SECTION 2: FULFILLING CONTRACT OBLIGATIONS
23: Supplemental Terms
24: Parol Evidence Rule
25: Implied & Express Conditions
26: Substantial Performance & Material Breach
27: Repudiation & Assurance of Future Performance
28: Excuse; Impracticability & Frustration of Purpose
SECTION 3: ENFORCING CONTRACT OBLIGATION
29: Introduction to Damages
30: Difficult Damages Issues; Cost to Compete v. Diminished Value, Lost Profits
31: Limits on Consequential Damages - Foreseeability & Certainty
32: Limits on Consequential Damages - Mitigation
33: Limits on Consequential Damages - Emotional Distress
34: Reliance & Restitution Damages
35: Liquidated and Punitive Damages
36: Equitable Remedies
37: Assignment & Delegation
39: Review
SECTION 2: FULFILLING CONTRACT OBLIGATIONS
23: Supplemental Terms
Supplemental Terms: §§ 205, 221-223. UCC 1-201(b)(20), 1-303, 1-304
- RS § 205: Duty of Good Faith and Fair Dealing
- Every contract imposes upon each party a duty of good faith and fair dealing in
its performance and its enforcement
-
RS § 221: Usage Supplementing Agreement
- "An agreement is supplemented or qualified by a reasonable usage with respect
to agreements of the same type if each party knows or has reason to know of the
usage and neither party knows or has reason to know that the other party has an
intention inconsistent with the usage.
-
RS § 222. Usage of Trade
- (1) A usage of trade is a usage having such regularity of observance in a place,
vocation, or trade as to justify an expectation that it will be observed with respect
to a particular agreement. It may include a system of rules regularly observed
even though particular rules are changed from time to time.
- (2) The existence and scope of a usage of trade are to be determined as
questions of fact. If a usage is embodied in a written trade code or similar writing
the interpretation of the writing is to be determined by the court as a question of
law.
- (3) Unless otherwise agreed, a usage of trade in the vocation or trade in which
the parties are engaged or a usage of trade of which they know or have reason
to know gives meaning to or supplements or qualifies their agreement.
-
RS § 223. Course of Dealing
- (1) A course of dealing is a sequence of previous conduct between the parties to
an agreement which is fairly to be regarded as establishing a common basis of
understanding for interpreting their expressions and other conduct.
- (2) Unless otherwise agreed, a course of dealing between the parties gives
meaning to or supplements or qualifies their agreement"
-
UCC: 1-201(b)(20)
- “Good faith” except as otherwise provided in Article 5, means honesty in fact and
the observance of reasonable commercial standards of fair dealing
-
UCC 1-303: Course of Performance, Course of Dealing, Usage of trade
- (a) A “course of performance” is a sequence of conduct between the parties to a
particular transaction that exists if:
-
-
(1) the agreement of the parties with respect to the transaction involves
repeated occasions for performance by a party; and
- (2) the other party, with knowledge of the nature of the performance and
opportunity for objection to it, accepts the performance or acquiesces in it
without objection.
- (b) A “course of dealing” is a sequence of conduct concerning previous
transactions between the parties to a particular transaction that is fairly to be
regarded as establishing a common basis of understanding for interpreting their
expressions and other conduct.
- (c) A “usage of trade” is any practice or method of dealing having such regularity
of observance in a place, vocation, or trade as to justify an expectation that it will
be observed with respect to the transaction in question. The existence and scope
of such a usage must be proved as facts. If it is established that such a usage is
embodied in a trade code or similar record, the interpretation of the record is a
question of law.
- (d) A course of performance or course of dealing between the parties or usage
of trade in the vocation or trade in which they are engaged or of which they are or
should be aware is relevant in ascertaining the meaning of the parties’
agreement, may give particular meaning to specific terms of the agreement, and
may supplement or qualify the terms of the agreement. A usage of trade
applicable in the place in which part of the performance under the agreement is
to occur may be so utilized as to that part of the performance.
- (e) Except as otherwise provided in subsection (f), the express terms of an
agreement and any applicable course of performance, course of dealing, or
usage of trade must be construed whenever reasonable as consistent with each
other. If such a construction is unreasonable:
- (1) express terms prevail over course of performance, course of dealing,
and usage of trade;
- (2) course of performance prevails over course of dealing and usage of
trade; and
- (3) course of dealing prevails over usage of trade.
- (f) Subject to Section 2–209, a course of performance is relevant to show a
waiver or modification of any term inconsistent with the course of performance.
- (g) Evidence of a relevant usage of trade offered by one party is not admissible
unless that party has given the other party notice that the court finds sufficient to
prevent unfair surprise to the other party.
Comments:
- Course of dealing:
- Restricted to a sequence of conduct between the parties previous to the
agreement
- After or under the agreement
- Course of performance
- Course of dealing
- Can be provisionally explicit, or by tacit recognition
-
-
-
-
Usage of Trade:
- What is to be fairly expected to be meant to parties involved in a
particular commercial transaction given locality or in a given vocation or
trade
A Usage of Trade must:
- Have “regularity of observance” specified
- Not required to be universal, can be for new usages and for usages
currently observed by the great majority of decent dealers, even though
there is some disagreement
Unconscionability:
- Applies to implicit clauses that rest on usage of trade and carry forward
the policy underlying the requirement that a custom or usage be
reasonable
UCC 1-304: Obligation of good faith
- Every contract or duty within the UCC imposes an obligation of good faith in its
performance or enforcement
- Basic principle running throughout UCC
24: Parol Evidence Rule
Parole Evidence Rule:
- Generally, extrinsic evidence may not be used to supplement or modify a written
contract
- Rationale: the parties to an agreement will include all of their terms in a written contract,
so any terms that are not written in the written contract were not intended to be part of
the final agreement
Exceptions to PER:
- 1st: Extrinsic evidence may be used to establish whether a written contract is an
integrated agreement, as well as whether an integrated agreement is completely or
partially integrated
- 2nd: Extrinsic evidence may be used to clarify the meaning of an ambiguous term
- 3rd: Extrinsic evidence may be used to support a defense to enforceability, such as
illegality
- 4th: Extrinsic evidence may be used to determine whether a remedy should be granted
or denied to one of the parties
RS: 209: Integrated Agreement
- (1) An integrated agreement is a writing or writings constituting a final expression of one
or more terms of an agreement.
-
-
(2) Whether there is an integrated agreement is to be determined by the court as a
question preliminary to determination of a question of interpretation or to application of
the parol evidence rule.
(3) Where the parties reduce an agreement to a writing which in view of its
completeness and specificity reasonably appears to be a complete agreement, it is
taken to be an integrated agreement unless it is established by other evidence that the
writing did not constitute a final expression.
RS 210. Completely and Partially Integrated Agreements
- (1) A completely integrated agreement is an integrated agreement adopted by the
parties as a complete and exclusive statement of the terms of the agreement.
- (2) A partially integrated agreement is an integrated agreement other than a completely
integrated agreement.
- (3) Whether an agreement is completely or partially integrated is to be determined by
the court as a question preliminary to determination of a question of interpretation or to
application of the parol evidence rule.
- Comments:
RS 213: Parole Evidence Rule
- (1) A binding integrated agreement discharges prior agreements to the extent that it is
inconsistent with them.
- (2) A binding completely integrated agreement discharges prior agreements to the
extent that they are within its scope.
- (3) An integrated agreement that is not binding or that is voidable and avoided does not
discharge a prior agreement. But an integrated agreement, even though not binding,
may be effective to render inoperative a term which would have been part of the
agreement if it had not been integrated.
RS 214. Evidence of Prior or Contemporaneous Agreements and Negotiations
Agreements and negotiations prior to or contemporaneous with the adoption of a writing are
admissible in evidence to establish
- (a) that the writing is or is not an integrated agreement;
- (b) that the integrated agreement, if any, is completely or partially integrated;
- (c) the meaning of the writing, whether or not integrated;
- (d) illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause;
- (e) ground for granting or denying rescission, reformation, specific performance, or
other remedy.
RS 215. Contradiction of Integrated Terms
- Except as stated in the preceding Section, where there is a binding agreement, either
completely or partially integrated, evidence of prior or contemporaneous agreements or
negotiations is not admissible in evidence to contradict a term of the writing.
RS 216. Consistent Additional Terms
- (1) Evidence of a consistent additional term is admissible to supplement an integrated
agreement unless the court finds that the agreement was completely integrated.
- (2) An agreement is not completely integrated if the writing omits a consistent additional
agreed term which is
- (a) agreed to for separate consideration, or
- (b) such a term as in the circumstances might naturally be omitted from the
writing.
RS 217. Integrated Agreement Subject to Oral Requirement of a Condition
- Where the parties to a written agreement agree orally that performance of the
agreement is subject to the occurrence of a stated condition, the agreement is not
integrated with respect to the oral condition.
§ 218. Untrue Recitals; Evidence of Consideration
- (1) A recital of a fact in an integrated agreement may be shown to be untrue.
- (2) Evidence is admissible to prove whether or not there is consideration for a promise,
even though the parties have reduced their agreement to a writing which appears to be a
completely integrated agreement.
25: Implied & Express Contracts
Implied and Express Conditions: §§ 224-229
-
RS § 224: Condition Define:
- A condition is an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a contract becomes due
Comments (come back to this)
- Condition: used to denote an event which qualifies a duty under a contract
RS § 225: Effect of the Non-Occurrence of a Condition
- (1) Performance of a duty subject to a condition cannot become due unless the
condition occurs or its non-occurrence is excused.
- (2) Unless it has been excused, the non-occurrence of a condition discharges
the duty when the condition can no longer occur.
- (3) Non-occurrence of a condition is not a breach by a party unless he is under a
duty that the condition occur.
-
RS § 226. How an Event May Be Made a Condition
-
-
-
-
-
-
An event may be made a condition either by the agreement of the parties or by a
term supplied by the court.
RS § 227. Standards of Preference With Regard to Conditions
(1) In resolving doubts as to whether an event is made a condition of an obligor’s duty,
and as to the nature of such an event, an interpretation is preferred that will reduce the
obligee’s risk of forfeiture, unless the event is within the obligee’s control or the
circumstances indicate that he has assumed the risk.
(2) Unless the contract is of a type under which only one party generally undertakes
duties, when it is doubtful whether
- (a) a duty is imposed on an obligee that an event occur, or
- (b) the event is made a condition of the obligor’s duty, or
- (c) the event is made a condition of the obligor’s duty and a duty is imposed on
the obligee that the event occur, the first interpretation is preferred if the event is
within the obligee’s control.
(3) In case of doubt, an interpretation under which an event is a condition of an obligor’s
duty is preferred over an interpretation under which the non-occurrence of the event is a
ground for discharge of that duty after it has become a duty to perform.
