9

Contracts Outline Alexander Ferrara

General Notes/ Terms:*Liability for breach of contract is understood to be strict; the promisor who fails to keep a promise ordinarily cant defend by showing good motives of the practice of due care. Unlike torts, intent is immaterial when dealing with breach of contract.* To except: to take objection; in contracts, statutes or deeds, a statement that some matter is not included*Writ: written order of a judge req. specific action; complaint*Assumptist: an action for the recovery of damages by reason of the breach or non-performance of a simple contract, either express or implied, and whether made orally or in writing

CaseHawkins v. McGeeSupreme Court of New Hampshire, 1929.84 N.H. 114,146 A. 641.

Facts

sues surgeon for breach of warranty of operation success I guarantee to make a 100% perfect hand.

Procedural History

Trial by jury. Verdict of $3000 for .

Issue(s)Was there a K and a breach? Were damages appropriate?

Holding and Rule

New trail ordered due to erroneous jury instructions (as to damages calculation).Damages are intended compensation for a breach, measured in the terms of the contract.Purpose of damages is to put the in as good a position as he would have been had the contract been kept. (Expectation Damages) Difference b/t value to him of a perfect hand and value of hand in present condition, which includes any ill effect (the ill effect is not a separate element of damages; its included in expectations measure).

AnalysisThere was a K and a breach. Damages measure should have been expectation damages.Warranty was established by docs promise and guarantee to make hand 100% good.Judge found that instruction to jury was erroneousthat if plain. is entitled to damages, he is entitled to recover for pain and suffering he has endured and for injury he sustained over and above the original.Suffering doesnt count in damages because agreed to pain as part of surgery in agreeing to undertake it. Also, issue not damage to hand, but failure to improve hand even if hand was not made worse by the act.Breach of contract doesnt depend on making worse off, but just on not delivering the goods.

Class Notes: For breach of contracthave to prove there is a promise and that the promise was broken. Statement as to hospital stay only a prediction of what will happenaccording to the judge; essence of the agreement was a perfect or good hand, not length of recovery and hospital stay Expectation damages (what you expected to have minus what you got; ie. give him what you promised or what he reasonably expected to have) are for contracts not reliance damages (torts-what you had and what you loss; ie. make him whole and give him what he had) Restitution Prevent unjust enrichment Reliance Get aggrieved party back to starting point Expectation Interest Get aggrieved party to point of as if the breaching party had successfully completed contract

CaseGroves v. John Wunder Co.Supreme Court of Minnesota, 1939

Facts

contracted with to lease land to for removal of gravel using Groves screening plant provided leave premises at an agreed grade.executed his part of contract, but did not hold to agreement regarding grade of landleaving it broken and uneven. Cost to bring land to grade originally agreed upon was $60,000. Value of land at time of contract was $12,160.

Procedural History

got judgment for $15,000. Appealed b/c sum too small. Court based damages on difference between market value of land at time of contract execution and what it would have been had the defendant performed contract (plus interest) not on the cost to repair land thatwould have liked (4x the judgment)

Issue(s)Which kind of expectation damages is correct diminution in value or cost of performance?

Holding and Rule

Judgment reversed and new trial ordered.Remedy must be equal to cost of remedying thedefect as compensation for failure to performed contracted duties.

Where the contractorwillfully and fraudulentlybreaches a construction contract he cannot sue thereon and have the benefit of the equitable doctrine of substantial performance (see key terms)

In determining damages for breach of a construction contract, law aims to give disappointed promisee what he was promised (monetarily)

The law does not require damages to be measured by a method requiringeconomic waste(ie. tearing down a tower and rebuilding it). If no such waste is involved,the cost of remedy is the damages due to failure to render the promised performance(diminution in valuecompare toPinchesandJacob v Young)

AnalysisBreach was willful and small judgment rewards bad faith and deliberate breach

Damages should be based on reasonable cost of performance. Affect of performance on value of land is immaterial.Cost of remedying defect is proper measureespecially when breaching party has been paid in advance.

Notes:-Substantial performance doctrine: if a good faith attempt to perform does not meet terms of agreement, the agreement is still considered complete if the essential purpose of contract is accomplished. Assignment 3 (21-29)

CaseAcme Mills & Elevator Co. v. Johnson141 Ky. 718133 S.W. 784 (1911).

