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Contracts
University of California, Hastings School of Law
Lefstin, Jeffrey A.

CONTRACTS – LEFSTIN

Note: -K law enforces exchanges (not just a naked promise)
-To determine whether goods or services ‘predominate’ the K, look at factors such as
K language and allocation of price. Nearly all contracts for goods involve some
services (ie: delivering the products), and in cases involving sale and installation of
equipment, most courts find the services to be ancillary to the sale of goods.

I. Expectation Damages “Forward Looking”

Default Rule: The default rule of K law is that a non-breaching party is entitled to expectancy, or “benefit of the bargain” damages: damages sufficient to put the non-breaching party (NBP) in as good a position as if the breaching party had performed, as limited by the doctrines of foreseeability, certainty, and mitigation.
Hawkins v. McGee/RS “botched hand operation”

1) Rule 1: The purpose of the law is to put the П in as good a position he would have been in the absence of breach.
2) Rule 2: RS 347 Measure of Damages in General:
1. Expectation Damages= loss in value (reliance loss)
+ other loss (consequential/incidental loss)
– cost saved ($ saved from not having to fulfill K)
– loss avoided ($ saved from salvage/mitigation)
b. Expectation Damages=expected profit
+ actual costs incurred (essential reliance)
+ other loss
– loss avoided
2. Essential Reliance is not included in expectation damage
3. Incidental Reliance is included as other loss
3) Essential Reliance: cost of performing the promisee’s (NBP) own obligations under the K
4) Incidental Reliance: costs which are not related to your own performance under the K. Expenses that did not have to be made in order to perform your side of the deal.
5) Consequential Reliance: costs which are foreseeable as a result of breach (aka: costs that “flows from” the breach).

Nurse v. Barns/RS “iron mills”

1) Rule: Special damages may be awarded for breach. At court’s discretion.

Hooker v. Roberts/RS “K for cabinets” A sale of services, even though it involves goods. However, courts split on a K for mixed goods.

1) Rule 1: A party is only entitled to recover damages for expenses in storing goods that it would not otherwise have incurred absent the other party’s breach.
2) Rule 2: A party is only entitled to recover wages paid to an employee whose labor resulted in no economic value b/c of breach.
3) Reasoning: П can’t recover storage costs b/c it was already renting/paying for storage in absence of breach.

Tongish v. Thomas/UCC “Sunflower seeds”

1) Rule: In an action for breach of K for the sale of goods, the proper measure of damages
is the difference between the market value of the goods and the K price agreed upon by
the parties.
2) Rule 1: UCC 2-713 Buyer’s Damages for Non-Delivery or Repudiation: buyer’s damages is the difference between the market price at the time of breach and the K price + incidental/consequential damages minus expenses saved as result of breach.
3) Rule 2: UCC 1-106 Remedies to be Liberally Administered: remedies shall be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed but neither consequential or special nor penal damages may be had except as specifically provided.
4) Reasoning: To protect cost of cover – if Δ only had to pay for П’s lost profit, then he would always be willing to breach.

UCC 1-103 General Principles: Where the UCC is silent, RS applies

1) In any transactions governed by the Code, the common law principles apply unless the
UCC has a special application in which case it displaces the common law.

UCC 1-106 Remedies to be Liberally Administered: the remedies shall be liberally

administered to the end that the agrreieved party may be put in as good a position as if the
other party had fully performed but neither consequential or special nor penal damagess may
be had except as specificlly provided in this act.

