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Contracts
Wayne State University Law School
White, Katherine E.

Contracts_White_Fall 2010
Introduction
·    If you make a promise (not a contract) you can still be held liable if you witness them do something that is In their own detriment, in furtherance of the promise, and you don’t stop them. Court will take this into consideration.
·    A promise is a manifestation of intention to act in a specified way, so as to justify a promisee in understanding that a commitment has been made.

Shaheen v. Knight – Operation to make Shaheen sterile failed. Not malpractice because nature of surgery is sometimes it works, sometimes it doesn’t. (1) And no one was hurt, so even though there may be a cause of action (breach of contract) there are no damages. (2) Plus public policy won’t allow it – he’d have to pay back all the joyness he received from having a kid. (3) And cost of raising kid was avoidable – put kid up for adoption – avoidability of harm.

·    Public Policy  [60] Rest. 178 can overrule contract. Consider the contract, and its justifiable expectations, then consider the policy, and whether refusal to enforce K would further the policy. Some policies that you don’t want to rule against are impairment of family relations and interference with protected interests – like involuntary servitude.
·    Don’t enforce a K made with incompetent, or one made under duress or undue influence.

Hawkins v. McGee – Operation to fix Hawkins’ hand. Special contract made when guarantee was pronounced. Nonsuit on negligence because it was an experimental surgery, but after unsuccessful surgery, Dr. must pay for the difference between a good hand and the current hand, plus incidental damages – just like when a machine guaranteed to work ends up being faulty; expectation interest. Unlike Shaheen, there are definitely damages here. McGee’s insurance didn’t have to pay either because of special K.

Nurse v. Barns – special damages can be awarded, greater than the amount of the contract.

·    Assumpsit – cause of action.
·    Remittur – Usually from an Appeal Ct., says, “take $500 or have another trial.”
·    Res Tantum Valet Quantum Vendi Potest – its only worth what someone will pay for it. This is a subjective measure, whereas the Fair Market Value is fungible and objective.
·    Essential Reliance – What was required to spend to perform the K. Subtract them out of Expectation.
·    When incidental damages are foreseeable, add them to Expectation.

1.      incidental UCC 2-715 (occur after breach in reasonable attempt to avoid                                                             further loss (ie cover, storage cost, employee overtime)
2.      cover: good faith effort to find reasonable substitute goods                                                                                    without unreasonable delay 2-712
3.      consequential – damages resulting from the seller’s breach that the seller had reason to know
of at the time of contracting, and that could not reasonably be prevented by cover.

178 – Unenforceable on Public Policy Grounds [60]
Damages for Breach of Contract

Sullivan v. O’Connor – Nose surgery on actress, it uglifies her. Three surgeries instead of two. She gets pain and suffering for the third operation because there was only supposed to be two operations. Its between expectation damages and reliance damages. The breach caused more damage than would have been caused had the K not been breached (i.e. only two surgeries had been performed), and that’s why she gets pain for the third surgery.

UCC 2-713 – Market price minus Contract Price is what the BUYER gets when the SELLER breaches – remember, if the market drops, the seller won’t breach. And even if he does, he has no cause of action to bring suit, so the non-breaching buyer can’t be hurt by this rule. Tongish v. Thomas
This rule encourages a more efficient market. If buyer that has been breached against does not pursue cover, he gets the market price at the time of the breach minus the contract price, which is a windfall, but it encourages sellers to honor contracts.