Facts

K for D to deliver 2k bushels of wheat at $1.03 ea. to Pl, who furnished sacks

Procedural History

Pl action to recover damages: $240 + $80 value of sacks

D admits breach of K, but not damages to Pl b/c wheat worth only 97.5 cents/bushel at time, Pl had suspended business and had no $ to pay for wheat (23)

D admits indebtedness for $80 of sacks

Pl alleges D sold wheat early for $1.16/bushel earlier than claimed

Verdict for Pl for $80 for sacks, plus costs (23)

Issue(s)How should damages be measured

Holding and Rule

When D is not damaged by breach K, and no fraud by Pl intended, no estopel can apply.

AnalysisTrial court error in not allowing Pl amended reply to be filed, which said the D was estopped by his conduct from claiming that he threshed later & Pl not damaged

Damages is the difference b/w the contract price and the market price of the property at the time and place of delivery (24) (i.e. a negative number)

No evid. Of Pl. fraudulently delaying threshing (24)

Refuses to apply estoppel (26)i.e. Ds pleading that he didnt thresh until lateEstoppel can only be invoked where a party by his conduct has led another to act to his prejudice. (25)

Equitable estoppel (see above) to prevent a litigant from repudiating a representation that has reasonably induced reliance by the person to whom it was made (25)UCC 2-711: Buyers Remedies in General; Buyers Superior Interest in Rejecting Goods(1) A breach of contract by the seller includes the seller's wrongful failure to deliver or to perform a contractual obligation, making of a nonconforming tender of delivery or performance, and repudiation.(2) If the seller is in breach of contract, the buyer, to the extent provided for by this Act or other law, may:(a) in the case of rightful cancellation, rightful rejection, or justifiable revocation of acceptance, recover so much of the price as has been paid;(b) deduct damages from any part of the price still due under Section 2-717;(c) cancel under Section 2-711(4);(d) cover and have damages under Section 2-712 as to all goods affected whether or not they have been identified to the contract;(e) recover damages for nondelivery or repudiation under Section 2-713;(f) recover damages for breach with regard to accepted goods or breach with regard to a remedial promise under Section 2-714;(g) recover identified goods under Section 2-502;(h) obtain specific performance or obtain the goods by replevin or similar remedy under Section 2-716;(i) recover liquidated damages under Section 2-718;(j) in other cases, recover damages in any manner that is reasonable under the circumstances.(3) On rightful rejection or justifiable revocation of acceptance a buyer has a security interest in goods in the buyer's possession or control for any payments made on their price and any expenses reasonably incurred in their inspection, receipt, transportation, care and custody and may hold such goods and resell them in a like manner as an aggrieved seller (Section 2-706).(4) If the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance, with respect to any goods involved and with respect to the whole if the breach goes to the whole contract (Section 2-612), the buyer may cancel.UCC 2-713: Buyers Remedies for Non-Delivery and Repudiation(1) Subject to Section 2-723, if the seller wrongfully fails to deliver or repudiates or the buyer rightfully rejects or justifiably revokes acceptance:(a) the measure of damages in the case of wrongful failure to deliver by the seller or rightful rejection or justifiable revocation of acceptance by the buyer is the difference between the market price at the time for tender under the contract and the contract price together with any incidental or consequential damages under Section 2-715, but less expenses saved in consequence of the seller's breach; and(b) the measure of damages for repudiation by the seller is the differencebetween the market price at the expiration of a commercially reasonable time after the buyer learned of the repudiation, but no later than the time stated in paragraph (a), and the contract price together with any incidental or consequential damages provided in this Article (Section 2-715), less expenses saved in consequence of the seller's breach.(2) Market price is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival.

On the Contract Expectation Interest RelianceNot on the Contract Restitution

CaseMissouri Furnace Co. v. Cochran8 F. 463 (W.D. Pa. 1881).

