Contracts; Professor Barry; Spring 2012
UNIT 1: REMEDIAL CHOICES
Remedies for breach of contract:
– Specific Performance: have to perform the K.
– Expectation Damages: puts non-breacher (promise) in position he would have been in if K had been performed.
– Compare where non-breacher would be if K was fulfilled and where he is
now. The difference.
– Reliance Damages: puts non-breacher in position he would have been if K had never been made.
– where non-breacher would have been if K never was made vs. where he is
now.
– Restitution damages: puts breaching party in position he would have been in if K was never made.
– where breaching party is now vs. where he would have been if K were never made.
SULLIVAN V. O’CONNOR – nose job.
Expectation damages: value of good nose over original nose (can’t get with reliance). Pain and suffering of first two surgeries included with perfect nose promise.
Reliance damages: pain and suffering for first two damages included because a world without contract didn’t have any surgeries. (can’t get with expectation).
UNIT 2: LIMITIATIONS ON DAMAGES – FORESEEABILITY
HADLEY V. BAXENDALE (93) – Crank shaft delayed and causes work lost.
Foreseeability:
Why foreseeability matters when there is a breach of contract: ∆ could have acted differently when creating the contract: insurance, increased contract price, etc…
Arguments against foreseeability (??): a) might decrease economic efficiency. People wants to contract and get things done without having to worry too much about they should foresee. b) fairness issue: contract is about the terms, not about resulting damages.
Ways in which damages can be foreseeable:
general damages: obvious consequences. if x, then y.
special damages: have to know the facts in order to infer the consequences.
i. § 351 Unforseeability and related limit on damages: – reasonable test (not subjective).
When do you test to see if there was foreseeability? When you made K, that’s when you assume obligations, and in K law, the only obligations you have are ones that you voluntarily assumed.
HECTOR V MARTINEZ – lost time because of delay of dragline. had to make repair; and repairs create more time lost.
RULE: What counts as foreseeability: Foreseeability covers everything that’s foreseeable. Just because one thing is foreseeable doesn’t mean another thing isn’t equally foreseeable.
1. ∆’s argument: no notice for special damages, so not owed.
MORROW V. FIRST NATIONAL BANK
RULE: TACIT AGREEMENT TEST: Mere foreseeability is not enough. There has to be some sort of agreement to assume the liability.
– This is a minority rule. Not a big deal. Rejected by the U.C.C.
– It’s not reasonable of π to assume that a clerk of fed ex can be responsible for fed ex to owe special damages to π.
– Foreseeability as default rule:
1. Parties can agree what the damages will be, and the measure of damages can be less than what the law prescribes. In that sense, the foreseeability rule is a default rule.
2. Why have default rule? a) fairness – to protect parties and provide for what they think is fair. b) to think through all specific damages takes time and money. so, lower transaction costs, increases efficiency.
Summary of Foreseeability:
– major limitation on damages
– how things can be foreseeable
– what a default rule is. why it might be important.
– whether foreseeability is good/bad default rule (why is it bad??).
UNIT 3
CHICAGO V. COLISEUM: Chicago wanted lost profits, pre contract expenses, attorney fees, and post-k, pre-breach damages (Expectation). They only got post-k, pre-breach damages.
ANGELICA TELEVISION – Wanted pre-k expenses, attorney fees, and post-k, pre breach damges (Probably reliance, but according to Prof. Kelly: if you assume 0 profits, then expectation damages). Got pre-k expenses, attorney fees, and post-k, pre-breach damages.
– Prof. Kelly, reliance: awarding expectation damages assuming loss profits are zero. key: recover pre-k expenses whereas for pure reliance, you don’t recover pre-k expenses.
MISTLETOW EXPRESS – Wanted post-k, pre-breach and attorney fees damages (Reliance). Got both.
– just because you took out loand doesn’t mean that those become apart of your damages because you can always pay those back.
RULE FOR ABOVE THREE CASES: CERTAINTY AND LOST PROFITS: Lost profits are difficult to recover in damages because there is no certainty. What the party did in reliance of the contract is easily measured and documented because the actions have already been taken, but future projections of profits are merely projections.
– Courts have moved in direction of allowing damages of reasonably certain (unlike Chicago/Dempsey case).
Restatement, Section 353, Certainty: Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty.
Traditional new business rule: lost profits not recoverable.
Why have “reasonable certainty” principle?
– don’t want to over punish breacher
– don’t want to deter contracting
– too much to search for all possible damages. you bring the damages to us.
– unfair. i.e. “could’ve happened.”
Restatement, Section 349, Reliance: get rule.