1. Forseeability of Damages
a. Characteristics
1. Measured at time of formation, as losses that occur in the normal course of events.
2. Objective test: what is reasonably foreseeable at formation, or if they’re special
circumstances, did the breacher have reason to know about them?
3. BUT K obligations freely assumed, not imposed, can expand or limit. (ex. FedEx contract)

b. When parties are silent, unforeseeable consequential damages are not recoverable.  Obj test.
Hadley v. Baxendale: P shut down mill waiting for part to be delivered.  Delivery took longer and P           sued for breach seeking lost profits (consequential damages) for mill being shut down. Holds for D
Reasoning:  (1) Result wasn’t foreseeable at K formation [objective test], (2) P should have protected   against, xtra (3) If loss is foreseeable, party in breach is presumed to have assumed the risk of loss

c. When parties are silent, tacit agreement may be sufficient (Arkansas only): Morrow:  P sued D for breach of K; safety deposit boxes. Facts must be enough, at least tacit (subjective) to believe consent to be bound. Value of coins (32K) out of proportion with $75 given in consideration of K to hold boxes. Requires knowledge AND agreement.  No evidence that money paid for boxes also insured coins should something happen and damages not assessed.  Minority rule: could enforce more than what was intended at formation bc could be liability without documentation. Usually, use the foreseeability of harm rule from Hadley.

2. Certainty of Harm
§352 [125]: Damages not recoverable for loss beyond amt that evidence est with reasonable certainty. When expectation damages are too speculative/uncertain, nominal damages awarded. If the party in breach can prove with reasonable certainty any loss that the non breacher was saved from, the breachor can subtract that from the damages.

a. No expectation bc profit uncertain, awards reliance incurred bwtn formation & repudiation
Chicago Coliseum v. Dempsey:  Boxer breaches, P seeks to recover all sorts of expenses, profit. 
Reasoning: expenses prior to K NOT recoverable, no reliance before K signed, expenses after repudiation NOT recoverable bc P’s duty to minimize, expenses after signing K and before breach: necessary in furtherance of performance, NOT those normally incurred (ie salaries).

b

arty might argue that they want the default rules. [160], also very specific, about when a liquidated damages clause applies and when it does not.

1. Contracting Around Default Damages
a. damages can be limited or expanded by use of express clause.  Intended to be used when damages                                 are uncertain, difficult to prove.
b. where clause acts as penalty, NOT enforced. (unreasonable)
c. Kemble v. Farren.  Facts: P (theater) sues D (actor) for breach after D broke agreement to perform                     for four seasons.  Clause NOT enforced bc wasn’t appropriate bc even minor violations were                            subject to pay sum of $1000, making more like penalty.


2. Specific Performance and Injunctions (“Equity”)
Equity:  Fairness, justice, flexible.  ONLY when legal remedy inadequate (unique/irreplaceable).
Land: Specific performance presumptive form of relief.  Land unique and $$ damages might leave the D
unjustly enriched (if seller breaches bc price of land increased and would get more by breaching).

A. Contracts for Land

Loveless v. Diehl – don’t understand the case, but specific performance was awarded.

B.   Contracts for Goods

Goods, Replevin [right to repossess chattels, requires exclusive rights to goods] a. RULE: Breach of goods is $$$ unless P proves goods are unique or ‘other proper circumstances’                            (cant cover), in which case equity can be granted. UCC 2-716   Chancery Cts = Equity Cts

Cumbest v. Harris – stereo system was either 1) unique, 2) sentimental, 3) impossible to replace in a timely matter, OR 4) there was no adequate remedy at law (i.e money isn’t good enough), so specific performance was awarded.

c. Buyer has right to replevin if reasonably unable to cover 2-716  [211] Scholl v. Hartzell: P and D contracted for car purchase.  P paid initial deposit, D repudiated.  P sues for possession
of car.  Holding: no specific performance but remanded so P can amend, attempt to demonstrate inability to cover (then legal remedy inadequate and performance needed)
d. ‘other proper circumstances’ = obstacles to cover too high
Sedmark v. Charlie’s Chevrolet –  P contracted with D to purchase corvette with specific                modifications.
D breaches and P sues.  D arguing specific performance is improper bc no                                             demonstration that legal remedy is insufficient.  Court grants specific performance, impossible to go               on open market and buy car for K price (car isnt unique BUT obstacles too high to replace)