Process of Analysis
Inquires to Make
If we wanted to be fair and just what is the result we would seek?!
Is there a k?
1) Is there a valid offer (if not, no k, maybe the parties can sue in quasi-k – do any damages apply?)
2) Is there a valid acceptance (if not, probably b/c of counter-offer, lack of proper acceptance, etc. no k)
3) Is there consideration (if not, no k ONLY IF it is a type of promise that is not binding w/out consideration)
4) Is there not a k, but the breacher should be Estopped from defending on those grounds b/c of reliance?
IF yes to 1-3 above, there IS a k, now analyze the k:
1) What are the terms of the k, do the terms of acceptance vary from the offer? (if Yes, if k go through the ‘battle of the forms analysis’, if not, mirror image rule)
2) Is the party trying to introduce evidence to supplement or contradict a writing, if so, apply the PE rule.
3) Is there an issue of Interpretation of the k? – Vagueness or uncertainty?
4) Can the k be enforced – statute of frauds.
5) Is it void or voidable due to mistake, illegality, duress, misrepresentation. (if so, what are the measure of damages?)
6) Is the k void for impossibility? (if so, can damages still be recovered in quasi-k?)
Has there been a breach?
1) Was it total/material (if yes, the non-breacher may cancel k and recover damages)
2) Was it a partial breach (if yes, the non-breacher may not cancel k but can recover damages)
3) Are there equitable remedies available?
4) Is the k for sale of goods (if so, Apply UCC)
5) Is the P entitled to expectancy, restitution, or reliance
6) Was there a duty to mitigate? Consequential and incidental damages?
Whenever you have a SALE of goods, you look at the remedies section of article 2 (leases in 2A).
– Goods are all things that are moveable at the time of identification to the contract.
– Sale in 2-106, goods in 2-105 and 2-107.
– 2-100s section deals w/ principles of construction and definition that deal only w/ article 2.
– 2-200s section deals w/ formation – Ch.3 The Making of Agreements!
– 2-300s section deals w/ implied terms and a court’s construction of a contract
– 2-600s section deals w/ performance and breach
– 2-700s section deals w/ damage and remedies. Ch.1 Remedies for Breach of k
– Article 1 has general principles of construction that apply to all other articles.
Three ‘Interests’ regarding claims for breach of contract, not all of which present equal claims to judicial intervention:
Restitution interest: The interest of a party in recovering values conferred to the other party through the contract. The goal in protecting this interest is the prevention of gain of the defaulting promisor at the expense of the promisee. The prevention of unjust enrichment.
Reliance Interest: The interest of a party in recovering losses, whether or not there was a corresponding gain to the opposite party. When damages are awarded not for the purpose of recapturing enrichment of the promisor but to reimburse the promisee for a change in position in reliance on the contract, the object is to put the promisee ‘in as good a position as he was in before the promise was made.
Expectation Interest: The interest of the party in realizing the value of the expectancy that was created by the other’s promise. By seeking to give the promisee the value of the expectancy which the promise create, the aim is to put the promisee in as good a position as he would have occupied had the D performed his promise.
Remedies
Expectancy
Rule 1: We usually award expectation damages b/c we want to give the injured party the benefit of his bargain.
Hawkins v. McGee (p.3): Surgeon McGee solicited Hawkins to perform skin-graft operation on the P’s hand. Surgeon gave a warranty by promising a 100% good hand. P got a useless one instead. Principle: The measure of the vendee’s damages is the difference between the value of the goods as they would have been if the warranty as to quality was true, and the actual value at the time of sale. D’s Share of the Burden – It is important that the P not be placed in a better position. The P’s cost of expectation must be subtracted from the cost of performance in order to given her the benefit of her bargain. So Hawkins in this case was only awarded value of perfect hand – (hand he got + pain and suffering) as he expected to suffer a little in performance of the k anyways)
Exceptions
Sullivan v. O’Connor (p. 7): P sued plastic surgeon for failing to provide promised perfect nose. P received $ based on reliance rather than expectancy (hospital bills, worsening of pain, etc). Court’s Principle: As a general rule, granting damages for a broken promise to the extent of the expectancy are at their strongest when the promises are made in business context; they become weaker as the context shift from a commercial to a non-commercial field. Physicians w/ average integrity won’t make promises about results.