Facts

D breached K for delivery of 36k tons of coke at $1.20/ton, after delivery of 3765 tons

Pl makes contract w/Hutchinson for balance of K at $4/ton

Pl sues for difference b/w K price and price paid to Hutchinson for balance of K

Procedural History

Tr ct. rejects above measure: instead recovery measure is diff b/w K price and market price at the several dates of delivery (56)--$22k

Pl appeals

App ct upholds tr ct measure of damages, new trial denied

Issue(s)

Holding and Rule

the price of the article at the time it was to be delivered is the measure of damages (57)

AnalysisPl can strike a bad bargain and force D to pay damages based on it (57)as in present case

UCC 2-712. "Cover"; Buyer's Procurement Of Substitute Goods(1) If the seller wrongfully fails to deliver or repudiates or the buyer rightfully rejects or justifiably revokes acceptance, the buyer may "cover" by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller.(2) A buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages under Section 2-715, but less expenses saved in consequence of the seller's breach.(3) Failure of the buyer to effect cover within this section does not bar thebuyer from any other remedy.

CaseNeri v. Retail Marine Corp.30 N.Y.2d 393334 N.Y.S.2d 165 (N.Y. 1972).

Facts

Neri (P) paid a $4,250 deposit on the purchase of a $12,600 boat from Retail Marine (D). Neri repudiated the sale one week later due to an upcoming operation. Neri requested a refund of his deposit and D refused because the boat had already been delivered from the factory. P sued to recover his deposit and D filed a counterclaim for $4,250 for lost profits and expenses. D sold the boat four months later to a different customer for the same price.

Procedural History

D proved that its expenses and expected profit was $3,250. The trial court entered summary judgment to P minus $500 pursuant to UCC 20718 and D appealed.

Issue(s)Can a volume retail seller of standard priced goods recover lost profits when a buyer defaults on a sales contract, if market damages are inadequate to put the seller in as good a position as he would have been had the contract been performed?

Holding and Rule

Affirmed and modified.

Section 2-718 establishes that the buyers right to restitution is subject to offset to the extent that the seller establishes a right to recover damages under the provisions of this Article other than subsection (1).UCC 2-708(2) provides that if UCC 2-708(1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit, including reasonable overhead, which the seller would have made from full performance plus incidental expenses and damages.In this case the buyers right to restitution and the sellers rights to offsets under UCC 2-718 were established on the motion for summary judgment. The measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as full performance. Under 2-708 (2) the seller is entitled to its profit including reasonable overhead along with incidental damages, due allowance for costs reasonably incurred and due credit for payments or proceeds of resale. Due credit for payments or proceeds of resale is inapplicable to this retail sales contract as this provision pertains to the privilege of the seller to realize the junk value of the items if it was manifestly useless to complete the operation of manufacture. P is therefore entitled to restitution in the sum of $4,250 less $3,250 for lost profits and incidental expenses.

AnalysisA volume retail seller of standard priced goods may recover lost profits when a buyer defaults on a purchase if market damages are inadequate to put the seller in as good a position as he would have been had the contract been performed.

CaseIllinois Central R.R. Co. v. CrailSupreme Court of the United States281 U.S. 57, 50S.Ct.180

Facts

P purchased a carload of coal weighing in a 88,700 lbs @ $5.50 per ton.

Upon delivery the shipment was 5,500 lbs short

D did not purposefully short the P

Market Price $13 per ton including $3.30 freight

Procedural History

Plaintiff awarded expense and profit, included in the retail price to consumers

Issue(s)The measure of damage for nondelivery of a shipment of merchandise and its replacement

Holding and Rule

Reversed

AnalysisThe value of the performance of the contract, that is, what the plaintiff would have made had the contract been performed.

The plaintiff is entitled to be made whole and no more.

The measure of the plaintiff's damages can be only in the amount of the reasonably cost of completing the contract and repairing the defendant's defective performance less such part of the contract price has not been paid

Alternative Interests: Reliance and Restitution

Hypothetical:Plans drawn for a house by an architect. Estimated that the house will cost $500K to build. 3 builders bid on the project, each incurring $6k in costs (150 hours of work) to generate the bid. Builder 1 wins the contract with a cost of completion of $510K. Builder spends $30K in the building process and then the owner repudiates.