-
RS § 228: satisfaction of the Obligor as a condition
- When it is a condition of an obligor’s duty that he be satisfied with respect to the
obligee’s performance or with respect to something else, and it is practicable to
determine whether a reasonable person in the position of the obligor would be
satisfied, an interpretation is preferred under which the condition occurs if such a
reasonable person in the position of the obligor would be satisfied.
-
RS § 229. Excuse of a Condition to Avoid Forfeiture
- To the extent that the non-occurrence of a condition would cause
disproportionate forfeiture, a court may excuse the non-occurrence of that
condition unless its occurrence was a material part of the agreed exchange.
Contracts all focus principally on promises. A promise may be
- To do or not to do a specific act (a covenant)
- A promise of fact (a warranty)
Many agreements also contain other types of terms, such as representations, declarations, and
conditions. This assignment focuses on conditions.
Effect of
performance on
other’s duty
Pure Condition
Whether
nonperformance is
a breach
Effect of
nonperformance on
other’s duty
(consisting of a
party’s conduct)
Mutual Independent
Covenants
Simultaneous
Dependent
Covenants
Sequential
Dependent
Covenants
Jacob & Youngs v. Kent
Rule
If a party substantially performs its obligations under a contract,
● that party will not be forced to bear the replacement cost needed to fully comply with the
agreement
● but instead will owe the non-breaching party the difference in value between full
performance and the performance received
Dove v. Rose Acre Farms, Inc.
Rule
If a contract contains an express condition,
● nonperformance of the condition by one party relieves the other party of his own
contractual obligations.
26: Substantial Performance & Material Breach
Material Breach
- All breaches deprive the nonbreaching party of something of value. In most
circumstances, the nonbreaching party can request that value in damages from the
breaching party. A material breach, however, represents a much more significant
problem with performance.
- A material breach occurs when the breaching party has failed to perform in such a
significant way that the nonbreaching party is deprived of the core value of the
contract as a whole. If a breach is material, the nonbreaching party’s performance
is excused.
RS 237: Effect on Other Party’s Duties of a Failure to Render Performance
-
-
-
-
Except as stated in RS 240, it is a condition of each party’s remaining duties to render
performances to be exchanged under an exchange of promises that there be no uncured
material failure by the other party to render any such performance due at an earlier time
Comments: Effect of non-occurrence of condition:
- A material failure of performance, including defective performance and absence
of performance, operates as the non-occurrence of a condition
- Under RS 225, non-occurrence of condition has two effects on the duty subject to
that condition:
- 1) preventing performance from becoming due (at least temporarily)
- 2) discharging the duty when the condition can no longer occur
- Motivated by a sense of fairness, “constructive conditions of exchange” or failure
of consideration (according to courts and statutes)
- Example: 1. A contracts to build a house for B for $50,000, progress payments to
be made monthly in an amount equal to 85% of the price of the work performed
during the preceding month, the balance to be paid on the architect’s certificate
of satisfactory completion of the house. Without justification B fails to make a
$5,000 progress payment. A thereupon stops work on the house and a week
goes by. A’s failure to continue the work is not a breach and B has no claim
against A. B’s failure to make the progress payment is an uncured material
failure of performance which operates as the non-occurrence of a condition of A’s
remaining duties of performance under the exchange. If B offers to make the
delayed payment and in all the circumstances it is not too late to cure the
material breach, A’s duties to continue the work are not discharged. A has a
claim against B for damages for partial breach because of the delay.
First Material failure of performance
- The central problem is in determining which party is chargeable with the first
uncured material failure of performance
- Examples:
- 6. A contracts to sell and B to buy on 30 days credit 3,000 tons of iron rails at a
stated price. B purchases iron rails heavily from various sources for use in his
business, and in consequences A has difficulty in securing 3,000 tons and the
market price is substantially increased. A fails to deliver the rails. B has a claim
against A for breach of contract. B’s purchase of iron rails from other sources for
use in his business is not a failure of performance because B is under no duty to
refrain from purchasing for that purpose. A’s failure to deliver the rails is therefore
a breach.
- 7. The facts being otherwise as stated in Illustration 6, B maliciously buys iron
rails heavily from various sources in order to prevent A from performing his
contract with B. B has no claim against A. B’s malicious purchase of iron rails
from other sources is material breach of his duty of good faith and fair dealing (§
204), which operates as the non-occurrence of a condition of A’s duty to deliver
the rails, discharging it.
Ignorance Immaterial
The non-occurrence of a condition of a party’s duty has the effects stated in §
225 even though that party does not know of its non-occurrence. See Comment
e to § 225.
- It follows that one party’s material failure of performance has the effect of the
non-occurrence of a condition of the other party’s remaining duties, under the
rule stated in this Section, even though that other party does not know of the
failure.
- If the other party is discharged as the result of an unjustified material failure of
which he is ignorant, he has a claim for damages for total breach (§ 245). But
any loss that he has suffered as a result of his own actions taken in ignorance of
the breach cannot be recovered since his actions were not caused by the other’s
breach
Examples
- 9. A contracts to sell and B to buy goods on 30 days credit. A delivers defective
goods, which B rejects in ignorance of their defects. A has no claim against B. B
has a claim against A for total breach (§ 243), but can recover nominal damages
only since the unavailability of the goods to B was caused by B’s rejection and
not by their defects.
- 10. The facts being otherwise as stated in Illustration 9, when B rejects the
goods he states an insufficient reason, which induces a failure by A to cure the
defects in the goods. B is precluded from relying on the defects to justify his
rejection, not because of his ignorance itself, but because his giving of an
insufficient reason for rejection excused the non-occurrence of the condition of
his duty to take and pay for the goods (§ 248; Uniform Commercial Code § 2–
605).
-
-
RS 238: Effect on Other Party’s Duties of a Failure to Offer Performance
- Where all or part of the performances to be exchanged under an exchange of promises
are due simultaneously, it is a condition of each party’s duties to render such
performance that the other party either render or, with manifested present ability to do
so, offer performance of his part of the simultaneous exchange.
- Where the performances are to be exchanged simultaneously under an exchange of
promises, each party is entitled to refuse to proceed with that simultaneous exchange
until he is reasonably assured that the other party will perform at the same time.
- If a party actually performs, his performance both discharges his own duty (§ 235(1))
and amounts to the occurrence of a condition of the other party’s duty (§ 237). But it is
not necessary that he actually perform in order to produce this latter effect. It is enough
that he make an appropriate offer to perform, since it is a condition of each party’s duties
of performance with respect to the exchange that there be no uncured material failure by
the other party at least to offer performance
RS 240: Part Performances as Agreed Equivalents
- If the performances to be exchanged under an exchange of promises can be
apportioned into corresponding pairs of part performances so that the parts of each pair
are properly regarded as agreed equivalents, a party’s performance of his part of such a
pair has the same effect on the other’s duties to render performance of the agreed
equivalent as it would have if only that pair of performances had been promised.
-
-
-
-
-
RS 241: Circumstances Significant in Determining Whether a Failure is Material
In determining whether a failure to render or to offer performance is material, the
following circumstances are significant:
- (a) the extent to which the injured party will be deprived of the benefit which he
reasonably expected;
Material Breach
- (b) the extent to which the injured party can be adequately compensated for the
part of that benefit of which he will be deprived;
- More likely substantial
(c) the extent to which the party failing to perform or to offer to perform will suffer
forfeiture;
- The more likely forfeiture, less likely a material breach
(d) the likelihood that the party failing to perform or to offer to perform will cure his
failure, taking account of all the circumstances including any reasonable assurances;
- More likely cure = less material
(e) the extent to which the behavior of the party failing to perform or to offer to perform
comports with standards of good faith and fair dealing.
More likely good faith = less likely material
Comments:
- Standard of materiality that is imprecise and flexible
- Materiality applies to all contracts, and without regard to whether the whole performance
of either party is to be rendered at one time or past performances are to be rendered at
different times
- Gives examples, not rules
- Even if a breach is not material, the failure may be a breach and give rise to a
claim for damages for partial breach (236, 243)
- First circumstance for claim:
- Important factor in determining whether a failure is material is to the extent to which the
injured party will be will be prejudiced by the failure to perform
- it has long been established that, in the absence of a showing of a contrary intention, a
buyer is entitled to expect strict performance of the contract, and Uniform Commercial
Code § 2–601 carries forward this expectation by allowing the buyer to reject “if the
goods or the tender of delivery fail in any respect to conform to the contract.
- The Code, however, compensates to some extent for the severity of this standard by
extending the seller’s right to cure beyond the point when the time for performance has
expired in some instances (§ 2–508(2)), by allowing revocation of acceptance only if a
nonconformity “substantially impairs” the value of the goods to the buyer (§ 2–608(1)),
and by allowing the injured party to treat a nonconformity or default as to one installment
-
under an installment contract as a breach of the whole only if it “substantially impairs”
the value of the whole (§ 2–612(3)).
Second circumstance for claim for compensation of loss
- The extent to which the injured party can be adequately compensated for his loss
of benefit, corollary to first factor
- Construction: elements related to structural soundness generally relevant
- If failure is a breach, always a claim for damages, and the question then
becomes one of the adequacy of that claim to compensate person for the lost
benefit
- Where failure is not a breach, question of adequacy of any claim, such as one of
restitution, to which the injured party may be entitled
RS 242: Circumstances Significant in Determining When Remaining Duties are discharged
- In determining the time after which a party’s uncured material failure to render or to offer
performance discharges the other party’s remaining duties 139to render performance
under the rules stated in §§ 237 and 238, the following circumstances are significant:
- (a) those stated in § 241;
- (b) the extent to which it reasonably appears to the injured party that delay may
prevent or hinder him in making reasonable substitute arrangements;
- (c) the extent to which the agreement provides for performance without delay,
but a material failure to perform or to offer to perform on a stated day does not of
itself discharge the other party’s remaining duties unless the circumstances,
including the language of the agreement, indicate that performance or an offer to
perform by that day is important.
- Cure:
- Under 237/238, a party’s uncured material failure to perform or to offer to perform
not only suspends the other party’s duties, but if it is too late for the performance
or offer to perform to occur, the failure has the effect of discharging those duties
- Usually there is a time between suspension and discharge where a breach can
be cured
- Significant Circumstances:
- The importance of delay to the injured party will depend on the extent to which it
will deprive him of the benefit which he reasonably expected (§ 241(a)) and on
the extent to which he can be adequately compensated (§ 241(b)).
- The extent of the forfeiture by the party failing to perform or to offer to perform (§
241(c)) is also significant in determining the importance of delay.
