Pratt
South Carolina Law
1L Contracts
Fall 2012
Impossibility—not possible, act of god burns down house.
Frustration of Purpose—no purpose, only one party not have purpose necessary. Rent apartment for daily use to watch parade and parade gets cancelled.
Impractibility—grossly unforeseen by either party and would be detriment to either party (contract to paint house red, act of god à red paint costs 3 times as much. Not practical)
If you can’t prove expectation damages then show Reliance
Reliance Damages: if the P’s expectation damages will be too speculative to measure (P cannot show with certainty profits she would have made if D had performed contract), P may elect to recover based on reliance rather than expectation.
– Reliance damages award the P cost of her performance-(put P in position she had been in had contract not been formed)
– Example: K mart gives Sam a “dealer franchise” to sell K mart products in his area for one year. Sam spends money on ads, hiring workers and purchasing a building that cannot be used for other purposes. K mart repudiates before performance begins.
– Idea: it cannot be established with reasonable certainty what profit Sam would have made. Sam can recover as reliance damages his expenses in preparation for performance
Chicago Coliseum v. Dempsey- contract for match between Dempsey and Willis, Dempsey breaches contract and P(Chicago club) sues for
– Lost profits
– Expenses incurred prior to signing
– Expenses occurred trying to restrain D
– Expenses incurred after signing before breach- directly from the contract
Held:
– No, Lost profits only if damages definite and certain. Here, too speculative, too many factors (weather, promoters, boxers) would be different if most of tickets had already been sold.
– No, expenses prior to signing are negotiation costs which each party must bear and do not naturally flow from a subsequent breach of the contract
– No, attorneys fees not recoverable in absence of an express provision permitting recovery of them. Again—not naturally flowing from breach
– Yes, Costs incurred in preparing for the bout are recoverable because they naturally flow from the breach. (does not include officials who are on regular salary as there costs would have been incurred anyway.)
Idea: Reliance damages a good alternative to expectation damages when you cannot prove lost profits (cannot recover for uncertain damages)
Angelina TV v. Reed- Tv made arrangements for film and hired actor (reed) Reed breached, TV sued for wasted expenditures prior to signing of agreement.
Held: contrary to Dempsey, court allowed TV to recover for reliance damages prior to the signing of the contract, because Reed knew of them in advance. Idea is that when Reed entered into this contract, he must have known perfectly well that a large amount of expenditures had already been incurred.
-P can claim for lost profits or for wasted expenditure but NOT BOTH
iii. Avoidability of Harm Must Mitigate Damages
– Encourages the injured party to act so as to minimize the wasteful results of the breach
– Applies to damages based on reliance and expectation
Rockingham county v. Luten Bridge-County contracts with bridge company to build bridge. Tell bridge company to stop but they keep building continuing to rack up damages.
Held: cannot recover for full value because they failed to mitigate damages when they were told to cease operation.
Rule: Damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation.
Parker v. 20th century fox- P, actress contracted to specific musical film to be shot in California during a 14 week period. D decided not to make music film but instead offered P role in Western film for same fee to be filmed in Australia.
Argument: P did not mitigate damages by accepting other role
-avoidability as applied to wrongfully discharged employee
Rule: employee must make reasonable efforts to find similar employment
– Does not have to take inferior or different work (must be similar in type and quality)
– Party in breech must show that work was Substantially Similar and that person did not seek such work.
– Here, movie went from specific film,location and schedule to different film on different continent. Didn’t matter that same $ was offered.
Neri v. retail Marine
Neri paid deposit for boat and 6 days later revoke contract. Marine had already ordered and received the boat and refused to return deposit. Marine sold boat to someone else and Neri sued for deposit.
Rule: seller to recover as damages difference between market price and contract price plus any incidental damages but minus expenses avoided(selling boat to another)
Idea: had contract been performed, seller would have profited from both sales. Thus subsequent sale was not a replacement but rather in addition to the original sale.
D. CONTRACTING AROUND THE DEFAULT RULES OF DAMAGES
1. Most contracts are default and can be contracted around by inserting express clause. Liability can be expanded or contracted.
2. Neri: attorney fee’s; sometimes you can contract around liability, but not serious issues such as bodily injury
Liquidated damages v. Penalty Clause
§ Parties to a contract may stipulate what damages are to be paid in the event of a breach. These liquidated damages must be in an amount that is in reasonable view of the actual or anticipated harm caused by breach.
1) Requirement for enforcement
Liquidated damages will be enforceable if:
i) Damages for breach must have been difficult to estimate at the time contract was formed
ii) Amount agreed upon must be a reasonable forecast of compensatory damages. Cannot act as a penalty
§ General Rule: a liquidated clause is unenforceable if it acts as a penalty.
Penalty clauses are not allowed because they restrict freedom of contract and efficient breach. “a contracting party should only be able to recover compensation for the loss actually suffered through breach.”
§ idea is to put innocent party in position he would have achieved if contract had been formed.
NOTE: most courts allow P to receive liquidated damages even if there is no actual money or other damages lost.
*To determin
rmance of a contract for personal services, thereby compelling the individual to perform exclusively for the employer for a specific time period
– Absent a reasonable excuse, a party to a personal services contract may be enjoined from performing alternative services.
– Negative Injunction – injunction phrased in such a way as to require a party to affirmatively do an act rather than refrain from conduct.
1. Lumley v. Wagner-court rules that breaching opera singer is not allowed to perform elsewhere during the period of the contract she breaches.
§ May induce her to perform original contract because it is her only option for work but Court claims this is not their objective.
§ Factor is the parties’ intent in entering the agreement. Here, there was an original contract agreeing she would not perform in any other forum.
2. Ford v. Jermon1865-rejects Lumley claiming revoking the free agency of the actor is a less obvious form of indentured servitude.
– Held: no specific performance and no enjoining one from entering into future contracts, even if there was an originally agreement to not perform for others.
– Duff v. Russel- 1891
– Rule: A party breaching a contract for personal services may be enjoined from providing like services under another contract, even when there is no explicit language to enjoin such future agreements.
– Here- singer agreed to sing 7 days a week, making singing anywhere else impossible without voiding the contract.
1) INJUNCTIONS AS ALTERNATE REMEDY
– A court may enjoin a breaching employee from working for a competitor throughout the duration of the contract if the services contracted are rare or unique.
– Allowed because less court supervision is required for a negative injunction than for a specific performance, and the prohibition of working does not go against the constitution(as the requirement of working does).
Dallas Cowboys 1961-Injunction is awarded to prevent player under contract from jumping to AFL.
Rule: When one having a special skill agrees to a perform a service, he may be enjoined from performing services for another.
Here, Harris is not the only individual with his set of skills; he is one of few, and not easily replaceable.
– Uniqueness does not imply that you are the only one with this talent, just one of few.
Negative Contracts Enforceable?
– Depends on Balancing Test—how long agreement is? What and where are activities prohibited? (professional athletes not doing activities to jeopardize their services)
