What’s a contract?
“A contract is a promise the law will enforce.” To prove a breach of contract, the plaintiff must prove: (1) contract formation, (2) breach, and (3) damages. Sometimes it’s a good idea to break a promise: efficient breach. This scheme influences the incentives of a contract breaker or someone considering breaking a promise. A unilateral contract is one where only one party has made a promise. That is, a promise has been exchanged for performance. A bilateral contract is one where a promise is exchanged for a promise. This is now the most common type of contract.
We are compensating the plaintiff’s loss. There are no punitive damages.
Three interests: expectation, reliance, and restitution
The expectation interest, the standard remedy in contracts, puts the plaintiff in the position he/she would have been in if the contract had been carried out. The expectation interest is the weakest…it has the least “tug on our heartstrings”. The reliance interest is a cost that came out of the plaintiff’s pocket but didn’t go into the defendant’s pocket; it might have gone to a third party. The restitution interest is the strongest because the plaintiff has a “minus” and the defendant has a “plus”. With restitution you’re merely taking the benefit away from the defendant that the plaintiff gave him, usually at market price. Sometimes putting someone in the position performance would have done means awarding restitution and expectation, or even all three.
Hawkins v. McGee – The damages that should be awarded are the difference between the value of what the plaintiff would have received if the contract had been carried out and the value the plaintiff currently possesses (plus incidental losses resulting from the contract being breached).
Acme Mills & Elevator Co. v. Johnson – Can a defendant be found liable for breach of contract if no harm was done? The buyer should get the difference between the contract price and the market price at the time of performance. The “injured party” shouldn’t be able to collect expectation damages if they actually benefited from the contract breach. Sometimes the restitution claim is higher than the expectation claim.
What kind of law applies?
Common law applies to land contracts, except for occasional statutes. Common law also applies to services contracts, but there are many statutes involving employment. But the sale of goods uses Article 2.
What law do we use for combination goods and services contracts? One test is the “predominant factor test”. Which factor predominates? You could, e.g. take the part that’s more expensive. Or you could bifurcate the contract: Article 2 applies to the goods, and common law applies to the services. This might be complicated and expensive. If you hire someone to build a house the contract is cons
involved.” Sometimes it can be hard to prove market price. Once compensated, the buyer can replace the goods by buying them out on the market.
Laurin v. DeCarolis Constr. Co., Inc. (Gravel case) – The defendant ought to be liable for the fair market value of the materials removed. The court says it is not sufficient to award damages based on how much less the property is worth. Illinois Central R.R. v. Crail – To calculate the market price of a fungible good, you must use the market price from the market where the injured party typically buys. There are typically two markets: retail and wholesale. You use the price from the market where the injured party typically buys. Watt v. Nevada Central R.R. – Replacement cost puts a ceiling on something’s value, and the price realizable puts a floor on something’s value.
Where injured employer hired a replacement at a higher salary, employer was entitled to recover the amount of the additional compensation it was required to pay replacement, since any additional value the employer may have received from the replacement was imposed upon it and could not be characterized as a benefit.