- The likelihood that the injured party’s withholding of performance will induce the
other party to cure his failure is particularly important (§ 241(d)), because the
very reason for suspending rather than immediately discharging the injured
party’s duties is that this will induce cure.
- The reasonableness of the injured party’s conduct in communicating his
grievances and in seeking satisfaction is a factor to be considered in this
connection. Where performance is to extend over a period of time, as where
delivery of goods is to be in installments, so that a continuing relationship
-
between the parties is contemplated, the injured party may be expected to give
more opportunity for cure than in the case of an isolated exchange. On discharge
by repudiation, see § 253(2). Finally, the nature of the behavior of the party
failing to perform or to offer to perform may be considered here as under the
preceding section (§ 241(e))
Substitute Arrangements
- Even a relatively short delay in a rising market may adversely affect the buyer by
causing a sharp increase in the cost of “cover.”
- Under any contract, the extent to which it reasonably appears to the injured party
that delay may prevent or hinder him from making reasonable substitute
arrangements is a consideration in determining the effect of delay. Cf. § 241(a),
(b). As in the case of § 241 (see Comment c), a party in breach who seeks
specific performance may be granted relief with compensation for the delay, in
circumstances where he would have no claim for damages.
- A contracts to sell and B to buy 1,000 shares of stock traded on a national
securities exchange, delivery and payment to be on February 1. B offers to pay
the price on February 1, but A unjustifiably and without explanation fails to offer
to deliver the stock until February 2. B then refuses to accept the stock or pay the
price. Under the circumstances stated in Subsection (b) and in § 241(a) and (c),
the period of time has passed after which B’s remaining duties to render
performance are discharged because of A’s material breach and A therefore has
no claim against B. B has a claim against A for breach.
The law’s recognition of promissory conditions and dependent covenants solved one problem
but created another.
● It removed the unfairness that can result from requiring a party to fully perform after the
other side has already breached.
● However, it created the potential for unfairness in the opposite direction by excusing a
party from performing merely because the other party made a trivial error in its
performance.
Material Breach
A material breach occurs when one party receives significantly less benefit or a significantly
different result than what was specified in a contract.
Substantial Performance
Under this doctrine, even though the promise portion of a promissory condition requires full
performance, the condition component of a promissory condition requires only substantial
performance.
There are three levels of performance for a promissory condition:
1. Full performance (i.e., no breach)
2. Substantial performance (i.e., minor breach)
3. Material breach
Full Performance ---- Return performance due ---- No action for breach
Substantial performance ---- return performance due ---- action for breach
Material breach ---- return performance excused ---- action for breach
Note that “substantial breach” and “material breach” are the flip sides of the same coin.
● The concept of substantial performance focuses on how much the performing party has
done properly.
● The concept of material breach focuses on what the performing has failed to do.
● To say a party has substantially performed is to say that the party has not materially
breached.
● To say that a party has materially breached necessarily means that the party has not
substantially performed.
Khiterer v. Bell - The line between substantial performance and material breach
Rule
Where a services professional has substantially performed a contract, the patient who proves
breach of that contract must also prove personal or economic harm to recover more than
nominal damages.
Holding/Reasoning
In determining whether performance was substantial under a purportedly equivalent
substitution, the court looks to
1. the purpose of the contract and
2. how the substitution fulfills that purpose,
3. the excuse for deviating from the contract, and
4. the cruelty of the deviation.
The court finds that while Bell breached the contract by putting in the incorrect type of crown,
she substantially performed the contract.
Raymond Weil, S.A. v. Theron - A breaching party’s cure of the breach
Rule
Contracts may contain provisions that permit a party to cure a breach of contract before the
non-breaching party is entitled to sue over the breach
Holding/Reasoning
The primary goal of contract damages should be protecting expectations while avoiding
waste. The concept of cure aligns with this goal.
Additionally, the remedial system is designed to compensate for losses related to the benefit
of the bargain rather than punish breaches of contracts.
Thus, the concept of cure is also consistent with this design.
27: Repudiation & Assurance of Future Performance
Repudiation And Assurance of Future Performance: RS 250, 251, 253, 256. UCC 2-609, 2-610,
2-611
RS 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
- Consequences of Repudiation:
- If it accompanies a breach by non-performance that would otherwise give rise to
only a claim for damages for partial breach, it may give rise to a claim for
damages for total breach instead (§ 243).
- Even if it occurs before any breach by non-performance, it may give rise to a
claim for damages for total breach (§ 253(1)), discharge the other party’s duties
(§ 253(2)), or excuse the non-occurrence of a condition
- Nature of Statement:
- A party’s language must be sufficiently positive to be REASONABLY
INTERPRETED to mean that the party cannot or will not perform
- Mere expression of doubt as to willingness or ability to perform is not enough to
constitute a repudiation, although such an expression may give an obligee
reasonable grounds that the obligor will commit a serious breach and may
ultimately result in a repudiation under RS 251
- Nature of Act:
- Must be VOLUNTARY AND AFFIRMATIVE ACT
- Musty make it ACTUALLY OR APPARENTLY IMPOSSIBLE TO PERFORM
- An act that falls short of these reqs may give reasonable grounds for a person to
believe that the obligor will commit a serious breach for the purposes of RS 251
RS 251: When a Failure to Give Assurance May Be Treated as a Repudiation
- (1) Where reasonable grounds arise to believe that the obligor will commit a breach by
non-performance that would of itself give the obligee a claim for damages for total
breach under § 243, the obligee may demand adequate assurance of due performance
and may, if reasonable, suspend any performance for which he has not already received
the agreed exchange until he receives such assurance.
- (2) The obligee may treat as a repudiation the obligor’s failure to provide within a
reasonable time such assurance of due performance as is adequate in the
circumstances of the particular case.
- Comment:
-
-
-
a. Rationale. Ordinarily an obligee has no right to demand reassurance by the
obligor that the latter will perform when his performance is due. However, a
contract “imposes an obligation on each party that the other’s expectation of
receiving due performance will not be impaired.” Uniform Commercial Code § 2–
609(1).
- When, therefore, an obligee reasonably believes that the obligor will commit a
breach by non-performance that would of itself give him a claim for damages for
total breach (§ 243), he may, under the rule stated in this Section, be entitled to
demand assurance of performance. The rule is a generalization, applicable
without regard to the subject matter of the contract, from that
An obligee who believes, for whatever reason, that the obligor will not or cannot perform
without a breach, is always free to act on that belief. If he is not himself under a duty to
perform before the obligor, he may simply await the obligor’s performance and, if his
belief is confirmed, he will have a claim for damages for breach by non-performance. If
he can prove that his belief would have been confirmed, he is at least shielded from
liability even if he has failed to give a performance that is due before that of the obligor
or has, by making alternative arrangements, done an act that amounts to a repudiation.
For example, under § 254, the obligee’s duty to pay damages for total breach by
repudiation is discharged if the obligor himself would not or could not have performed
when his performance was due. If, however, the obligee’s belief is incorrect, his own
failure to perform or his making of alternate arrangements may subject him to a claim for
damages for total breach.
Reasonable Grounds:
- Determined in the light of ALL the circumstances of the particular case
- Grounds for belief MUST HAVE ARISEN AFTER THE TIME WHEN THE CONTRACT
WAS MADE AND CANNOT BE BASED ON FACTS KNOWN TO THAT PERSON AT
THE TIME OF CONTRACTING
- Cannot be events that were considered as a risk
RS 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 nonperformance 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.
- Breach:
- Repudiation by the obligor generally gives rise to a claim for damages for total
breach even though it is not accompanied or preceded by a breach by nonperformance
- Discharge:
-
-
A breach by repudiation alone can only give rise to a claim for total breach,
although by a breach of non-performance + repudiation, claims for partial breach
or to one for total breach
UCC: 2–609. Right to Adequate Assurance of Performance
- (1) A contract for sale imposes an obligation on each party that the other’s
expectation of receiving due performance will not be impaired. When reasonable
grounds for insecurity arise with respect to the performance of either party the
other may in writing demand adequate assurance of due performance and until
he receives such assurance may if commercially reasonable suspend any
performance for which he has not already received the agreed return.
- (2) Between merchants the reasonableness of grounds for insecurity and the
adequacy of any assurance offered shall be determined according to commercial
standards.
- (3) Acceptance of any improper delivery or payment does not prejudice the
aggrieved party’s right to demand adequate assurance of future performance.
- (4) After receipt of a justified demand failure to provide within a reasonable time
not exceeding thirty days such assurance of due performance as is adequate
under the circumstances of the particular case is a repudiation of the contract.
RS 256: Nullification of Repudiation or Basis for Repudiation
- (1) The effect of a statement as constituting a repudiation under § 250 or the basis for a
repudiation under § 251 is nullified by a retraction of the statement if notification of the
retraction comes to the attention of the injured party before he materially changes his
position in reliance 154on the repudiation or indicates to the other party that he
considers the repudiation to be final.
- (2) The effect of events other than a statement as constituting a repudiation under § 250
or the basis for a repudiation under § 251 is nullified if, to the knowledge of the injured
party, those events have ceased to exist before he materially changes his position in
reliance on the repudiation or indicates to the other party that he considers the
repudiation to be final.
- Effect of Nullification/Repudiation:
- may give rise to a claim for damages for total breach (§ 253(1)(1)),
- discharge duties (§ 253(2)(2)),
- and excuse the non-occurrence of a condition (§ 255)
- Manner of Retraction:
- It is not necessary for the repudiation to use words in order to retract his
statement
- Conduct, such as an offer of performance, may be adequate to convey the idea
of retraction to the injured party
- Time for nullification:
- the aggrieved party has since the repudiation cancelled or materially changed his
position or otherwise indicated that he considers the repudiation final.”
Cancellation of the contract or the commencement of an action claiming
damages for total breach would be sufficient.
-
UCC 2–610. Anticipatory Repudiation
When either party repudiates the contract with respect to a performance not yet due the
loss of which will substantially impair the value of the contract to the other, the aggrieved
party may
- (a) for a commercially reasonable time await performance by the repudiating
party; or
- (b) resort to any remedy for breach (Section 2–703 or Section 2–711), even
though he has notified the repudiating party that he would await the latter’s
performance and has urged retraction; and
- (c) in either case suspend his own performance or proceed in accordance with
the provisions of this Article on the seller’s right to identify goods to the contract
notwithstanding breach or to salvage unfinished goods (Section 2–704).
-
UCC 2-611. Retraction of Anticipatory Repudiation
- (1) Until the repudiating party’s next performance is due he can retract his
repudiation unless the aggrieved party has since the repudiation cancelled or
materially changed his position or otherwise indicated that he considers the
repudiation final.
