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Contracts II
Southern Illinois University School of Law
Robertson, RJ

BASIC DAMAGE PRINCIPLES:
 
Principles:
Substitution (form of remedy)-not specific-Money is given to substitute for the defendant’s appropriate action.
Compensation (purpose of remedy-not punishment-not deterrence)-The purpose is to make the plaintiff whole, to compensate the loss the plaintiff has suffered
Expectation (“benefit of the bargain”)(amount of remedy)-(not restitution-not reliance)-How much we have to compensate the plaintiff to make them whole. Put the plaintiff into a position they would have been in had the contract been performed.
 
I. REMEDIES FOR BREACH
 
SPECIFIC PERFORMANCE (a type of equitable relief)
-Specific performance is an exception to expectation interest and NOT the rule
-Pre-requisite for any equitable relief- Equitable relief is only available if there is no adequate remedy at law to achieve the aggrieved party’s expectation interest.
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Section 2-712 of the UCC in your Supplement.  The ordinary remedy for buyers of goods when the seller has breached by failing to deliver the goods is to “cover” by buying substitute goods from another seller.  If the “cost of cover” (that is, the cost of buying the substitute) exceeds the contract price the buyer would have had to pay the seller, the buyer’s damages equal the difference between the cost of cover and the contract price. 
 
Section 2-713 of the UCC in your Supplement.  This is an alternative measure of damages for a buyer when the seller has breached by failing to deliver the goods the seller promised. 
 
U.C.C.-2-716 (Buyer’s right to specific performance)
1. Specific performance may be decreed where the goods are unique or in other proper circumstances.
a.Unique- Means when there is nothing else like this in the world, one of a kind, attached to famous people. (only one like it, one first version) ex. land, output
b. Other proper circumstances–“Cover” is at courts discretion to determine if plaintiff cannot cover (cannot get same item because no seller willing to sell item).-Is difficult to obtain, Jet—there are other GII but only one that he could afford.  
 
Kline v. PepsiCo
Kline was looking for a used corporate jet, a G-II. Contacted third party broker, UJS, who found one from PepsiCo. PepsiCo decided to breach contract of delivering the plane. The G-II was not unique because there were other planes similar to it so it was not one of a kind. Other proper circumstances also not relevant. (Market price could have been other proper circumstances).
 
Output (based on sellers needs)/Requirements (based on buyers needs) Contracts
U.C.C.-2-713 (Buyer’s Damages for Non-Delivery or Repudiation)
Market Price-The price that a willing seller and buyer would be able to agree to.
The measure for damages of non-delivery by the seller is the difference between the market price at time when the buyer learned of the breach and the contract price.
 
Laclede Gas Co. v. Amoco Oil Co.
Laclede entered into written agreement that Amoco would supply it with propane gas for specified time period. Amoco experienced shortage and cut propane. 
Under U.C.C. 2-716 (propane is not unique, propane can be obtained elsewhere, however getting other propane would be troublesomebecausemay have been the fact that they could not find anyone else to enter into a long-term requirements contract with them for propane.
 
 Under U.C.C. 2-713 market price will fluctuate and plaintiff cannot prove with reasonable certainty.
Specific Performance
 
Available
1. Unique goods or inability to cover (market value cannot be placed on)
2. output/requirements contract (difficult proving legal damages)
3. sale of real property (cannot find other comparable piece of land in location)
 
Not Available
1. Most contracts for sale of goods (easy to find substitute)
2. Personal Service Contracts
            Public Policy:
1. If force back (Kobe example) may lead to friction.
2. Not determine if defendant violates order by performance level
3. Involuntary service is illegal
3. Contracts requiring extensive judicial service (courts being involved on day-to-day basis)
 
