due. SP will not be ordered when the party claiming the breach of contract has an adequate remedy of law.

a. (Laclede Gas Co. v. Amoco Oil Co. – P and D entered into agmt that would allow for owners of residential communities to order propane thru P & D. D was bound to install, own, maintain and provide for the delivery of propane gas to P who would then deliver it to the customers. Agmt provided that if the facilities in the residents were converted to natural gas, P only needed to give D 30 days notice and the agmt would be null. Agmt also allowed for P to cancel the agmt, however D could not. D notified P of a price increase, to which D objected and demanded an explanation. Instead, D sent a termination letter stating the K lacked mutuality.)

v. Services

1. SP is rarely available for services

a. Not subject to the UCC

b. Services are unique, so cover is impractical

2. Injunctive relief can be used to enforce a promise not to render services.

a. (Lumley v. Wagner – A contract was signed btwn P and J.W. that JW would perform in his theater for three months. She would perform certain songs that no one else was to perform, her salary, and what would happen if she were sick. There was also a clause that JW would not perform elsewhere in England without P’s consent. JW and AW made another agmt with D-FG who had full knowledge of the first agmt. JW agreed in the second agmt that she would abandon the first agmt and only perform for FG.)

i. Difficult to prove consequential damages

ii. Requirements cts have typically required for the issuance of a negative injunction as a remedy for breaches of K

1. A negative duty

2. Whether the service for another person will result in a loss – such as resulting competition