- (2) Retraction may be by any method which clearly indicates to the aggrieved
party that the repudiating party intends to perform, but must include any
assurance justifiably demanded under the provisions of this Article (Section 2–
609).
- (3) Retraction reinstates the repudiating party’s rights under the contract with
due excuse and allowance to the aggrieved party for any delay occasioned by
the repudiation.
What if, after A and B enter into a contract but before performance is due, A says or does
something to make B think that A will not perform?
● May B bring an action for breach or must B first wait to see if A in fact performs?
● More importantly, must B stand by and be ready to perform B’s own promises or may B
make alternative plans, and thereby potentially mitigate damages?
Meaning
Termination
One party ends a contract,
pursuant to a power created
by agreement or law, other
than for breach.
Effect
No future rights or duties are
created by the contract but
accrued rights survive.
Cancellation
One party ends a contract
due to the other’s breach.
Remedies for breach of the
whole or for any unperformed
promise survive.
Repudiation
One party’s statement or act
indicating it will not render
further performance.
Might be a termination,
cancellation, or breach.
Hochster v. De La Tour
Rule
When one party to an agreement is informed by another party to the agreement that the
second party intends to breach the agreement, the first party has an option
1. to file suit for damages immediately in anticipation of the breach, or
2. to wait until the act was supposed to be done.
McCloskey & Co. v. Minweld Steel Co.
Rule
Renunciation equivalent to a breach of contract does not occur unless
● there is an unequivocal and absolute refusal to perform the contract or
● a distinct and positive statement by the party charged with the renunciation that he is
unable to perform the contract.
Hornell Brewing Co. v. Spry
Rule
A party can demand adequate assurances of due performance if the party has reasonable
grounds to believe the other party will not meet the contractual requirements
28: Excuse: Impracticability & Frustration of Purpose
Excuse: Impracticability & Frustration of Purpose: RS 261-266, 269, 270. UCC 2-613, 2-615
-
-
-
-
-
RS § 261 Discharge by supervening Impracticability
- Where, after a contract is made, a party’s performance is made impracticable
without his fault by the occurrence of an event the non-occurrence of which was
a basic assumption on which the contract was made, his duty to render that
performance is discharged, unless the language or the circumstances indicate
the contrary.
Comments:
Even if there is not qualified language concerning an undertaking, a court may relieve
performance if it has unexpectedly become impracticable as a result of a supervening
event
262:
- Supervening incapacity/death of a person necessary for performance
263:
- Supervening destruction of a specific thing necessary for performance
264
- Supervening prohibition/prevention by law
UCC 2-615
- Broad principle: deliberately refrains from any effort at an exhaustive expression
of contingencies
In order to performance to be discharged:
- A duty under this can be discharged if the non-occurrence of that event must
have been a basic assumption on which both parties made the contract
- used by UCC 2-615
Ex:
- Continued existence of a person (in the case of death)
- Continuation of existing market conditions and of the financial situation of the
parties are ordinarily not such assumptions
- A party may, by appropriate language, agree to perform in spite of
impracticability that would otherwise justify his non-performance under the rule
stated in this section
-
-
- Can also be implied
Impracticability.
- Events that come within the rule stated in this Section are generally due either to
“acts of God” or to acts of third parties.
- If the event that prevents the obligor’s performance is caused by the obligee, it
will ordinarily amount to a breach by the latter and the situation will be governed
by the rules stated in Chapter 10, without regard to this Section.
- See Illustrations 4–7 to § 237. If the event is due to the fault of the obligor
himself, this Section does not apply. As used here “fault” may include not only
“willful” wrongs, but such other types of conduct as that amounting to breach of
contract or to negligence
Rule
Provides an excuse in some circumstance
- Not fault
- An event the non-occurrence was a basic assumption
- Rendered impracticable (262)
-
RS 262. Death or Incapacity of Person Necessary for Performance
- If the existence of a particular person is necessary for the performance of a duty,
his death or such incapacity as makes performance impracticable is an event the
non-occurrence of which was a basic assumption on which the contract was
made.
- Never says that everything is charged, merely talking about the elements
involved in 261
- One element of 261
-
RS § 263. Destruction, Deterioration or Failure to Come Into Existence of Thing
Necessary for Performance
- If the existence of a specific thing is necessary for the performance of a duty, its
failure to come into existence, destruction, or such deterioration as makes
performance impracticable is an event the non-occurrence of which was a basic
assumption on which the contract was made.
-
RS § 264. Prevention by Governmental Regulation or Order
- If the performance of a duty is made impracticable by having to comply with a
domestic or foreign governmental regulation or order, that regulation or order is
an event the non-occurrence of which was a basic assumption on which the
contract was made.
-
RS § 265. Discharge by Supervening Frustration
- Where, after a contract is made, a party’s principal purpose is substantially
frustrated without his fault by the occurrence of an event the non-occurrence of
which was a basic assumption on which the contract was made, his remaining
duties to render performance are discharged, unless the language or the
circumstances indicate the contrary
-
RS § 266. Existing Impracticability or Frustration
- (1) Where, at the time a contract is made, a party’s performance under it is
impracticable without his fault because of a fact of which he has no reason to
know and the non-existence of which is a basic assumption on which the contract
is made, no duty to render that performance arises, unless the language or
circumstances indicate the contrary.
- (2) Where, at the time a contract is made, a party’s principal purpose is
substantially frustrated without his fault by a fact of which he has no reason to
know and the non-existence of which is a basic assumption on which the contract
is made, no duty of that party to render performance arises, unless the language
or circumstances indicate the contrary.
-
RS § 267. Effect on Other Party’s Duties of a Failure Justified by Impracticability or
Frustration
- (1) A party’s failure to render or to offer performance may, except as stated in
Subsection (2), affect the other party’s duties under the rules stated in §§ 237
and 238 even though the failure is justified under the rules stated in this Chapter.
- (2) The rule stated in Subsection (1) does not apply if the other party assumed
the risk that he would have to perform despite such a failure.
-
RS § 268. Effect on Other Party’s Duties of a Prospective Failure Justified by
Impracticability or Frustration
- (1) A party’s prospective failure of performance may, except as stated in
Subsection (2), discharge the other party’s duties or allow him to suspend
performance under the rules stated in §§ 251(1) and 253(2) even though the
failure would be justified under the rules stated in this Chapter.
- (2) The rule stated in Subsection (1) does not apply if the other party assumed
the risk that he would have to perform in spite of such a failure.
-
RS § 269. Temporary Impracticability or Frustration
- Impracticability of performance or frustration of purpose that is only temporary
suspends the obligor’s duty to perform while the impracticability or frustration
exists but does not discharge his duty or prevent it from arising unless his
performance after the cessation of the impracticability or frustration would be
materially more burdensome than had there been no impracticability or
frustration.
-
RS § 270. Partial Impracticability
- Where only part of an obligor’s performance is impracticable, his duty to render
the remaining part is unaffected if
-
-
(a) it is still practicable for him to render performance that is substantial, taking
account of any reasonable substitute performance that he is under a duty to
render; or
(b) the obligee, within a reasonable time, agrees to render any remaining
performance in full and to allow the obligor to retain any performance that has
already been rendered.
UCC 2-613 Casualty to Identified Goods
- Where the contract requires for its performance goods identified when the contract is
made, and the goods suffer casualty without fault of either party before the risk of loss
passes to the buyer, or in a proper case under a “no arrival, no sale” term (Section 2–
324) then
- (a) if the loss is total the contract is avoided; and
- (b) if the loss is partial or the goods have so deteriorated as no longer to
conform to the contract the buyer may nevertheless demand inspection and at
his option either treat the contract as avoided or accept the goods with due
allowance from the contract price for the deterioration or the deficiency in
quantity but without further right against the seller.
UCC 2-615 Excuse by Failure of Presupposed Conditions
- Except so far as a seller may have assumed a greater obligation and subject to the
preceding section on substituted performance:
- (a) Delay in delivery or non-delivery in whole or in part by a seller who complies
with paragraphs (b) and (c) is not a breach of his duty under a contract for sale if
performance as agreed has been made impracticable by the occurrence of a
contingency the non-occurrence of which was a basic assumption on which the
contract was made or by compliance in good faith with any applicable foreign or
domestic governmental regulation or order whether or not it later proves to be
invalid.
- (b) Where the causes mentioned in paragraph (a) affect only a part of the
seller’s capacity to perform, he must allocate production and deliveries among
his customers but may at his option include regular customers not then under
contract as well as his own requirements for further manufacture. He may so
allocate in any manner which is fair and reasonable.
- (c) The seller must notify the buyer seasonably that there will be delay or nondelivery and, when allocation is required under paragraph (b), of the estimated
quota thus made available for the buyer.
Mistake
Standard
Gain/Loss
Mistake as to a
basic assumption
has a material effect
on the agreed-upon
Either
When
At the time the
contract was made
Protects Who
Either party
exchange
Impracticability
Circumstances have
rendered an
obligor’s
performance
impracticable
Loss
After contract was
made
Seller - Buyers
purpose of giving
money cannot be
impracticable
Frustration of
Purpose
Circumstances have
substantially
frustrated an
obligor’s purpose
Loss
After contract was
made
Buyer - Sellers
purpose of receiving
money cannot be
frustrated
Mistake:
Loss: Building burned down without the parties knowledge before a property insurance contract
was made on the building.
Gain:Can also be about a windfall (bought $700k bowl for $35 at yard sale)
Impracticability:
One of us is worse off.
Frustration of Purpose:
Factors relevant to whether relief should be available:
- Language of the agreement
- Usage of trade
- Ability to spread the risk
- Fault
- Foreseeability
Events Meriting Excuse:
● Intervening governmental regulation or request
● Loss of the seller’s franchise or dealership rights
● Loss of an exclusive source or a severe shortage of supply
Events Not Meriting Excuse
● Increased cost or governmental price control
● Economic collapse
● Loss of a non-exclusive source of supply
● Natural disasters, recessions, geopolitical events (such as the closure of the Egypt
canal, not war)
Sometimes, circumstances change after the parties reached their agreement. In other words, as
the time for the parties to perform their respective contract obligations draw nigh, one or both of
them might encounter circumstances that make performance more difficult or more expensive
than anticipated, or even impossible.
If the parties do not agree to a modification, the party that encountered the problem might claim
a legal excuse from performing its contract obligation.
The common law has several doctrines that provide a complete or partial excuse to contract
liability based on post-contracting developments:
1. Impracticality
2. Frustration of purpose
Force Majeur Clause: Excuses the parties if a fire, flood, or war prevents that party from
performing.
It is important to understand the difference between
● the loss associated with an event and
● the contractual duty to perform despite a loss-producing event.
The law is concerned with the latter.