 REMEDIES FOR BREACH
A. EXPECTATION: place the non-breaching party in the position he’d been in if breaching party had fully performed. Yield accurate measure of damages
1. Two General Damages Formulas: Largely applicable to any type of contract
Measuring Expectation (Four variables significant in calculating the promise’s expectation interest: loss in value, other loss, cost avoided, and loss avoided)
Formula A: D=LV-CA+OL-LA
1)      Loss in Value (LV): difference between value of what D promised and what he actually did. (difference between what plaintiff should have got and what plaintiff actually got)
a)      Ex: I’ll give you $1000 for car but only give $900. LV=$100.
b)      Ex. Promised car would be in good working order, when I deliver it has defective breaks. LV= (vale of car promised- value of having car with bad breaks)
2)      Cost Avoided (CA): cost breaching party saved by not having to perform (cost of complete reliance – cost of reliance, P’s money spent)
a)      Ex: don’t have to buy more supplies.
3)      Other Loss (OL): Loss resulting from promisor’s breach not based on the difference between the value bargained for and the value received.  
Three Types:
1. Personal Injury-Resulting by defective products can be recovered
2. Property Damage- Hit garage because of defective breaks
3. Economic Loss- Arise when money is lost if buyer is in business
a)      Consequential: UCC section 2-715(2) calls personal/property/economic damages this.
b)      Incidental: damages as a result of having to find a replacement item.
4)      Loss Avoided (LA): salvage and reallocation (only where buyer breaches and not under general damages). Ex. Agree to sell car for $1,000 and you breach. If find someone to buy for $900 then LA is 100.
Formula B: DAMAGES=P+CR+OL-LA
1)      Profit (P): (Contract price – cost of complete performance to nonbreaching party). Same as (LV-CCP, what would have cost)
2)      Cost of Reliance (CR): cost in reliance on performance of breaching party—What value was spent
3)      Other Loss (OL): incidental and consequential damages
4)      Loss Avoided (LA): salvage and reallocation (only where buyer breaches and not under general damages)
 
Formula A and B Example:
 
Example One:  You have contracted with a roofer to put a new roof on your house for a price of $1000, payable upon completion.  It will cost the roofer $850 to complete the job.  Prior to the time the roofer begins, you breach the contract by hiring another roofer.  Assuming that the roofer has no OTHER LOSS, what are the roofer’s damages under Formula A?  Formula B?
(A) Roofer’s Damages = (1,000-850) + (0-0)= $150
(B) Roofer’s D

the goods to a different buyer who would’ve bought identical goods from the seller even if the original buyer hadn’t breached.
1. R.E. Davis Chemical Corp. v. Diasonics, Inc.
F: P didn’t buy the MRI it contracted, D resold and kept deposit.  
ROL: 1. Lost volume seller: could’ve made a second machine and resold it so wont deduct resale from damages.
 
3. Lost profit may be used only if the contract price less market price measure is inadequate to put the seller in as good a position as performance would’ve done.
 
Lost Volume Seller
Requires seller to sell goods at a fixed price (standard price)
Seller has the capacity to meet demand of all foreseeable customers
Note: Cannot be lost volume seller if you could not have made the sale.
 
LOST VOLUME SELLERS
UCC 2-718
Buyer entitled to down payment back, but subject to $500, or 20% (whichever is smaller) offset….But court says 2-708 (1) is inadequate in this case, so seller has a right to damages here too….He’s a lost-volume seller (one who has access to enough goods to meet his demand), meaning he gets the profit he would have made from this contract, as if he could have sold the other MRI machine too. 2-708(2)
Many courts require that this type of seller sell the goods at a fixed price to qualify…Can’t negotiate separately with each buyer then.
Last part of 2-708(2), courts infer to mean “scrap sellers” only. Guy starts to build a product under a contract; buyer changes his mind and breaches – Seller gets the lost profits, but it’s offset by any proceeds for scrap he sold as a result of starting the product.
 
1. Loss Volume Seller à Lost the profit from a second sell that would have occurred had the breaching party not reached. (ex. contracts to sell a TV, the person then breached. The seller then sells the same TV to someone else for the same price. The Seller can claim that he would have sold the second TV anyway, so only made one sale instead of 2. Lost the pofits it would have made from the second sale). The seller has a large quantity/unlimited supply of the product, and uses a fixed price on each item it sells. If do not finish completion, that is not a loss volume seller.
If do not finish completion, that is not a loss volume seller.
§2-704 When the seller manufatures the product, reslae remedie might not be enough. When the goods have not been finished at the time of the breach, 1. the seller can complete the manufacture and resale (if sale for less 2-706 gives remedy) or can stop and resale for scrap or salvage. 2. Give seller the profit he would have ade had the buyer performed. If sale for scrap, can get loss profit but have to reduce that amount for the damages by that amount