Contracts II Outline
Barnes- Spring 2002
I. Remedies for Breach
A. Remedies for breach of K are designed to provide relief to the aggrieved party.
Four fundamental assumptions made by cts enforcing promises:
a. Relief of promisee is to redress breach
b. Relief granted to promisee should attempt to put promisee in the position they would have been in had the promise been performed
c. The appropriate form of relief is substitutional rather than specific.
d. Punitive damages cannot be awarded for a breach of K
B. Nature of Relief: Generally, relief for breach of K is either specific, as when it secures to the promisee that which was promised, or substitutional, as when it gives something as a substitute for that which was promised.
a. Equitable relief- If money damages cannot adequately compensate the aggrieved party and the determination of damages would be too speculative, it may be appropriate for the court to grant equitable relief.
i. Specific performance- generally only granted when damages are inadequate and the goods or item is unique
UCC 2-716- Specific performance for the buyer- specific performance may be decreed when the goods are unique.
Unique: land, art, limited edition autos, antiques.
Note: Scarcity is seldom enough characteristic to warrant SP
Counter-arg: If there’s any way that the person could get another item like the desired item, then you could argue that it’s not sufficiently unique. Cts are more prone to offer SP when the ct finds it difficult to determine damages.
Case: Klein v. Pepsico: Breach of K for the sale of a jet. The issue was whether or not the jet was sufficiently unique to warrant specific performance. Held: No Money damages would be adequate, therefore no specific performance. Money will be adequate to put him back in the same place he would have been in had the breach never occurred. Also, since Klein wanted to turn around and sell the jet for a profit, this could have played a part in Klein not getting SP. Klein was a sale of goods case, therefore the Code is applicable. (UCC 2-716)
Case: Laclede v. Amoco: Breach of a service K to provide facilities for nat. gas. D refuses to supply anymore gas, and purports to terminate the K. P sues for specific performance, i.e., a decree ordering D to continue supplying the propane. Issue: Is a long-term K to deliver propane for a fixed period of time sufficient to warrant SP when no one else will supply the propane for a fixed period of time. Held: Yes, the reqt’s K is unique. Damages would be difficult to determine and the public interest: deliver fuel or the trailer owners will suffer.
Laclede’s strongest argument is that damages would be too speculative. They have no idea how much it would take to be compensated
Case: Northern Delaware Industrial v. E.W. Bliss Co. A Ct will not order SP when there are likely to be significant difficulties in enforcing and supervising the order. D enters into a K to expand and modernize a steel fabricating plant owned by P. P sought an order which would require D to hire 300 additional workers on the night shift, so that there will be a full crew on this shift. The K did not specifically provide for a full 2nd shift nor did it mention the # of people to be put on the job. Held: For D. The ct will not order SP where it would be impractical to carry out the order. Granting P the order would commit the ct to supervising carrying out of a complex, unfinished construction K. If D’s delays constitute a breach of K and damage P, P’s appropriate remedy is a common-law action for damages brought after the fact. Also, there’s a safety issue here. You wouldn’t want 300 people working on a plant who did not want to be there.
2nd type of equitable relief:
ii. Injunction- an injunction directs a party to refrain from doing a particular act. The classic illustration of the use of an injunction in a K case involves the employee who has breached an employment K. In this situation, the ct will rarely award specific performance, since, among other difficulties, ordering the employee to perform smacks of involuntary servitude. What the ct. will often do, however is to prevent the employee from working for a competitor.
*Case: Walgreen v. Sara Creek- The ct granted an injunction because Walgreen’s damages would have been costly to determine and inaccurate. The ct. discussed the pros and cons or granting an injunction. Normally, an injunction is only granted when the P’s damage remedy is inadequate.
Benefits of substituting an injunction for damages:
1st it shifts the burden of determining the cost of the D’s conduct from the ct to the parties. Thus, both parties could agree on an amt. for dissolving the injunction.
Costs of substituting an injunction for damages:
Bi-lateral monopoly- arises when 2 parties can only deal w/ each other. Continuous supervision of the 2 parties is costly
b. Damages- 3 basic types of damages
1. Expectation interest: Put the non-breaching party in the same place he would have occupied had there been full performance.
§347(the place you expected to be in had there been full performance)
2. Reliance interest:
s breach. Contractor’s expectation damages are equal to the k price ($300,000) minus what would have been Contractor’s cost of completion ($100,000)=’s $200,000 expectation damages
4. Allocation of overhead: Where the P has not finished his performance at the time of the D’s breach, should the P’s cost of completion (the amt he has saved by not having to finish) include a portion of the overhead?
General Rule: Never deduct overhead as a cost saved. Since overhead is by definition fixed, there is no saving any of it as a result of P’s not having to finish the K; this conclusion is to the P’s advantage of course
Case: Vitex v. Caribtex, P and D enter into a K to reopen a wool processing plant. D breaches by never delivering the wool. D wanted to subtract the overhead under costs saved. Issue: Is overhead properly chargeable as a cost saved in computing an award for breach of K? Held: No. Overhead remains constant whether the K is performed or not, so P should be allowed to recover the contribution to overhead expected from performance of the K. D’s breach did not save any overhead costs. D’s breach reduces the profitability of other Ks if overhead is not an allowed item of recovery, since a higher amt of overhead will have to be allocated to other Ks.
6. Buyer’s remedies:
a. UCC 2-711 Buyer’s remedies in general
The buyer may cancel and recover any money he has paid as “cover” or recover damages for nondelivery, or demand specific performance.
b. UCC 2-712 “Cover” Buyer’s Procurement of Substitute Goods
i. After a breach, the buyer may purchase goods in substitution for those not delivered.
Damages=Cover cost-K price + incidental & consequential damages-expenses saved
iii. Must be: 1. In good faith
2. W/out unreasonable delay
3. Reasonable purchase
iv. “Cover” is not req’d (A buyer does not have to cover
v. Case: Laredo Hills v. H&H. P contracted to purchase all of the hides produced by D. P failed to pay for 2 deliveries and D refused to sell to them