Hypothetical 2: Change cost of completion to $520K

CaseChicago Coliseum Club v. DempseyAppellate Court of Illinois, First District (1932)

Facts

On March 6th Plaintiff entered into an agreement with Harry Wills to fight Jack Dempsey, contract not contingent on Dempsey fighting. On March 8th, Plaintiff entered an agreement with Weisberg to promote the exhibition between Mills and Dempsey, expense reimbursement and a fee for services to be drawn from ticket sales. On March 13th, Plaintiff entered into an agreement with Dempsey for Dempsey to fight Wills for the championship of the world. Dempsey received $10, a schedule was set up to pay additional funds, Dempsey was to have his life and health insured in favor of the plaintiff, and Dempsey was barred (per the contract) from entering other matches between the execution of the contract and the fight against Wills in September. Except for the $10, no other money was paid to Dempsey. On July 10, plaintiff wired Dempsey to inform him that representatives of the insurance companies would be contacting him. On the same day, Dempsey repudiated via telegram and informed plaintiff of a match against Tunney.ArgumentsPlaintiff: Claims damages from breach1. Loss of profits derived from the holding of the contracted event2. Expenses incurred by plaintiff prior to signing the contract3. Expenses incurred in attempting to restrain Dempsey and force him to comply4. Expenses incurred after the signing of the agreement and before the breach of July 10.

Procedural History

Plaintiff filed complaint in Marion County, Indiana. Court ordered Dempsey not to fight Tunney, but was ineffective due to jurisdiction.

Issue(s)Applicable Rules of LawWhen expectation damages are improper or insufficient, restitution and reliance may be used in certain cases.

Holding and Rule

Plaintiff may be entitled to reliance damages. Circuit court judgment reversed and remanded for new trial.

AnalysisPlaintiff could not reasonable predict profit from the event because there are too many variables, so no damages can be awarded based on lost profits. It is the general rule that a promisee can only recover damages that flow naturally from a contract, so Plaintiff cannot recover from events prior to signing the agreement.

The fees the Plaintiff incurred from another proceeding in a different jurisdiction is answerable to that court, not this one. Furthermore, the plaintiff taking steps to force compliance after being informed of the repudiation, did so at its own risk.

Items that are recoverable must have occurred between the signing of the agreement and the breach, and be specific to actions necessary to performance. Such include $10 paid upon signing of contract, deposit on soldiers field, insurance travel, design costs, and secretaries not on salary.

Remember:***Expectation damages= loss profits + expenses incurred---costs plus profits***Reliance damages= expenses incurred (put you back in status quo) ---costsRestatments 250 and 253: Anticipatory Repudiation

250. When A Statement Or An Act Is A Repudiation

A repudiation is:(a) a statement by the obligor to the obligee indicating that the obligor will commit a breach that would of itself give the obligee a claim for damages for total breach under 243, or(b) a voluntary affirmative act which renders the obligor unable or apparently unable to perform without such a breach.

253. Effect Of A Repudiation As A Breach And On Other Party's Duties

(1) Where an obligor repudiates a duty before he has committed a breach by non-performance and before he has received all of the agreed exchange for it, his repudiation alone gives rise to a claim for damages for total breach.(2) Where performances are to be exchanged under an exchange of promises, one party's repudiation of a duty to render performance discharges the other party's remaining duties to render performance.Anticipatory Repudiation- Court used to say that if A says he wont do contract when performance isnt due until much later, you cant sue him for damages due to breach or to get an injunction b/c he hasnt breached yet. (ie. Dempsey casegot injunction prior to actual breach after Dempsey told them to f--- off).-Why did the court abandon this rule for anticipatory repudiation? See Restatements 250 and 253-Old rule didnt allow for more complete mitigation (reduce losses)actually harder on the promisor cuz he has to pay more.-Damages based on mkt price at contract timeAssignment 7 (55-66)

Notes:Compensation Principle does not punish those who break their promises it gives those who make promises a choice to perform or pay a compensatory sum must view the law through the eyes of the bad manOverreliance - when P recovers more reliance than he/ she should

CaseRockingham County v Luten Bridge (bridge in middle of forest)US Court of Appeals 4th Circuit, 1929

Facts

, Luten was hired to build bridge under K w/County, the . notified that it would have to breach the K due to political issues (anticipatory repudiation) had spent $1900 on construction at this point. did not stop; now suing for $18,300 cost of building bridge.

Procedural History

Issue(s)What is correct damage reward when is put on notice of s anticipated breach before fully performs?

