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Contracts
University of California, Hastings School of Law
Leib, Ethan J.

CONTRACTS OUTLINE

How to “Enforce” Contracts: Expectation, Reliance, and Restitution Remedies

3 Ways in which a contract may be found binding:

1) benefit-based liability- if one party has benefited at the expense of the other party (like if one party gives money to the other party, repayment is implied)
2) reliance-based liability- if based on a promise from one party, the other party does something that puts them in a worse position if the promise falls through
3) promise-based liability- “executory”, just the promise alone is an enforceable contract even if no one received benefit or relied on it

Expectancy: Hawkins v. McGee

doctor promised 100% perfect hand
hand became crippled instead
Court: award the difference between the perfect hand expected and the crippled hand he has now
He cannot be awarded damages for pain and suffering, because that was already contemplated as part of the contract, and to be awarded that would be “double recovery”

Expectancy remedy: putting the aggrieved party in the position he would have been in had the contract been performed

Expectancy remedy is all about what the aggrieved party didn’t get. It doesn’t focus at all on what the breacher did wrong or whether the breacher profited. It’s only focus is the aggrieved party

Expectancy (UCC 1-106) is the STANDARD REMEDY for contracts, because we want to encourage “efficient breach”.

Restitution(ary interest): disgorgement of the “unjust enrichment” of the breaching party, so that he is not entitled to any benefits because of his breach

Reliance (interest): trying to get the aggrieved party into the position they were in before any contract was ever made (basically just trying to make sure nobody’s worse off)

UCC and Substitutions; The Limits of Substitution

1-102 says the UCC is to be interpreted liberally and applied flexibly, lays out the reasons for the code, and sets out the distinction between default rules and mandatory rules. The majority of the rules are default rules (barring agreement to the contrary, this will be the rule). Mandatory rules are imposed on everyone by the code, regardless of whether they agree to it. Remedies are typically default rules.
Contracts law is not the law of what you must do. It is “optional law”.

Freedom of contract is a principle of the UCC. The default rules are just there in case something goes wrong with the contract.

Under the UCC, you can’t get special damages for breach of contract, such as emotional distress

UCC and common law of contract can overlap

Parker v. 20th Century Fox

Fox had contract with Parker where she would star in “Bloomer Girl”; they decided not to do the movie but offered her the lead in “Big Country” instead; there were different rights in the contracts of the 2 movies; Parker declined the role in “Big Country” and sued for the money under her original contract
Rule of recovery for a wrongfully discharged employee: employee should receive the agreed-on salary, minus the amount the employer proves the employee has earned or with reasonable effort might have earned from other employment. But for the “other” employment to count under this rule, it must be comparable, or substantially similar, to that of which the employee was deprived. The employee is not obligated to look for or accept employment that is of a different or inferior kind. (It is up to the defendant to affirmatively establish that the alternative employment is of similar quality)
Fox said they didn’t have to pay Parker because she didn’t mitigate damages by accepting the “Big Country” role
Court says there is a difference in kind between the 2 employments; “Big Country” is different and inferior
Parker is awarded the full money under her original contract

Peevyhouse v. Garland

Peevyhouses leased their land to Garland to do strip-mining; Garland promised to restore the property afterward but didn’t
Peevyhouses ask for the cost of performance of the work ($29,000); Garland says diminution in value is the proper measure of damages ($300)
Court agrees with the diminution in value measure for this case because the provision in the contract that was breached was merely incidental to the main purpose of the contract, and the economic benefit that would result to the plaintiff by full performance of the work is grossly disproportionate to the cost of performance
Peevyhouses are awarded $300

Peevyhouse rule: diminution in value because . . .

incident to main purpose of K (contract)
grossly disproportionate

3. good faith (Defendant claimed weather prevented them from performing the remedial work.)

2-508 of the UCC- “perfect tender rule”: the buyer is entitled to exactly what he contracted for (no substitutions even if the substitute is just as good)

Doctrine of substantial performance- (a common law rule) If you basically do what you’re supposed to do, even if it’s not exact, then the measure of damages
is diminution in value, not the cost of performance

Specific performance remedy- forcing Garland to do what it said it was going to do

If a judge issued the specific performance remedy, Garland could have offered to settle with the Peevyhouses (pay their way out of doing the work). This does happen. So, when a judge orders it, it doesn’t necessarily happen.

If Garland were to lose in a case like this, they would have to buy more insurance for the future, and that cost would be passed on to future landowners

Jacob & Youngs v. Kent

Kent had the wro

be sensible to measure the uniqueness or degree of difficulty in covering the goods, against the difficulties of enforcement of specific performance

UCC sellers’ remedies: 2-703
UCC buyers’ remedies: 2-711

Liquidated Damages

You can specify in your contract that if there’s a breach, the breaching party will pay liquidated damages (this will save you litigation costs)

Lake River v. Carborundum

At common law, all that’s relevant is whether the liquidated damages clause was a reasonable estimate at the time of contracting

In the UCC, liquidated damages is covered by 2-718
Illinois law: the only way liquidated damages will be held to be enforceable is:

estimated cost of damages at time of contract
need for estimate/ difficulty of proof
reasonable estimate

· In this case, it is not a reasonable estimate because Lake River always gets much more than their profits would have been had the contract been performed—so it is a penalty

Penalties are condemned; liquidated damages are permitted

If the provision is a penalty, it is unenforceable but the rest of the agreement stands

Restatement of Contracts:
– Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty.
(This is different from UCC 2-718(1))

Punitive Damages

Hibschman Pontiac v. Batchelor
· Rule: punitive damages may be awarded “whenever the elements of fraud, malice, gross negligence or oppression mingle in the controversy”
· Another rule: Where the conduct of a party, in breaching his contract, independently establishes the elements of a common law tort, punitive damages may be awarded for the tort
· The acts of a corporation’s agents are attributable to the corporation
· “First blush” rule of punitive damages: Damages are not to be considered excessive unless at first blush they appear to be outrageous and excessive or it is apparent that some improper element was taken into account by the jury in determining the amount