– Alternative to 347, expectation.
– Why go for reliance? hard to show certainty of loss profits.
– We don’t want to make non-breacher better off if K was performed.
—
Emotional Distress – What about expectation for non-commercial goals? Or emotional distress caused by lack of K performance?
– Utility function: how much non-commercial reasons you apply to state of world.
– Objective value: market-value.
– Subjective value: personal value. i.e. pets, heirlooms, art.
Subjective value in theory is recoverable.
– way to prove it: if someone wants to buy it for 2x as much, then baseline amount.
Restatement 353: Recovery for emotional disturbance will be excluded unless the breach also caused 1) bodily harm or 2) the contract or the breach is of such a kind that serious emotional disturbance was a particularly likely result.
– emotional distress – similar to general damages. i.e. k – loan of 1,000. I tell you that if you don’t pay me back I’ll lose my house and suffer emotionally. K not type to result in emotional distress. Although it might be foreseeable, it is not recoverable. Perhaps funeral K and breach buried father upside down.
Tension: Non monetary value generally recoverable. But emotional distress generally not recoverable.
– How to resolve: subjective value is like an expectation award. But emotional distress occurs as a result of K not being performed, so not expectation award, not supposed to be awarded for breach. Maybe the justification for not awarding emotional distress is an extension of the foreseeability rule.
Summary of Unit 3
– Certainty 2nd major limitation on damages.
– comes up most with lost profits.
– lost profits problem with expectation, so go for reliance.
– subjective value also has to have certainty which are generally recoverable (?? certainty, really, how??).
– emotional distress generally not recoverable, unless….353.
UNIT 4 AVOIDABILITY AS A LIMITATION ON DAMAGES (DUTY TO MITIGATE).
ROCKINGHAM V. LUTEN – company keeps building bridge after notice to cancel K given.
2 JUSTIFICATIONS FOR DUTY TO MITIGATE:
Self-inflicted damages to non-breacher after notice is given if non-breacher continues to use money.
doesn’t want
wants CoC. ∆ – DMV because CoC is grossly disproportionate to CoC. Ct: gives CoC.
Factors that influence the majority for giving CoC:
will full breach
major breach
public policy: don’t want to benefit the breacher.
Subjective value might be important in considering which damages to give.
Is there economic waste that π gets disproportionate CoC? No. Shift of resources. π will just use money for something else. Doesn’t have to level the land.
PEEVYHOUSE V. GARDLAND (934) – awards DMV over CoC when breacher decides not to fix the land.
Factors that influence the majority for giving DMV:
– objective value: K is about mining coal and making money off of that coal, so not fixing land is not a big breach.
– if π really wanted their land fixed, why didn’t they just ask for specific performance.
– Coc grossly disproportionate than the DMV.
Factors that influence the dissent to give CoC:
– Subjective value – backyard
– breach is willful
– consent theory
– ∆ knew the CoC upfront.
Restatement Section 348(2):
If a breach results in defective or unfinished construction…[the non-breacher] may recover damages based on
(a) the diminuation in the market price of the property caused by the breach, or
(b) the reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him.
Summary of Unit 5:
– expectation damages can be measured either by CoC or DMV caused by the breach
– in most cases, DMV will be bigger than CoC. If that’s the case, then courts will award CoC. Goes back to mitigation principle.
– But if dimunation of market value is less than CoC, then it becomes harder question of what courts should do
Factors:
– subjective value of nonbreacher (
– was the breach willful (if so,
– major breach? (if so,
– Coc grossly disproportionate to DMV? (if so,
– don’t want to award breacher with windfall, and encourage breaches of K.
—
UNIT 6 – AGREED REMEDIES, LIQUIDATED DAMAGES CLAUSE
KEMBLE V. FARREN (163) – LDC of 1000. Breach. But nonbreach awarded 750. Wants 100. π gets 750.
Rule: because breach is easy to trigger—any breach at all triggers the clause—it’s a penalty clause. Unenforceable.
– even though clause wasn’t enforced, the clause guided the court in determining how much damages were.
WASSENAAR V. TOWNE HOTEL (165) – K: damages is full remaining amount if wrongfully terminated. Ct. of Appeals says: it’s a penalty. π fails to mitigate and clause is penalty clause.
– But Sup Ct. decides it’s compensatory clause—not unreasonable at time K was made or at time K was breached, given what would happen to non-breacher.
Penalty clause, standard: Reasoanbleness under the totality of circumstances.
Reasonable Test:
– parties intent (did they try to make penalty or LDC)
– difficulty of ascertainment test
– are stipulated damages reasonable forecast of compensatory damages?
