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Temple University School of Law
Woodward, William J.

Contracts I – Woodward 2008


Seller’s Remedies under UCC
·         General formula: (Market price) – (cover) + (incidental)
o   Seller does not have access to consequential damages or “costs avoided”
·         UCC sections:
o   2-703; p.299: Roadmap
o   2-705; p.301: Stop Delivery
o   2- 706; p. 303: Resell (cover), Duty to Mitigate
o   2- 708; p. 308: Damage Formula, LVS (2)
o   2- 709; p. 309: MP=0
o   2- 710; Incidental
Buyer’s Remedies under UCC
·          General Formula: (Cover Price) – (Contract Price) + (incidental damages) + (consequential damages) – (expenses saved in consequence of breach)
·         UCC Sections:
o   2-711; p 311: Roadmap
o   2-712; p 313: Cover
o   2-713; p. 314: Damage Formula
o   2-714; p. 315: Non-Conformity
o   2-715; p. 317: Incidental, Consequential
o   2-716; p. 318: Specific Performance
o   2-717; p. 320: Damage Deductions
o   2-718; p.320: Liquidation damages
Expectation Damages
·         Puts injured party in the position she would have been in if the breaching party had performed the contract.
o   P. must prove to a reasonable degree of certainty.
·         Larger awards would discourage efficient breaches.
o   P. should get profit he would have made had the contract been completed.
·         UCC Sections:
o   1-1305; p. 129: Expectation Damages as Cardinal Remedy of UCC
Hawkins v. McGee; Hairy Hand case; p.213Rule: expectation remedy: put Hawkins where he would have been had the promise been fulfilled. Expectation remedy: difference between the value of 100% hand and actual hand plus incidentals. Pain and suffering should not be taken into account b/c P. was willing to endure this p&s had surgery been successful.
Sullivan v. O’Conner; The Nose; p.219Restitution Remedy (out-of-pocket expenses): too smallExpectation Remedy (as in Hawkins): too excessive and too hard to determine. Reliance Remedy (out-of-pocket, p/s and consequential damages. The P was not confined to recovery of out-of-pocket expenditures but was entitled to recover for worsening of her condition, which involved a mental ailment, and for pain and suffering and mental distress involved in a third operation.
Peeveyhouse v. Garland Coal & Mining Co.; Coal Rip-off; p.195Court focused on huge discrepancy in numbers (economic benefit analysis), denied cost of restoration damages, awarded P diminution in value resulting to the premises because of the non-performance. K term was merely incidental; economic benefit which would result to lessor by full performance of the work is grossly disproportionate to the cost of performance.
cost of performance v. (value of land after – value of land before)

Mitigation principle
There is a duty to mitigate (act reasonably to minimize damages after breach:
·         non-breaching party is not forced to accept inferior substitutes.
·         Defendant must prove substitute was not inferior by objective standard. 

o   Employee must use reasonable care to find a position of same kind, rank, grade in same locale

o   2- 706; p. 303: Resell (cover)
Parker v. 20th Century Fox Film Corp.; Bloomer Girl; p. 49P not obligated to accept role in 2nd film since if was of a different and inferior quality. Rule: the measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon for the period of service, less the amount that the employer affirmatively proves the employee has earned or with reasonable effort might have earned from other employment. Employee’s rejection of or failure to seek other available employment of a different or inferior kind may not be resorted to in order to mitigate damages.
Lost volume sellers
High volume retailers – new jobs or sales are not substitute, they are in addition.
·         2- 708; p. 308: Damage Formula, LVS (2)
·         a “lost volume” seller is one who:
1.        had a big enough supply that he could have made both the contracted-for sale and the resale;
2.        probably would have made the resale anyway as well as the original sale had there been no breach; and
3.        Would have made a profit on both sales.
Neri v. Retail Marine Corp.; Custom Boat; p. 64Damages under §2-708(1) are not good enough to put defendant in as good a position as performance therefore, he is entitled to reasonable profit including overhead together with any incidental damages (2). Incidental damages §2-710 include cost of resale and storage; no attorneys fees.
Vitex Manufacturing Corp. v. Caribtex Corp.; Reopen Wool Plant;p.75Overhead costs are not affected by the performance of a particular contract, and therefore should not be deducted. Treat them as part of gross profits and let them be recovered as damages. 
Consequential damages
Losses that are recoverable if they were reasonably foreseeable by both parties at the time of contract, or, necessarily, naturally, or probably resulted from the breach. 
·         Usually the result of the specific circumstances of the injured party.
·         UCC 2-715; p. 317: Incidental, Consequential
·         arise b/c of an injured party’s particular circumstances. An injured party claiming consequential damages faces certain proof hurdles, such as showing that the damages were reasonably foreseeable to the breaching party at the time of contracting, and not too speculative. See Hadley v. Baxendale.
·         Contract law bars the recovery of unforeseeable consequential damages in part to encourage parties to disclose potential losses at the time of contracting
·         Consequential damages only available when losses couldn’t reasonably have been prevented by cover or otherwise.
Hadley v. Baxendale; p. 110; Mill Shaft (Classic consequential damages case) Rule: D will only be held liable for the P’s losses if they are generally foreseeable or if the P tells the D about any special circumstances in advance. Codified in UCC 2-715; p. 317: Incidental, Consequential