If the law discharges too readily contractual duties to perform because of events that occurred
after the contract was formed, the utility of contract could be significantly undermined.
The doctrines that excuse performance - impracticality for sellers; frustration of purpose for
buyers - must be somewhat narrow in scope.
Speciality Tires of Am. v. The CIT Group/Equipment Financing, Inc.
Holding/Reasoning
In the overwhelming majority of circumstances, contractual promises are to be performed, not
avoided: pacta sunt servanda (a deal’s a deal)
“Parties to contracts are entitled to seek, and retain, personal advantage; striving for that
advantage is the source of much economic progress. Contract law does not require parties to
be fair, or kind, or reasonable, or to share gains or losses equally.
Industrial Representatives, Inc. v. CP Clare Corp
Holding/Reasoning
Promisors are free to assume risks, even huge ones, and promisees are entitled to rely on
those voluntary assumptions. Futures contracts, as just one example, are so aleatory that
risk-bearing is their sole purpose, yet they are fully enforceable.
Supervening events that would provide a legally cognizable excuse for failing to perform:
1. Death of the promisor (if the performance was personal)
2. Illegality of the performance
3. Destruction of the subject matter
4. “Relief is most justified if
a. Unexpected events
i.
inflict a loss on one party and
ii.
provide a windfall gain for the other
b. Or where
i.
the excuse would save one party from an unexpected loss
ii.
while leaving the other party in a position no worse than it would have
without the contract.”
Restatement (Second) of Contracts
Where, after a contract is made,
● a party’s performance is made impracticable
○ without his fault
○ by the occurrence of an event the non-occurrence of which was a basic
assumption on which the contract was made,
● his duty to render that performance is discharged, unless the language or the
circumstances indicate the contrary.
The principal inquiry in an impracticability analysis, then, is whether there was a contingency the
non-occurrence of which was a basic assumption underlying the contract.
Foreseeability
Foreseeability alone is an incomplete and sometimes misleading test. Anyone can foresee, in
some general sense, a whole variety of potential calamities, but that does not mean that he or
she will deem them worth bargaining over.
1. The risk may be too remote,
2. the party may not have sufficient bargaining power, or
3. neither party may have any superior ability to avoid the harm.
Taylor v. Caldwell
Rule
In contracts in which the performance depends on the continued existence of a given person
or thing, a condition is implied that
● the impossibility of performance arising from the perishing or destruction of the person
or thing
● shall excuse the performance.
Holding/Reasoning
Continued Existence is Essential
The continuing existence of the hall at the time the concerts were to be given is essential to
performance of the contract between Taylor and Caldwell, and thus the destruction of the hall
excuses performance by both parties.
Analogy to Personal Service
This is analogous to the rule in personal services contracts which states that “where a
contract depends upon personal skill, and the act of God renders it impossible, as for
instance, in the case of a painter employed to paint a picture who is struck blind, it may be
that the performance might be excused.”
Thus,
● if the contract depends on the personal skill of the person
● and that person is injured or dies,
○ performance of the contract is no longer required.
Krell v. Henry
Rule
When a condition that is not expressly mentioned in a contract can nevertheless be implied
from extrinsic evidence as being understood by both parties to be the subject matter of the
contract,
● the nonoccurrence of the condition may excuse nonperformance of the contract by
both parties.
Holding/Reasoning
Examining a Potential Implied Condition
To examine a potential implied condition, i must be determined whether
1. the condition is actually the subject matter of the contract,
2. whether performance of this subject matter was somehow prevented, and
3. whether the event preventing performance was not reasonably foreseeable by the
parties at the time of contract formation.
SECTION 3: ENFORCING CONTRACT OBLIGATION
29: Introduction to Damages
Introduction to Damages: RS §§ 344, 345, 347, 349
-
RS § 344. Purposes of Remedies
Judicial remedies under the rules stated in this Restatement serve to protect one or
more of the following interests of a promisee:
- a) his “expectation interest,” which is his interest in having the benefit of his
bargain by being put in as good a position as he would have been in had the
contract been performed,
-
-
b) his “reliance interest,” which is his interest in being reimbursed for loss
caused by reliance on the contract by being put in as good a position as he
would have been in had the contract not been made, or
c) his “restitution interest,” which is his interest in having restored to him any
benefit that he has conferred on the other party.
-
RS 345. Judicial Remedies Available
The judicial remedies available for the protection of the interests stated in § 344 include
a judgment or order
- (a) awarding a sum of money due under the contract or as damages,
- (b) requiring specific performance of a contract or enjoining its non-performance,
- (c) requiring restoration of a specific thing to prevent unjust enrichment,
- (d) awarding a sum of money to prevent unjust enrichment,
- (e) declaring the rights of the parties, and
- (f) enforcing an arbitration award
-
RS § 347 Measure of Damages in General
- Subject to limitations of 350-353, the injured party has a right to damages, based
on his expectation interest as measured by
- A) the loss in the value to him of the other party’s performance caused by
its failure or deficiency, plus
- B) any other loss, including incidental or consequential loss, caused by
breach, less
- C) any cost or other loss that he has avoided by not having to perform
Comments:
- Contract damages are ordinarily based on the injured party’s expectation interest
and are intended to give him the benefit of his bargain by awarding him a sum of
money that will, put him in as good a position as he would have been had the
contract been performed
- If sum awarded cannot adequately compensate (ex: delay in performance has
caused a person to miss a valuable opportunity)
Loss in Value:
- Come back to this
-
-
-
RS § 349: Damages Based on Reliance Interest:
- As an alternative measure of damages to that stated in RS 347, the injured party
has a right to damages based on his reliance interest, including:
- Expenditures made in preparation for performance or in performance
- Minus any loss that the party in breach can prove with reasonable
certainty the injured party would have suffered had the contract been
performed
Three classes of remedies of a breach of contract:
1. Legal
2. Contractual
3. Equitable
Expectancy
Put P in the position of full
performance.
Reliance
Restitution
Return the P to the precontract position.
Forward-looking
Makes D disgorge the benefit
received.
Backward-looking
Expectancy
Reliance
Restitution
Fee Paid to Doctor
x
x
Fee Paid to Hospital
x
Pain of First Two
Operations
x
Pain of Third Operation
x
Value of nose before
contract - Value after
operations
Value of nose as promised
- Value after operations
x
x
x
Expectancy Damages, The Norm
Two types:
1. Direct
2. Indirect
a. Incidental Damages
b. Consequential damages
Contractual Remedies
Liquidated Damages: When the parties provide by agreement that one of them will pay the
other in the event of breach, either by specifying an amount or a formula to apply.
Equitable Remedies
An equitable remedy is available only if the aggrieved party:
1. Has no adequate remedy at law; and
2. Would suffer “irreparable harm” if the equitable remedy were not granted
Types:
1. Specific performance
2. Injunction
3. Specific restitution
Cost, Price, Value
Cost: What was used or must be provided to acquire or produce something
Price: An amount, usually expressed in money, at which specified property or services will or
might be bought and sold.
Value: An amount, usually expressed in money, that is a fair equivalent for specified property or
services.
Promissory Estoppel, Promissory Restitution & Unjust Enrichment
Claims based on promissory estoppel
There is no consideration, but there is a reasonable reliance.
Section 90: the promise is “binding”
● This suggests that expectancy damages are appropriate.
○ Because since the promise is binding, the plaintiff will face forward-looking
consequences as a result of the contract. Therefore, expectancy damages would
be appropriate.
However, Section 90 states that “the remedy granted for breach may be limited as justice
requires.” “Full-scale enforcement by normal remedies is appropriate,” but acknowledging that
damages may be limited to a promisee’s reliance.
Claims based on promissory restitution
Section 86 indicates that a promise is binding “to the extent” necessary to prevent injustice.
● This limiting language, which does not appear in section 90, suggests that full
expectancy damages need not be granted.
● Confirmed by comment i: Enforcement is often appropriate only to the extent of the
benefit conferred.
Claims based on unjust enrichment
A contract measure of damages is not called for and courts regularly award restitution damages.
Calculating Expectancy Damages: Farnsworth Formula
Direct Loss + Extra Loss - Cost Avoided - Loss Avoided
Direct Loss: Difference in value between what was promised and what was received (i.e.,
direct loss as discussed above).
Extra Loss: Additional costs and losses caused by the breach and mitigating the breach (i.e.,
incidental and consequential damages).
Cost Avoided: Expenses that the aggrieved party expected to incur but did not because the
other party breached.
Loss Avoided: Losses that the aggrieved party would have suffered but was able to prevent or
avoid because of its own mitigation efforts or other circumstances.
Substitute Transaction
In either such case, the aggrieved party might seek expectancy damages based not on the
difference between the contract price and the market value, but on the difference between the
contract price and the price paid or received in the substitute transaction.
- Difference between the $30k Temp and how much they would have paid the employee.
- The $5k difference between the old and new employee’s contract. Would only be $5k
because the difference is one year.
Direct Damages, “Market Damages”, “General Damages”
Direct Damages compensate for the lost value of the unfulfilled promise.
How to calculate:
They measure the difference between the value of full performance (i.e., the value of what was
promised) and the value of the performance actually received, if any.
Direct damages would compensate for the value of services not performed, property not
conveyed, or payments not made.
Could also compensate for a defective performance - usually by measuring the difference in
value between what was promised and what was provided.
Indirect Damages
Amounts awarded for further injuries resulting from the breach.
Two categories:
1. Incidental Damages
2. Consequential damages
1. Incidental Damages
Extra costs incurred by the aggrieved party in dealing with the breach or mitigating losses from
the breach.
Include, for example, a buyer’s cost of temporarily storing or shipping back to the seller
defective goods, or a seller’s cost of stopping shipment to a repudiating buyer or of advertising
for a substitute buyer.
2. Consequential Damages
Other losses resulting from the breach. Might include items such as:
- An aggrieved sellers’ lost profits, caused by the buyer’s failure to buy
- An aggrieved merchant buyer’s liability to its resale customers, caused by the seller’s
failed to deliver
- An aggrieved consumer buyer’s personal injury, caused by the seller’s delivery of
defective goods
Consequential damages are often the largest component of the damages sought by an injured
party and might bear no relationship to the contract price.
The Law Surrounding The Classification of Damages
Not all damages are recoverable and the rules applicable to the various categories differ.
Direct and incidental damages are generally recoverable. However, the law has several rules
that limit the aggrieved party’s ability to recover consequential damages. The parties' contract
terms might limit recovery of one or more types of damages.
Sackett v. Spindler
Rule
If a party suspends performance under a contract in response to the other party's partial
breach of the contract, the suspension of performance constitutes unlawful repudiation of the
contract.
Handicapped Children’s Educational Board v. Lukaszewski
Rule
Damages for breach of an employment contract include
● the cost of obtaining other services equivalent to that promised but not performed, plus
● any foreseeable consequential damages
30: Difficult Damages Issues - Cost to Complete v. Diminished Value; Lost Profits
Direct expectancy damages:
- Normally measured by the difference between
- the value of what was promised and
- the value of what was provided
- Substitute transaction can be used to measure an aggrieved party’s loss
Peevyhouse v Garland
- Rule: Regardless of any agreement made by the parties, damages awarded for breach
of an agreement to perform remedial work on property should normally measured by the
reasonable cost of performance of the work
- But:
- When the contract provision breached is merely INCIDENTAL to the main
purpose in view and where the economic benefit which would result to the owner
is GROSSLY DISPROPORTIONATE to the cost of performance, damages
should instead be limited to the DIMINUTION IN VALUE to the premises due to
non-performance
- Damages: measured by reasonable cost of performance of the work
- Here: cost incurred would have been 29,000 while the increased value in the property
would have only been 300$, so that is the measure of damages awarded
Landis v William Fannin Builders
- Rule: a court may award damages based on cost of restoration in a construction contract
claim even if it exceeds the diminution in value
- Although the cost of restoration greatly exceeds the diminution in market value,
measuring the plaintiffs’ damages according to the diminution in market value would not
fully compensate the plaintiffs. The plaintiffs contracted for a custom home with a rustic
appearance. In furtherance of that goal, the plaintiffs required that certain materials be
used in the construction of their home. Given the emphasis placed on the aesthetics of
the home, the plaintiffs should be awarded damages that would allow them to achieve
what they contracted for.
Hubbell Homes v Key
- Rule: Under contract law, lost profits may be recovered from a defaulting party to a
contract if the lost profits were contemplated by the defaulting party at the time the
contract was made and the profits can be determined with reasonable certainty.
- Generally, the purpose of contract damages is to place the injured party in the position
he or she would have been in if the contract had been performed. This is known as
expectancy damages. Most real-estate-contract actions result in damages measured by
the difference between the contract price and the fair market value of the real estate on
the date of breach
- Lost profits cannot be recovered if the issue of whether damages were sustained is
uncertain and speculative
- Pf has not established lost profits, because profits must actually have been lost in order
to qualify as damages.
- Damages = difference between the contract price and the fair market value of the home
31: Limits on Consequential Damages - Foreseeability & Certainty
Limits On Consequential Damages: Foreseeability & Certainty: 351, 352
- RS § 351: Unforeseeability and Related Limitations on Damages:
- (1) Damages are not recoverable for loss that the party in breach did not have reason to
foresee as a probable result of the breach when the contract was made.
- (2) Loss may be foreseeable as a probable result of a breach because it follows from
the breach
- (a) in the ordinary course of events, or
- (b) as a result of special circumstances beyond the ordinary course of events,
that the party in breach had reason to know.
- (3) A court may limit damages for foreseeable loss by excluding recovery for loss of
profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes
that in the circumstances justice so requires in order to avoid disproportionate
compensation.
-
-
-
Comments: Requirements on foreseeability
- Parties generally expected to take account of those risks that are foreseeable AT
THE TIME THE CONTRACT IS MADE
- Not liable in the event of breach for loss that he did not at the time of contracting
have reason to foresee as a probable result of such a breach
- The mere circumstance that some loss was foreseeable, or even that some loss
of the same general kind was foreseeable, will not suffice if the loss that actually
occurred was not foreseeable. It is enough, however, that the loss was
foreseeable as a probable, as distinguished from a necessary, result of his
breach.
- Furthermore, the party in breach need not have made a “tacit agreement” to be
liable for the loss. Nor must he have had the loss in mind when making the
contract, for the test is an objective one based on what he had reason to foresee.
- There is no requirement of foreseeability with respect to the injured party. In spite
of these qualifications, the requirement of foreseeability is a more severe
limitation of liability than is the requirement of substantial or “proximate” cause in
the case of an action in tort or for breach of warranty
General and Special Damages:
- If loss results other than in the ordinary course of events there can be no
recovery for it unl;es it was foreseeable by the party in breach because of special
circumstances they had reason to know when they made the contract
Other limitations:
- It is not always in the interest of justice to require the breaching party for all
foreseeable loss
- Ex: Extreme disproportion between losss and the price charged by the party
whose liability for that loss is in question
- The fact that the price is relatively small suggests that it was not intended
to cover the risk of such liability
-
RS § 352: Uncertainty as a Limitation on Damages:
- Damages are not recoverable for loss beyond an amount that the evidence
permits to be established with reasonable certainty
- Certainty:
- A party cannot recover damages for breach for loss beyond the amount
that the evidence establishes with reasonable certainty
- Proof for breach >> proof for tort
- If not reasonably certain, does not prevent damages collection, only
prevents collection of damages that are not reasonably certain
- Profits:
- Proof of lost profits more difficult to prove if transaction is complex and
the period of profits lost is long
Damages:
- Subject to but-for causation requirements
- Rarely used as a defense
- Subject to proximate causation considerations
- Designed to preven liability for injuries that are too attenuated from the wrongful
conduct
Limits on Consequential Damages:
- Foreseeability:
- Damages are not recoverable for loss that the breaching party did not have
reason to foresee when the contract was made
- Certainty:
- Damages must be proven with reasonable certainty
- Mitigation:
- Damages that could have been avoided through reasonable efforts (without
undue risk or burden) are not recoverable
These principles:
- Do not apply to direct and incidental damages
- Or apply but, due to the nature of direct and incidental damages, rarely if ever actually
limit them
Hadley v Baxendale
- Rule: When one party breaches a contract, the other party may recover all damages that
are reasonably foreseeable to both parties at the time of making the contract, as well as
damages stemming from any special circumstances, provided those circumstances were
communicated to and known by all parties at contract formation.
- Hadley never told Pickford that delay in shipping the shaft would result in Hadley’s lost
profits, and thus Baxendale is not liable for the consequences of these “special
circumstances” that were not reasonably foreseeable at contract formation.
Scope of Liability for Lost Profits
Responsible for:
- Reasonably foreseeable/reasonably within the contemplation of both parties at the time
they made the contract
- Hadley:
- Damages reasonably supposed to have been in the contemplation of both parties
at the time they made the contract
- Breaching party to have reason to know potential damages
RS 351:
- No tasset agreement test, no agreement that the breacher will be responsible for a
specific damage (within contemplation)
- Damages the party in breach had reason to foresee… when the contract was made
- Damages do not have to be foreseen by the injured party, have to only be foreseeable
by the breaching party
Consequential damages:
- Subject to foreseeability test (proximate cause test)
Contract is prospective
- Looking towards the future
- Technically, damages could be infinite, unfair to hold parties to such an extreme liability
Comment F:
- Disproportion between contract profits and consequential damages could be a reason to
deny consequential damages
Why should the critical time be the time of contracting instead of the time of breach?
- Could disclaim or limit consequential damages
- Refuse to contract
- Sell insurance (raise the praise)
- Only time for breacher to limit liability
Expectancy Damages
- Direct
- Market damages
- Indirect
- Incidental
- Incident to the breach
- Seller sent non-conforming goods, expense of storing and then shipping
the bad-goods
- Consequential
- Additional cost
- Almost anything
- Bodily injury, lost profits
- Limiting factors:
◦ Mitigation
◦ Foreseeability (proximate cause)
◦ Certainty
M. Kenford Co v County of Erie
- Rule: Any further liability than for damages naturally and directly flowing from the breach
must be predicated on such unusual or extraordinary damages being brought within
the contemplation of the parties as the probable result of a breach at the time of or
prior to contracting
- Non-breaching party can recover damages which are the natural and probable
consequence of the breach
Lost profits:
- Certainty that the breach caused the damages
- Amount of loss proved with reasonable certainty
- Damages must have been fairly within the contemplation of the parties
Stricter standard for new business
- No reasonable method of estimating business with no past market to give evidence to
probable profit amounts
Could have used a liquidated damages clause:
- Would given a particular number for damages
- Gets rid of certainty analysis with explicit damage number
32: Limits on Consequential Damages - Mitigation
Limits on Damages: Mitigation: 350
- RS § 350: Avoidability as a Limitation on Damages
- 1) Except as stated in sub (2), damages are not recoverable for loss that the
injured party could have avoided without undue risk, burden, or humiliation
- 2) The injured party is not precluded from recovery by the rule stated in sub (1) to
the extent that he had made reasonable but unsuccessful efforts to avoid loss
Concept behind Mitigation:
- Courts will not award a party damages for harm that the aggrieved party could have
readily or reasonably avoided
Mitigation:
- Limiting principal
- An award of damages will not include recovery for any harm that the pf could have
mitigated
Parker v 20th Cent Fox
-
Rule: The measure of recovery for a wrongfully discharged employee is the amount of
salary agreed upon, minus the amount which the employee has earned or with
reasonable effort might have earned from substantially similar employment
- Employer must show that the other employment was substantially similar to the previous
employment, and the employee’s need not seek other available employment of a
different or inferior kind to mitigate damages
Dissent (he seemed like he agreed with the dissent here)
- Differences substantial enough to make the employment inferior, the question of whether
the films are different does not apply
Does taking an inferior job mitigate Damages?
- Mitigation meant to limit over-compensation, fulfills policy
- Property and services to economic use:
- No, does not mitigate it, because it would make seeking employment
disadvantageous
- RS - does reduce damages, 347, law says it limits damages
In re WorldCom, Inc
- Rule: Non-breaching party has a duty to mitigate the damages resulting from breach
- The capacity to enter other agreements alone is insufficient to excuse a lost-volume
seller from the duty to mitigate. The seller must also have had the subjective intent to
enter other agreements in addition to the breached contract.
- Here, Jordan had no subjective intent to enter other endorsement agreements.
Therefore, Jordan cannot avoid the duty to mitigate as a lost-volume seller. Jordan also
seeks to avoid the duty to mitigate by arguing that he could not have entered a
substantial similar or equivalent contract.
33: Limits on Consequential Damages - Emotional Distress
Limits on Consequential Damages: Emotional Distress: RS 353
- RS § 353: Loss Due to Emotional Distress
- Recovery for emotional disturbance will be excluded unless the breach also
caused bodily harm or the contract or the breach is of such a kind that serious
emotional disturbance was a particularly likely result
Rationales for limiting emotional distress damages:
- Such damages might not be reasonably foreseeable or in the contemplation of the
parties
- Disproportional to benefit of contract
- Such damages are difficult for the fact finder to determine
- Encourage commercial activity
- Risk vs reward
Good cases for emotional damages:
- Reconstructive Surgery - Sullivan v O’Connor
- Failure to provide home - Kirksey v Kirksey
- Failure to negotiate w/ creditors - Newton (put in worse position by df)
- No disclosure of Naked Photos - Myskina v The Condé Nast Publications
- Genetic Surrogacy - R.R. V M.H.
