CONTRACTS OUTLINE:
Under traditional, common law a promise is not legally enforceable unless you show that the particular promise fits w/in a particular writ (one had to pursue a specific avenue of writ= avenue of recovery).
*No writ, no right, no recovery (=with no writ there is no legal right for recovery)
*Remedies for Breach of Contract:
Restitution Interest = the party’s interest in recovering values conferred on the other party through efforts to perform a contract (intended to prevent the undue enrichment of the promisor)
Reliance Interest = party’s interest in recovering losses suffered by virtue of reliance on the contract, regardless if the other party obtained a corresponding gain (intended to put the promisee in the same position he was in before the promise was made) [reliance damages often leads to same recovery as expectation damages!!!]
Expectancy Interest = party’s interest in realizing the value of the expectancy that was created by the other party’s promise (intended to make promisee indifferent to either breach or performance)
*Non-breaching Party often has a choice of remedies due to the breach:
Damages-remedy most frequently used, generally most important, Types of damages=
Compensatory- injured party should be placed in the same position as if the contract had been properly performed, designed to give P the benefit of his bargain.
Punitive- NOT RECOVERALBE in breach of contract claims
Nominal- any breach entitles the injured party to at least nominal damages, even if no actual loss can be proved (thus no compensatory damages)
Consequential- in addition to std damages, breaching party also liable for all losses resulting from his breach that the parties could have reasonably foreseen at the time the contract was made as likely to result from breach
Specific Performance- when damages are not adequate, equity may allow specific enforcement of the contract
Rescission & Restitution- when the breach constitutes a failure of the consideration bargained for, non-breaching party can choose to rescind/annul the contract, sue for judicial declaration thereof and restitution of whatever benefits were conferred there under.
Tort Action- improper performance (or nonperformance) may create a tort cause of action in favor of injured party where a risk of harm to the person or property of others is reasonably foreseeable in connection with the performance of the contract
Election of Remedies- P has to elect which remedies he desires as sometimes the remedies can conflict in legal effect (cancel the contract by rescission v. enforce through specific performance)
I. EXPECTATION DAMAGES PRINCIPLE:Damages are measured by the amount of money it takes to make you indifferent to whether I perform or not; it has to be enough money to put you in the same position you would have been in if I had performed, but it is no more that that [Holmes]
What did I promise to deliver? How much is that worth? [promisor internalizes cost of breach]
E.D.P. requires that we take into account the Subjective Value of the land
In Groves and Peevyhouse, we see that:
SubjectiveValue = Ceiling on recovery; DiminutioninValue= Floor
In the absence of subjective value [Groves], the diminution in value is a good way to measure damages!
*KEY CASES= Contracts for Medical Services:
1. Hawkins v. McGee, Supreme Court of New Hampshire, 1929—Def operated on P’s hand by grafting skin; Def said “I will guarantee to make the hand 100% perfect or a 100% good hand.” Operation failed and P’s hand was left deformed and useless. Ct held that Def/Dr. made enforceable promise that was considered breach b/c surgery failed.
THE
Ct upheld EDP: P’s Damages = diff btwn value of perfect hand (as Def promised) and value of his hand in its present state.
Dr fees and P&S not recoverable [b/c they’re consequential to any surgery; part of consideration]
Patient is entitled to ED when Dr. Promises specific/certain result that fails to occur!
*Building and Construction Contracts— Measure of damages for breach of construction contract hinges largely on which party breaches and at what stage the brdemeach occurs—
1. Owner breaches= builder can always recover at least the lost profits.
a. At outset–Builder recovers only the prospective profits.
b. After part performance—Builder recovers profits + expenditures from part performance
c. After full performance—Builder can sue to recover full contract price!