Expectancy is the contract measure of recovery b/c you forgo other opportunities when you enter into a k. A doctor charges for a missed appointment b/c he can’t meet with another patient.
This rule is predicated upon the existence of a market. Damages are substitutional rather than specific performance b/c you can go out into the marketplace to make yourself whole.
Expectation = reliance + profit.
UCC Expectancy
Buyer’s provisions:
o When a seller breaches the contract, the question is who has the goods. 2-712
o When buyer keeps the goods, as in Hawkins, buyer gets the difference between the fair market value of the goods as promised less the fair market value of the goods as delivered.
Seller’s provision:
o 2-703 provides a list of options available to the seller when the buyer breaches while the seller still has the goods.
o He may stop delivery under 2-705Resell and receive damages under 2-706Recover damages for non-acceptance (2-708) or the price under 2-709
Rule 2: Efficient Breach: A breach of contract is said to be efficient if the D’s cost to perform would exceed the benefit that performance would give both parties.
Rationale: Individuals should be free to move their resources to the most efficient area of the economy. To prevent them from doing so would unduly tie-up needed resources.
KEY: Where this is so, the D saves enough money by breaching to enable her to pay compensatory damages to the P and still come out ahead.
Groves v. John Wunder Co (P.11): D breached by failing to return leased property at an even grade as promised. Issue: what is the measure of damages? Holding: it is the cost of doing what the D’s promised to do and declined to do. The Dissent says it is the loss sustained by D (return of land of a value less than what was expected), rather than the cost of performance by P. Rau says Dissent has better argument. Dissenter in Groves produces the much touted:
Oil Well hypo (p.20): A has k w/ B to sink oil well, but A discovers there is no oil and breaches. B can sue only for nominal damages, not the cost of the well.
Mechanic hypo: A man works in a garage for $15/hour w/ a 1 yr contract and he gets offered a $500k job with GM. Should he breach it? ® Yes. Everyone is made better off.
Peevyhouse v. Garland (P.19): P leased his farm to the D for a period of five years for coal mining purposes, using “strip-mining” operation. The D specifically agreed to perform certain restorative and remedial work at the end of the lease period. As of trial the remedial work had not been done. Issue: Should the correct recovery be measured against whether the contract was for the restoration of property value or actual restoration? ® The court found that it was for property value. Restoration of the land was incidental to the goal of the contract. In both Groves dissent and this opinion, the k was made for the creation of property of a certain $ amount. That is the P’s expectancy, not whatever ridiculous amount it would take to get the property there.
Principle: here is that if P’s expectancy is land of a certain value, but it is prohibitively expensive for D to make the land equal that value, in the interests of economic efficiency it may be OK to allow D to breach and pay the difference in land value rather than the cost of completion. . . .What the P wanted in each case was land equal to X$. It cost X+1$ to get the land to the condition where it would sell for X$. It would be economically inefficient for society to insist that the D pay X+1$ rather than the difference between the current value of land and X$.
Exceptions
Ugly Fountain hypo (p.20): If a man wants to build a monument to his own idiocy, contractor cannot breach and say the ugly fountain would have decreased property value.
Advanced, Inc. v. Wilkes (p.21): In a suit by homeowners dissatisfied w/ a contractor’s work, the court sustained a jury’s award of a cost-of-repair figure that appeared far higher than the probable diminution in market value of the defectively-constructed house. Courts don’t generally award cost-of-repair figures higher than the value of defective structure b/c P could sell the structure, pocket the $, and be better off than his expectancy. However, where it is clear that P wants his ugly fountain or chooses to stay in some property he deems sacred, awarding cost-of-repair will only give him his expectancy.
Laurin v. DeCarolis Constr. Co. (p.25): D removed gravel unlawfully from P’s property to his own benefit. P awarded value of the gravel b/c damages limited to diminution of value of premises may be severely inadequate. Contract damages compensate injured party for loss caused by breach, generally measured by actual loss, not D’s profits. But doesn’t work in this case (this reasoning seems to argue for punitive damages in some cases)
Rule 2a: Efficient Breach Continued: P can only claim damages proportionate to his actual harm. Where he is not harmed at all, there can be no damages.
Rationale: Sellers usually breach in rising markets, to sell elsewhere for more money. When that happens buyer can get market price ($ buyer bought same goods at market for) minus the price he would have paid under k, his expectancy. When in the case of falling markets the aggrieved buyer can purchase goods cheaper, he is not harmed by seller’s breach.
Buyers usually breach in falling markets, because they can buy goods on market for cheaper. When they breach in rising markets, sellers can unload goods elsewhere for more money, and so are benefited by the efficient breach.
o Acme Mills & Elevator Co. v. Johnson (p.22): D agreed to sell wheat to P, but sold elsewhere. P’s suit is denied because at the time of tender, agreed upon price was .03 cents a bushel more expensive than market price, so P was actually benefited by having to go to market to cover D’s breach.
o Louise Ca
rt for her damage award to be reduced by failure to mitigate. It must be apparent that the P’s behavior in reacting to the breach was dishonest, opportunistic, or vindictive, or that it so deviated from what would be expected, that it failed to conform to community standards of rationality.
Objective Standard (Leeway Limits) – B/C the P is the wronged party; she is not expected to take heroic or exhaustive action to keep damages at a minimum. The D cannot complain of a failure to mitigate if the action required to reduce loss would have been unduly burdensome, humiliating, or risky to the P.
i. Rationale: Just don’t be stupid, P, and you’ll get your expectancy!
ii. Rancher v. Farmer hypo – Farmer breaches contract with rancher for hay. The rancher refuses to pay more for hay and all the cows die. The rancher sues for the cost of the dead cows. The rancher had a duty to mitigate damage and could have recovered the extra expenses for the more expensive hay.
Anticipatory Breach or Repudiation (p.57): Occurs when one party lets the other know well in advance that it intends to breach. Causes 2 problems with ascertaining the appropriateness of mitigation measures:
Could a suit be brought after repudiation, but before the set date of performance? A: Yes, it’s the discretion of the P, and we can’t place any additional obligations on him, he is freed after the D indicates he intends to breach.
Should damages be measured as of or close to the date of repudiation or of performance? A: at ‘a commercially reasonable point after repudiation’
i. The answer is that we generally favor the aggrieved party. He can pursue a lawsuit at once, immediately try to cover, or continue to insist on compliance, etc.
ii. Reliance Cooperage v. Treat (p. 56): D’s anticipatorily breached. P wanted the market value of staves on the day the k was to be performed, not the day it learned of the breach. Principle: the doctrine of anticipatory breach by repudiation is intended to aid the injured party, and any effort to convert it to the benefit of the repudiator should be resisted. No duty to mitigate damages until there are damages to mitigate.
iii. 2-712 v. 2-713 (p.58-61): The former provision says that cost of P’s cover – k + incidental or consequential damages – expenses saved is the proper measure of a buyer’s damages at the time of breach. 2-713 gives objective market – k, etc. at time of performance only when the buyer hasn’t covered. In anticipatory breach cases, sometimes buyers want to get a greater windfall from 2-713 and the lack of cover at the time of performance, rather than using the 2-712 standard from the moment the breach was supposed to happen (b/c market $ is higher later and so that price – k gives ‘em more dough). To get past this problem, the Principle = to measure by employing the market price ‘at a commercially reasonable point’ after breach. In this way, the seller won’t benefit by ‘pegging’ the damages to the moment he anticipatorily breached, and the buyer won’t avoid cover in the hopes that markets will continue to rise until performance time.
Internal Cover: Internal Cover is acceptable if it is reasonable. However, the opportunity cost of the lost profits (consequential damages) is not awarded as damages b/c it would have been cheaper to cover externally rather than internally.
Rationale: Although opportunity costs are important to economists they do not play an important role to attorneys. (They in fact complicate situations sometimes.) While opportunity cost should factor into whether the seller ought to cover internally or not, the courts ought not to think that way.
Dura-wood v. Century (Supplement p.42) – D breaches contract to supply wood to P. P covers from within given the high market price for wood and the fact that it could produce such contracted product cheaper. However, the opportunity cost lost to the company was never calculated by the P’s.
i. Issue: Should opportunity cost be included in damages? ® No.
Formula: Buyer’s Cover Damages = [(Cost of Cover) – (C