- Gestational Surrogacy - Johnson v Calvert
- No disclosure of Confidential Source - Cohen v Cowles Media Co.
KinderCare Learning Centers, Inc
- Rule: Damage for ED can be recovered for a breach of a personal contract
- Damages for emotional distress can be recovered in cases alleging a breach of a
personal contract. The general rule is that damages for a breach of contract are limited
-
to damages that are a natural result of the breach or are contemplated by the parties
when the contract is made.
Personal contracts can support damages for emotional distress. Personal contracts deal
with elements of personality and matters of mental concern and solicitude.
Personal contracts include contracts for the performance of a cesarean section, for the
care and burial of a dead body, and for the care for an elderly mother.
In this case, the contract was for the care of an infant child. This is a contract of a
personal nature rather than a commercial contract, such as an insurance contract or a
contract to construct a house.
Elrich v Menezes
- Rule: In a breach of contract claim, an injured party cannot recover damages for
emotional distress if he has only suffered economic damages and there has been no
breach of a legal duty in tort law.
- (1) the breach is accompanied by a traditional common law tort, such as fraud or
conversion;
- (2) the means used to breach the contract are tortious, involving deceit or undue
coercion or;
- (3) one party intentionally breaches the contract intending or knowing that such a
breach will cause severe, immitigable harm in the form of mental anguish,
personal hardship, or substantial consequential damages.”
- In an action for breach of contract, the measure of damages is the amount that
compensates the injured party for the breach or an amount that would likely result from
the breach. The damages must be “clearly ascertainable in both their nature and their
origin.”
- Damages limited to those that are in the contemplation of the parties or reasonably
foreseeable to them when they enter int the contract
- An injured party MAY NOT recover tort damages for a breach of contract unless the
action amounting to a breach of contract is ALSO a violation of a legal duty under tort
law
34: Reliance & Restitution Damages
Reliance and Restitution Damages: RS §§ 349, 370, 371, 373-376
- RS § 349: Damages Based on Reliance Interest
- As an alternative to the measure of damages stated in 347, the injured party has
a right to damages based on reliance interest, including expenditures made in
prep for performance or in performance
- MINUS any loss that the party in breach can prove with reasonable certainty the
injured party would have suffered had the contract been performed
-
RS § 370: Requirement that Benefit Be Conferred
A party is entitled to restitution under the rules stated in this Restatement only to the
extent that he has conferred a benefit on the other party by way of part performance or
reliance.
-
RS § 371: Measure of Restitution Interest
If a sum of money is awarded to protect a party’s restitution interest, it may as justice
requires be measured by either
- (a) the reasonable value to the other party of what he received in terms of what it
would have cost him to obtain it from a person in the claimant’s position, or
- (b) the extent to which the other party’s property has been increased in value or
his other interests advanced.
-
RS § 372: Specific Restitution
(1) Specific restitution will be granted to a party who is entitled to restitution, except that:
- (a) specific restitution based on a breach by the other party under the rule stated
in § 373 may be refused in the discretion of the court if it would unduly interfere
with the certainty of title to land or otherwise cause injustice, and
- (b) specific restitution in favor of the party in breach under the rule stated in §
374 will not be granted.
(2) A decree of specific restitution may be made conditional on return of or
compensation for anything that the party claiming restitution has received.
(3) If specific restitution, with or without a sum of money, will be substantially as
effective as restitution in money in putting the party claiming restitution in the position he
was in before rendering any performance, the other party can discharge his duty by
tendering such restitution before suit is brought and keeping his tender good.
-
-
-
-
RS § 373: Restitution When Other Party Is in Breach
(1) Subject to the rule stated in Subsection (2), on a breach by non-performance that
gives rise to a claim for damages for total breach or on a repudiation, the injured party is
entitled to restitution for any benefit that he has conferred on the other party by way of
part performance or reliance.
(2) The injured party has no right to restitution if he has performed all of his duties under
the contract and no performance by the other party remains due other than payment of a
definite sum of money for that performance.
RS § 374. Restitution in Favor of Party in Breach
(1) Subject to the rule stated in Subsection (2), if a party justifiably refuses to perform on
the ground that his remaining duties of performance have been discharged by the other
party’s breach, the party in breach is entitled to restitution for any benefit that he has
-
conferred by way of part performance or reliance in excess of the loss that he has
caused by his own breach.
(2) To the extent that, under the manifested assent of the parties, a party’s performance
is to be retained in the case of breach, that party is not entitled to restitution if the value
of the performance as liquidated damages is reasonable in the light of the anticipated or
actual loss caused by the breach and the difficulties of proof of loss.
-
RS § 375. Restitution When Contract Is Within Statute of Frauds
A party who would otherwise have a claim in restitution under a contract is not barred
from restitution for the reason that the contract is unenforceable by him because of the
Statute of Frauds unless the Statute provides otherwise or its purpose would be
frustrated by allowing restitution.
-
§ 376. Restitution When Contract Is Voidable
A party who has avoided a contract on the ground of lack of capacity, mistake,
misrepresentation, duress, undue influence or abuse of a fiduciary relation is entitled to
restitution for any benefit that he has conferred on the other party by way of part
performance or reliance.
-
Reliance damage:
- Alternative to Expectancy Damages (RS 349)
Two situations where Reliance Damages >>>> Expectancy Damages:
- When the aggrieved party would have suffered a loss under the contract, so
restoring them to a pre-contracting position would be more advantageous than
the benefit of the bargain
- When the aggrieved party has no direct expectancy damages and is subject to
the limiting principles (Foreseeability, certainty, and mitigation which prevent
acquisition of indirect damages)
Restitution:
- Traditional remedy for Unjust Enrichment
- No contract (contract could be voidable), therefore no expectancy damages.
Focus on disgorging the benefit of the Unjust Enrichment
- Also available to breaching party
-
-
-
Security Stove & Mfg. Co. V. American Ry. Express Co.
- Rule: When a df carrier has notice of peculiar circumstances surrounding a
shipment that will result in unusual loss to the shipper in case of delay in delivery,
the carrier is responsible for the actual damages sustained by the shipper from
the carrier’s delay
- Pf manufactured a unique furnace and wanted to ship it, contracted df to ship the
furnace no later than a specific date, df failed to deliver it on time and pf sued for
damages.
-
Takeaways: Non-breaching party is entitled to reliance damages, reliance
damages the better remedy since pf incurred expenses so actual damages
awardable in this circumstance
-
US for the Use of Palmer Construction, Inc v Cal State Electric, Inc.
- Rule: If a breaching party has partially performed on a contract, but the innocent
party has paid more than the og price to complete the contract, the breaching
party may not recover from the innocent party
- CSE (pf) was the prime contractor on a project with army, and hired Palmer as a
subcontractor, who did some work and then breached after having been paid
50% of fee, but had to pay other 50% to another party to finish it.
- Takeaway: Non-breaching party will not be required to pay damages to the
breaching party, but if the breaching party incurred a benefit instead of a
detriment on the innocent party, the breaching party is entitle to a remedy to
prevent UE. General rule that a breaching party is entitled to the reasonable
value of its services for part performance, less any damages caused by the
breach and other additional harm to the innocent party, but in no case should the
innocent party be required to pay more than the contract price to complete the
breaching party’s part performance. If the innocent party were required to pay a
total that is more than the contract price, it would create an incentive to breach
the contract, and the loss of the bargain would be shifted from the breaching
party to the innocent party
-
Eker Brothers, Inc. v Rehders
- Rule: A party that has breached a contract is entitled to restitution for the value of
benefits conferred to the non-breaching party that exceeds the amount of
damages suffered
- Pf hired by df as a subcontractor, pf performed some work but did not complete
the job. TC said “willfull, material, and acticipatory breach” barred the claim and
awarded judgment to dfs for additional costs incurred
- Takeaways: A breaching party is entitle to restitution for the value of benefits
conferred to the non breaching party that exceeds the amount of damages
suffered. a party in breach is entitled to restitution for any benefit that it has
conferred by way of part performance or reliance in excess of the loss caused by
the breach. This rule reflects a policy against awarding a windfall to the
nonbreaching party
35: Liquidated and Punitive Damages
Liquidated and Punitive Damages: § 356, UCC 2-718(1)
- RS § 356 Liquidated Damages and Penalties
- (1) Damages for breach by either party may be liquidated in the agreement but
only at an amount that is reasonable in the light of the anticipated or actual loss
-
caused by the breach and the difficulties of proof of loss. A term fixing
unreasonably large liquidated damages is unenforceable on grounds of public
policy.
- (2) A term in a bond providing for an amount of money as a penalty for nonoccurrence of the condition of the bond is unenforceable on grounds of public
policy to the extent that the amount exceeds the loss caused by such nonoccurrence"
- Comments:
- Parties may provide in advance the damages that are payable in the
event of breach AS LONG AS the provision does not disregard the
principle of compensation
- Liquidated damages meant to save the time of courts and reduce
expenses of litigation
- CENTRAL OBJECTIVE: compensatory, not punitive
- Test of Penalty: 2 factors in determining whether penalty is unreasonable
- 1) the anticipated/actual loss of breach. Amount is reasonable to the
extent that it approximates the actual loss that has resulted from the
particular breach, even though it may not approximate the loss that might
have been anticipated under other possible breaches
- Ex: A, B and C form a partnership to practice veterinary medicine in a
town for ten years. In the partnership agreement, each promises that if,
on the termination of the partnership, the practice is continued by the
other two members, he will not practice veterinary medicine in the same
town during its continuance up to a maximum of three years. A term
provides that for breach of this duty “he shall forfeit $50,000 to be
collected by the others as damages. “A leaves the partnership, and the
practice is continued by B and C. A immediately begins to practice
veterinary medicine in the same town. The loss actually caused to B and
C is difficult of proof and $50,000 is not an unreasonable estimate of it.
Even though $50,000 may be unreasonable in relation to the loss that
might have resulted in other circumstances, it is not unreasonable in
relation to the actual loss. Therefore, the term does not provide for a
penalty and its enforcement is not precluded on grounds of public policy
- 2) Second factor is the difficulty of proof of loss
- The greater the difficulty either of proving that loss has occurred or
of establishing its amount with the requisite certainty, the easier it
is to show the amount fixed is reasonable
- To the extent that there is uncertainty as to the harm, the
estimate of the court or jury may not accord with the principle of
compensation any more than does the advance estimate of the
parties
UCC 2-718(1)
- 1) Damages for Breach by either party may be liquidated in the agreement but
only at an amount which is reasonable in the light of the anticipated or actual
-
harm caused by the breach, the difficulties of proof of loss, and the
inconvenience or non-feasibility of otherwise obtaining an adequate remedy.