UCC 2-102: UCC Scope: UCC applies to transactions and goods
UCC 2-105: Goods definition: “Goods” means all things moveable, which are moveable at the time of identification to the K. “Goods” also includes the unborn young of animals and growing crops.
UCC 2-106: Limiting what a K is (present or future sale of goods)
UCC 2-712: Cover/Buyer’s Procurement of Substitute Goods:

1) After breach, a buyer may “cover” by making in good faith and w/out reasonable delay a
reasonable purchase of/contract to purchase goods in substitute of those missing b/c of
breach.
2) The buyer may recover from the breaching seller as damages cover price – the difference between cost of cover and K price, plus any incidental/consequential damages minus any expenses saved as result of breach.
3) Failure of the buyer to effect cover w/in this Section does not bar him from any other remedy

UCC 2-713 Buyer’s Damages for Non-Delivery or Repudiation

1) Measure of damages for non-delivery or repudiation by the seller is the difference
between the market price at the time when the buyer learned of the breach and the
contract price together w/any incidental and consequential dmages provided in this
Article, but less expenses saved in consequence of the seller’s breach.

UCC 2-715: Buyer’s Incidental and Consequential Damages

1) Incidental D: Expenses incurred in inspection, receipt, transportation, and care and
custody of goods rightfully rejected, and commercially reasonable charges, expenses or
commissions in connections w/effecting cover and other reasonable expense.
2) Consequential D: Loss resulting from general or particular requirements and needs of which the seller at the time of contracting and reason to know and which could not be reasonably be prevented by cost or otherwise AND any injury to person or property resulting from breach of warranty

UCC 2-717: Deduction of Damages from the Price

1) The buyer on notifying the seller of his intention to do so may deduct all or any part of
the damages resulting from any breach of the K from any part of the price still due
under the same K.

II. Limitations on Expectation Damages

Foreseeability

1) RS 351: Unforeseeability and Related Limitations on Damages
a. Damages are not recoverable for loss the breaching party did not reasonably foresee as a probable result of breach at time of K
b. Foreseeable loss: follow from breach in ordinary course of events OR as a result

it is on breaching party to prove
c. Reasoning: As an alternative to expectation, the П can choose to recover any expenses she made in reliance on her K, minus anything the breaching party can demonstrate П would have suffered (losing K).

Avoidability: cannot recover damages that could have been avoided or mitigated w/out undue risk, burden, humiliation.

1) RS 350: Avoidability as a Limitation on Damages:
d. damages are not recoverable for loss that the injured party could have avoided w/out undue risk, burden or humiliation
e. injured party is not precluded from recovery to the extent that he has made reasonable but unsuccessful efforts to avoid loss.
2) Rockingham v. Luten Bridge/RS
f. Facts: Δ contracted w/П to build bridge. After receiving notice of Δ’s repudiation, П still proceeded to construct bridge. П received damages for full performance of K and Δ appealed.
g. Rule: After repudiation of performance by one party to the K, the other party cannot continue to perform and recover damages based on full performance.
h. Reasoning: Measure of П’s damages after notice given=amount sufficient to compensate for П for labor and materials expended and expense incurred in the partial performance of K before the breach + profit П would have realized if K had been fully carried out.
3) Parker v. 20th Century Fox/RS “Shirley Maclaine”

Facts: П entered K w/Δ to film “Bloomer Girl”. Δ cancelled production of movie and offered П another movie deal. П refused and sued for profits she would have made on original K.
Rule: Projected earnings from other employment opportunities only offset damages if the employment is substantially similar to that of which the employee has been deprived.
Reasoning: Duty to mitigate an employment situation limited to like-employment

4) Neri v. Retail Marine Corp/UCC “Boats – Lost Volume”

Facts: П K’d to buy boat then rescinded. Δ already ordered and received boat, and would not refund deposit. Δ sold boat to another customer, П claimed that no harm done so should get deposit back.
Rule 1: UCC 2-708 Seller’s Damages for Non-Acceptance or Repudiation:

i. Permits the seller to recover damages the difference between the market price and the K price plus any incidental damages incurred, but minus any expenses avoided, as long as this amount is sufficient to place the seller in as good a position as performance would have done (if inadequate to put the seller in as good a position then (ii)
ii. Profit + incidentals (presumption is that seller w/volume would have made 2 sells)