Holding and Rule

Correct damage estimation: Expenses incurred to perform K plus anticipated profit. Had not performed at all, it would be contract price minus cost to perform = profits.

AnalysisP had duty to mitigate upon knowledge that would not be able to perform. Punishing b/c now we have much more waste a bridge nobody uses or wants.

CaseL. Albert & Sons v. Armstrong Rubber Co.United States Court of Appeals, Second Circuit, 1949

Facts

Albert Company (plaintiff) contracted to sell four refiners to the plaintiff (Armstrong Rubber). They were late, thereby breaching, and the buyer sued. They counterclaimed that the delay was not excessive. Buyer had installed a $3K foundation for the refiners, bought "rubber scrap" to be refined, and invested in a "reclaim department" to run the refiners.

Procedural History

Trial court dismissed both suits, but gave seller some damages for a part that got delivered and used (a motor). It denied interest on this value, though

Issue(s)Was the seller's delivery too late? Yes.

Is the seller entitled to interest upon the motor?

Holding and Rule

Yes, the interest is appropriate.

AnalysisWhen the value can be ascertained with "reasonable certainty as of a definite time," interest is appropriate. Also, a promisee may recover his outlay in preparation for performance, minus whatever amount the promisor can show that the promisee would have lost had the contract been performed.

The counterclaim for reliance damages seems specious, except for the foundation. They never really did much with the department, and they quickly sold off the scrap. Making a contract doesn't make you an insurer of the other party's venture.

The only difference with recovering the foundation costs is between recovering monies paid to the promisor (accepted) and paid to other people in expectation of promisor's performance (not normally done).

But we're not mandated to decide otherwise, and this seems just. Seller owes for the foundation, buyer owes for the motor plus interest

CaseHadley v. Baxendale

Facts

A shaft in Hadleys (P) mill broke rendering the mill inoperable. Hadley hired Baxendale (D) to transport the broken mill shaft to an engineer in Greenwich so that he could make a duplicate. Hadley told Baxendale that the shaft must be sent immediately and Baxendale promised to deliver it the next day. Baxendale did not know that the mill would be inoperable until the new shaft arrived.Baxendale was negligent and did not transport the shaft as promised, causing the mill to remain shut down for an additional five days. Hadley had paid 2 pounds four shillings to ship the shaft and sued for 300 pounds in damages due to lost profits and wages.

Procedural History

The jury awarded Hadley 25 pounds beyond the amount already paid to the court and Baxendale appealed.

Issue(s)What is the amount of damages to which an injured party is entitled for breach of contract?

Holding and Rule

The court held that the usual rule was that the claimant is entitled to the amount he or she would have received if the breaching party had performed; i.e. the plaintiff is placed in the same position she would have been in had the breaching party performed.

The court held that in this case however the rule should be that the damages were those fairly and reasonably considered to have arisen naturally from the breach itself, or such as may be reasonably supposed to have been in the contemplation of both parties at the time the contract was made.

The court held that if there were special circumstances under which the contract had been made, and these circumstances were known to both parties at the time they made the contract, then any breach of the contract would result in damages that would naturally flow from those special circumstances.

AnalysisAn injured party may recover those damages reasonably considered to arise naturally from a breach of contract, or those damages within the reasonable contemplation of the parties at the time of contracting.

Vacated and remanded for a new trial

CaseValentine v. General American Credit, Inc.Supreme Court of Michigan, 1984.420 Mich. 256, 362 N.W.2d 628.

Facts

Valentine alleged that her employment contract was broken. She sued for mental distress due to loss of job security.

Procedural History

Her mental distress claims were dismissed at trial, and the decision was upheld on appeal. She appealed to the Supreme Court of Michigan.

Issue(s)Can an employee who loses their job sue for mental distress?

Holding and Rule

Mental distress damages for breach of contract are not recoverable except when the contract has a personal element or when the damage suffered due to breach cannot be compensated within the terms of the contract.

The judgment of the lower courts was affirmed, and the plaintiff received no mental distress damages or exemplary damages

AnalysisThe court argues that breaches of contract always cause annoyance, but the law does not allow a plaintiff to recover for such annoyance. The court says there are many cases where the law does not allow a full recovery. The rule of foreseeability from Hadley is not properly applied to this case.

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