New Business Rule
Prospective profits are typically not recoverable for new businesses or businesses that have operated at a loss.
Evergreen Amusement Corp. v. Milstead; p. 116; Drive-InCt. awarded fair rental value and the actual monetary losses incurred.
Rule: Award of lost profits only appropriate where they are reasonably calculated with a high degree of certainty.
Rationale: Court says with new business it is speculative to say what profit they would have made; regardless of the evidence.  
Chung v. Kaonohi Center Co.; p. 125; China Food New business rule rejected
Ct. “grossly unfair to deny a P meaningful recovery for lack of a sufficient “track record” where the P has been prevented from establishing such a record by D’s actions.”
·         In this case, the breach was intentional
·         There were good estimates of lost profits
·         Emotional Distress in a K case: usually not given, but given in this case because the conduct of the mall promoters was so outrageous.
Lakota Girl Scout v. Havey; p. 119; Fundraising
·         Distinguished from new busines

for the P.
L. Albert & Son v. Armstrong Rubber Co.; p. 146; Rubber refinersRule: P gets reliance( -) the amount of loss D can show P would have suffered had the K been performed. (losing contract)  
Commentary: This is RELIANCE. Why not seeking expectation? Expectation would have actually been at a loss. P allowed choice of remedy – by choosing reliance, end up even. Rare case where reliance greater than expectation. Victim gets to choose the remedy. But then breacher has a privilege – with burden of proof – to offset.
Restitution Damages
If the non-breaching party transferred a benefit to the breacher while attempting to perform, the non-breacher is entitled to restitution for the benefit transferred
·         Designed to prevent unjust enrichment.
·         ROC 349; p.51: Mitigation via Reliance Damages
·         ROC 447; p.51: Restitution Damages
o   An injured party entitled to restitution gets a judgment for “the reasonable value of a performance rendered by him, measured as of the time if was rendered, less the amount of benefits received as part performance of the K and retained by him.”
·         ROC 371; p. 371:  Measure of Restitution Interest
·         Restitution comes into play when:
o   rescission (Colonial Dodge)
o   a non-breaching plaintiff has partly performed, and the restitution measure is greater than the contract price
§ alternative to expectation (Oliver v. Campbell)
o   a breaching plaintiff has not substantially performed, but is allowed to recover the benefit of what he has conferred on the defendant.
§ Losing contracts
§ No Contract
§ remedy for breachers (Neri for deposit)
Colonial Dodge, Inc v. Miller; p. 160; Spare tireRule: This is a rescission approach. Court saying there is essentially no K, under the perfect tender rule, b/c unless goods presented (tendered) are exactly as promised, the purchaser has the right to reject the whole.
·         One must have reasonable opportunity to inspect a car
Exit and Restitution: Getting out of a deal
Need a material breach to exit, can’t exit if other side has substantially performed.
UCC Sections:
·         2-601; p. 267:  Buyers Right to Refuse
·         2-508; p. 254:Sellers Right to Cure
·         2-608; p. 278:Revocation of Acceptance
o    Example: “non-conformity [of the goods] must substantially impair their value to him”
·         2-612; p. 286:Installment Rejection
Buyers options when goods fail to conform to contract under Art. II
UCC gives partial restitution to breaching buyer: The UCC gives a breaching buyer a right to partial restitution with respect to any deposit made to the seller before the buyer breached. Under § 2-718(2), the seller can only keep 20% of the total contract price or $500, whichever amount is smaller – the balance must be refunded to the breaching buyer.