2. Builder breaches= owner can recover cost of completion [amt extra it costs here above the CP to finish the job + reasonable compensation for any performance delay]
a. After substantial performance- courts generally apply the cost of completion test,
i. But, Not if this would lead to substantial economic waste!
b. When breach is simply late performance- owner can recover damages for loss of use of prop; measured by loss of sale value or reasonable rental value of prop
3. Rstmt § 346(1)(a) =For defective/unfinished construction, aggrieved party can get judgment for:
a. Reasonable cost of construction & completion (if possible and no unreasonable economic waste); OR
b. If CC leads to unreasonable economic waste, then recovery=
i. Value of Product as contracted for – Value of perform. already been received by P
4. Groves v. John Wunder Co. [Cost of completion for builder breach]-Def promised to remove sand/gravel and leave land at uniform grade; Def deliberately breached—is the $60,000 cost to complete the contract the proper damages measure even if the diminution value in the value of land is only $12,000?—Yes, Ct awards P the $60,000 CC [BUT in ED world, should award P $12,000]
a. Damages?= Diminished Value (12,000) v. Cost of Completion (60,000)
b. Cost of completion= the proper measure of damages unless leads to unreasonable economic waste; Consistent w/the EDP b/c gives what was promised! [Damages= Mkt Val does same]
c. If CC is less than Mkt Val—should favor CC [CC< MV—go w/CC]
d. If CC is greater than Mkt Val [CC>MV] which do we favor?
i. Promised a particular end result, thus need amt of $ that enables you to get to same place.
ii. NOTE- that subjective value= recovery ceiling; Diminution in Val of land = floor!
e. Nothing in the EDP requires that you receive enough $ get there more, rather than less expensively!!
f. Fun
give incentives to breach duty for more desired event!
*Contract Remedies—Land Sale Contracts:
2. General View: Most Cts use same measure as for Sale of Goods Contracts; non-breacher recovers:
a. Damages = diff btwn Contract Price and fair Mkt Val of land [CP- Mkt Value]
3. Measure of Damages for Non-delivery Must Reflect Actual Loss:
a. Std. measure for failure to deliver under Sale of Goods Contract, Retail Price, only appropriate if it accurately measure the injury to buyer (See, Illinois Central)
b. If buyer is a wholesale purchaser who suffered no actual loss from non-delivery, then the wholesale price NOT Mkt price is right measure (thus limits Def’s liability)
c. Damages NOT ALLOWED When No Actual Loss! [Louise Caroline case]
4. Laurin v. DeCarolis Co., Mass. 1977-P purchased a wooded lot from Def who was building house there; prior to closing Def removed gravel from prop w/out P’s consent; P sued Def—Trial Ct awarded P $6,480 [Mkt Val of gravel removed]—App. Ct Aff’d (tort theory of conversion).
a. If Deliberate/Willful Breach: Damages = Fair Mkt Val of the removal from the prop!
i. Recovery Should NOT include value added of Def’s Labor
b. Held: this is a claim for willful/deliberate breach NOT tort conversion action;
i. Damages limited to Diminution in Value of land can be grossly inadequate!
c. Case remanded to re-determine damages b/c Trial Ct est. Val of gravel as loaded on trucks rather than Value as it lay in the land
5. Case- Louise Caroline Nursing Home v. Dix Construction Corp., Mass. 1972—No recovery if No actual loss—Def contracted to build nursing home for P and then failed to build it in timely manner and breached contract.
a. Ct held No Recovery for P b/c No actual loss—CC was w/in the balance of CP not yet paid [i.e. cost to use new contractor is w/in (CP- Amt P already Paid Def)]
b. Rule= Cost of completion is proper measure of damages = reasonable cost of completing the contract and repairing D’s defective performance less part of CP not yet paid.
i. Any “benefits of bargain” are maintained as long as construction can be completed at a cost w/in the CP.
c. P claims; damages should = diff btwn value of the building as left by D and the Val if fully performed [But that’s measure for defective perform, this is an abandoned performance]
d. Baird Hypo: Def promised to build P a nursing home (legally enforceable?) for $10,000, then def decides to breach and P has already paid him $5,000. What is P’s recovery that will put P in the same position had the nursing home been built as contracted for? Possible remedies:
