Contracts II Outline

Contracts II Spring 2012
Prof. Martin
 
Statement of the Case: Who is Suing Whom for What?
Procedural History
The Facts
The Issue
The Holding/Reasoning
 
§2-703: Seller’s Remedies roadmap
+ If the Buyer breaches and the Buyer has the goods:
§2-709(1)(a): Contract Price + Incidental Damages
[§2-710: Incidental damages are any reasonable charges, expenses or commissions incurred in stopping delivery, transportation, care and custody, insurance expenses, and other expenses resulting from the breach (except attorney’s fees)] +If the Buyer breaches and the seller has the goods
§2-709(1)(b): When the goods are not sellable then full contract price
§2-706(1): When seller resells the goods then: (Cont. Price – Resale Price) + (Inc. Dam.- Expens. Saved)
§2-708(1): When seller does not resale the goods then: (Contr. Price – Mark. Price) + (Inc. Dam – Expens. Saved)
§2-708(2): When seller is a volume seller then he gets profits back plus incidental
§2-718(2): IF buyer made a payment, if
(a)  If it’s a reasonable liquidated damage, the seller may keep it
(b)  If it’s a down payment, seller may keep $500 or 20% of the full contract price, whichever is smaller.
(c)   Warning: As a matter of first principle, the seller should be compensates for its loss, and once the court determine that those losses exist, then the payment/deposit will be used as part of the recovery, notwithstanding §2-718(2) (thus no sending back the money). If the deposit is larger than the profits, the remainder is sent back
 
 
§2-711: Buyer’s Remedies roadmap:
+ If the Seller breaches and the Seller has the goods: [§2-715(1) is incidental damages, §2-715(2) is consequential damages)
§2-712(2): Cover Price – Contract Price+ Incidental damages+ Consequential Damages- Expenses Saved
§2-713(1): Market Price- Contract Price +Incidental Damages+ Consequential Damages-Expenses Saved
Warning: Even though buyer is given the choice of which remedy to pursue, and most times, §2-713 will be followed, the court will not force a seller to pay when the buyer gained a profit while trying to mitigate.
+ If the Seller breaches and the Buyer has the goods:
§2-608: Revocation of Acceptance
*§2-714(1) Nonconformity in tender (shipment to a wrong place, etc): Damages
§2-714(2) Breach of Warranty: Value as warranted – value as accepted +incidental damages +consequential damages.
 
Chapter 4: The Compensation Principle
 
C. Limitations on Damages
1.      Restatement (Second) of Contracts § 352
a.       Uncertainty as a Limitation on Damages
                                                               i.      Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty.
2.      Locke v. United States, 283 F.2d 521 (1960)
a.       Statement of the Case
                                                               i.      Locke is suing the U.S. (General Services Admin) for lost profits for breach of requirements contracts
b.      Facts
                                                               i.      Harvey Locke is the owner of a typewriter repair company. Was awarded a contract to repair San Diego area typewriters for the period July 1, 1955 through June 30, 1956
                                                             ii.      After a hearing before the Board of Review it was determined his contract was terminated without proper cause, $30k lost profits payment denied, $60k defamation payment denied
                                                           iii.      What if any compensable damage did plaintiff suffer as a direct result of the Gov’s improper termination of Plaintiff’s contract
                                                           iv.      Gov’t takes the position that because the contract was a “requirements contract” it did not guarantee any minimum requirement would exist
1.      A “requirements contract” is a contract in which one party agrees to supply as much of a good or service as is required by the other party, and in exchange the other party expressly or implicitly promises that it will obtain its goods or services exclusively from the first party (Wikipedia)
                                                             v.      Government contends that the contract did not guarantee Locke all or any work; the contract only provided that plaintiff’s name would appear in a schedule of contractors
                                                           vi.      Court: Contracts for requirements do not lack mutuality and are enforceable; it is the reasonable expectation by both parties that there will be requirements on which the bargain is grounded
c.       Issue/Holding
                                                               i.      Where the value of a chance for profit is not outweighed by a countervailing risk of loss, and where it is fairly measureable by calculable odds and by evidence bearing specifically on the probabilities, should the court be allowed to value that lost opportunity.
                                                             ii.      Yes. If a reasonable probability of damage can be clearly established, uncertainty as to the amount will not preclude recovery.
3.      Kenford Co., Inc. v. County of Erie, Court of Appeals of New York, 1986
a.       Statement of the Case
                                                               i.      Plaintiff is suing Defendant for breach of contract to recover loss of prospective profits for a proposed 20-yr operation of a stadium
b.      Facts
                                                               i.      August 1969, County of Erie entered into a contract with Kenford and DSI for construction and operation of a domed stadium facility
                                                             ii.      The contract provided that construction would begin in 12 months of the contracts date
                                                           iii.      Pretrial and preliminary proceedings took 10 years with an eventual order of summary judgment for liability against the County
                                                           iv.      Trial ordered to the issue of damages; Multi-million $ verdict for plaintiff
                                                             v.      An appeal resulted in a modification of the judgment; court reversed portions of the judgment awarding damages for loss of profits and certain out of pocket expenses incurred, and directed a new trial for other issues.
                                                           vi.      The court thought that the use of too many variables were involved to provide a rational basis upon which lost profits could be calculated; Court of Appeals agrees, but for different reasons
c.       Issue
                                                               i.      To calculate Loss of future profits as damages for breach of contract:
1.      It must be demonstrated with certainty that such damages have been caused by the breach
2.      The alleged loss must be capable of proof with reasonable certainty
d.      Holding
                                                               i.      The damages may not be speculative or imaginary, and must be reasonably certain and directly traceable to the breach
                                                             ii.      There must be a showing that the particular damages were fairly within the contemplation of the parties to the contract at the time it was made
                                                           iii.      New businesses are held to a stricter standard
                                                           iv.      The procedure selected by DSI was in accord with modern economic theory and was presented through the testimony of recognized experts; nevertheless, it was insufficient to meet the required standard
1.      The proof does not satisfy the requirement that liability for loss of profits over a 20-yr period was in contemplation of the parties at the time of the execution of the basic contract or at the time of its breach
2.      The evidence here fails to demonstrate that liability