A term fixing unreasonably large liquidated damages is void as a penalty.
Reasons for and Against Liquidated Damages Clauses:
Test/Rule:
-
Reasonable estimate of anticipate OR actual loss
The greater the difficulty in estimating loss, the more latitude in liquidating 356(b)
- The less difficult to estimate, the less latitude a liquidated damages clause will
receive
-
-
Terms limiting Consequential Damages:
- Generally enforceable unless unconscionable
- Ex: Explicitly limiting consequential damages as a seller of goods
Liquidated Damages Clause:
- A clause that specifies either a dollar amount as damages or a formula to use in
calculating damages for any breach or for a particular type of breach
- Avoids the expense of litigation
- Also useful when limiting principles (foreseeability, certainty, and mitigation)
would prevent a party from recovering the full benefit of the bargain
-
Lake River Corp v. Carborundum Co.
- Rule: a contract provision that specifies a single unmodifiable sum to be paid as
damages for all breaches of contract, regardless of seriousness, is an
unenforceable penalty clause
- Df produces a powder for steel manufacturing, entered into distribution contract
with Pf to bag and ship powder but Pf needed new equipment for bagging so it
insisted on a minimum of shipments, Df did not meet previous minimums, and Pf
withheld shipments if not paid, df did not comply and shipped using other means
- Takeaways: A contract that specifies an unmodifiable sum to be paid regardless
of the seriousness of breach is unenforceable. A liquidated damages clause must
REASONABLY ESTIMATE the damages likely to be caused by a breach, as
understood at the time of contracting to be enforceable.
- Don’t want to encourage penalty fees because there may be beneficial
breaches, but rather encourage compensatory damages since they only
deter inefficient breaches
- Class:
- Liquidated damages here only accounts for direct loss, but does not take
into account the cost that this company avoided
-
NPS, LLC v Minihane
- Rule: In Mass., a liquidated damages provision is enforceable if the sum provided
for is proportionally and reasonably related to the anticipated actual damages of
breach
- Pf sold a ten season license for two luxury seats at Gillette Stadium to df,
requiring an annual fee for each season. Df failed to pay in the second season,
an acceleration clause made it so the entire sum was due. Debate over whether
acceleration clause was enforceable
- Takeaways: burden rests upon df to sufficiently show that the amount of
liquidated damages is unreasonable and grossly disproportionate. Here, df failed
to show that the amount he was required to pay was unreasonable
- Class:
- Liquidated damages clause does not account for loss avoided
-
Kent State University v Ford
-
-
-
-
-
Rule: courts generally enforce liquidated-damages clauses that reasonably
approximate difficult to prove actual losses, unless functionally a penalty or
unconscionable
Pf hired df as a head coach of a basketball team, required to pay his salary to
school if he resigned before the contracts expiration based on the school’s
investment in him. Df left to a higher paying job, pf sought damages but had not
done a financial analysis to substantiate liquidated damages clause
Takeaways: Liquidated damages represent an amount of money that parties
agree to pay instead of actual damages for breach. 3 part test
- 1) First, the amount of actual damages must be uncertain and difficult to
prove.
- 2) Second, the contract as a whole must not be so manifestly
unconscionable or unreasonable, or the amount of liquidated damages so
disproportionate, that it could not possibly reflect the parties’ intent.
- 3) Third, the contract must show the parties intended to set an amount of
liquidated damages payable for a breach
The liquidated-damages clause was clear, unambiguous, and consistent with
intent to make those damages payable for breach
Dissent:
- Here the liquidated-damages formula does not reasonably approximate
anticipated actual damages. The formula means Ford would have to pay
more if he resigned early in the contract than later.
- That disparity bears no relation to the actual damages Kent State
sustained, which arguably would remain about the same regardless of
when Ford left.
- The formula makes sense if used to determine what Kent State should
pay if it breached the contract, as it represents Ford’s salary for the
remaining period. But using the same formula if Ford breached the
contract instead is absurd. The respective potential damages for both
parties would not be even remotely the same
Class:
-
Only would get one type of the direct damages since they have some
overlap
36: Equitable Remedies
Equitable Remedies: §§ RS 357, 359-361, 365-367
- RS § 357: Availability of Specific Performance and Injunction:
- (1) Subject to the rules stated in §§ 359–69, specific performance of a contract duty will
be granted in the discretion of the court against a party who has committed or is
threatening to commit a breach of the duty.
- (2) Subject to the rules stated in §§ 359–69, an injunction against breach of a contract
duty will be granted in the discretion of the court against a party who has committed or is
threatening to commit a breach of the duty if
- (a) the duty is one of forbearance, or
- (b) the duty is one to act and specific performance would be denied only for
reasons that are inapplicable to an injunction.
-
RS § 359: Effect of Adequacy of Damages
- (1) Specific performance or an injunction will not be ordered if damages would
be adequate to protect the expectation interest of the injured party.
- (2) The adequacy of the damage remedy for failure to render one part of the
performance due does not preclude specific performance or injunction as to the
contract as a whole.
- (3) Specific performance or an injunction will not be refused merely because
there is a remedy for breach other than damages, but such a remedy may be
considered in exercising discretion under the rule stated in § 357.
-
RS § 360. Factors Affecting Adequacy of Damages
In determining whether the remedy in damages would be adequate, the following
circumstances are significant:
- (a) the difficulty of proving damages with reasonable certainty,
- (b) the difficulty of procuring a suitable substitute performance by means of
money awarded as damages, and
- (c) the likelihood that an award of damages could not be collected.
-
RS § 361: Effect of Provision for Liquidated Damages
- Specific performance or an injunction may be granted to enforce a duty even
though there is a provision for liquidated damages for breach of that duty.
-
RS § 365: Effect of Public Policy
- Specific performance or an injunction will not be granted if the act or forbearance
that would be compelled or the use of compulsion is contrary to public policy.
-
RS § 366. Effect of Difficulty in Enforcement or Supervision
-
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A promise will not be specifically enforced if the character and magnitude of the
performance would impose on the court burdens in enforcement or supervision
that are disproportionate to the advantages to be gained from enforcement and
to the harm to be suffered from its denial
RS § 367. Contracts for Personal Service or Supervision
- (1) A promise to render personal service will not be specifically enforced.
- (2) A promise to render personal service exclusively for one employer will not be
enforced by an injunction against serving another if its probable result will be to
compel a performance involving personal relations the enforced continuance of
which is undesirable or will be to leave the employee without other reasonable
means of making a living.
-
-
-
no preference for one creditor over another, so C does not apply when there is a
tortious action and contract breach
- B)
Equitable Remedies:
- Afforded when there is no adequate remedy at law
- Unavailable unless:
- There is no adequate remedy at law (damages are inadequate) and
- The party seeking a remedy would suffer irreparable harm in the absence
of equitable relief
- Debated Value:
- Preference to monetary damages due to idea of efficient breach (where
breach is good, considered an “academic” idea since it is unlikely to
occur)
Three types of equitable remedies:
- Specific performance:
-
-
-
-
-
an order by a court for a contracting party to perform one or more
contractual promises (e.g., sell the real property to the buyer);
Injunction:
- an order by a court for a contracting party to refrain from doing something
that would constitute a breach (e.g., do not violate the covenant not to
compete); and
Specific restitution: (Rare)
- an order by a court for one contracting party to return specified property
to the other party.
- Seeks to return the contracting parties to the positions they occupied
before the contract was made by forcing disgorgement of UE gained
pursuant to a contract
- Only available if the court determines that restitution are relief is
warranted by damages would not be an adequate remedy, ex: the item to
be returned is unique or has sentimental value
Enforcement:
- Done through a court’s contempt powers, meaning that a party who
fails/refuses to comply might be incarcerated until the party does comply
(no criminal or civil penalty)
Laclede Gas Co. v Amoco Oil Co.
- Rule:
- 1) Courts will not render a contract invalid if only one party retains a right
of cancellation.
- (2) A court can grant specific performance if the court can determine with
reasonable certainty the duty of each party and the conditions under
which performance is due
- Pf and df entered into a natural gas distribution agreement. Pf would get paid,
then df would provide natural gas and be compensated. Contract auto-renewed
unless pf gave df 30-days notice, df did not have right of cancellation.
- Takeaways:
- Arbitrary cancellation clauses not favored, must not be arbitrary or
unrestricted, and must provide consideration for both sides (here it met
these requirements).
- A court can grant specific performance if the court can determine with
reasonable certainty the duty of each party and the conditions under
which performance is due.
- In this case, the contract required Amoco to supply all the propane which
was reasonably foreseeably required, and Laclede would purchase the
required propane from Amoco and pay the contract price.
- Thus, the district court erred in failing to grant specific performance as a
remedy
- Class:
- No mutuality of remedy necessary (363)
-
Difficult for court to administer
Contract is indefinite and uncertain (there is a reasonable limit on
performance)
Remedy at law is adequate
-
Van Wagner Advertising Corp. v S & M Enterprises
- Rule: Specific Performance is not a proper remedy if damages are adequate and
equitable relief would impose a disproportionate burden on the breaching party
- Pf had a lease to advertise on the front of building, pf built a sign and leased it, df
bought the building and cancelled the lease with pf. Pf argued that only previous
building owner had right to cancellation provision, and brought suit seeking
specific performance.
- Takeaways:
- Specific performance available only if there is no other adequate remedy
available, not appropriate if monetary damages are adequate and specific
performance would impose a disproportionate burden on the breaching
party.
- Pf awarded damages based on entirety of lease, specific performance not
the proper remedy here.
- Class:
- Focus not on uniqueness of property, but rather whether the property can
be valued in a reliable way
- If no, specific performance
- If yes, no specific performance
- Equitable Relief would interfere with development of site, and thus is not
in the public interest
- Specific performance will not be allowed if it would disproportionately
harm the df
-
American Broadcasting Companies, Inc. v Wolf
-
-
-
-
-
-
Rule: Specific enforcement of a personal service contract, for the duration of the
contract, may be appropriate when an employee refuses to perform during the
period of employment, was furnishing unique services, has expressly or by clear
implication agreed not to compete for the duration of the contract, and the
employer is exposed to irreparable injury.
Df was employed as a sportscaster by ABC, contract included good faith (90
prior to expiration need to negotiate in good faith, no negotiating for first 45 days)
and first refusal provisions (required to not accept employment for 3 months after
termination of contract). Df contracted to work with CBS at end of contract, but
continued to work with ABC until that day.
Takeaways: ABC cannot receive injunctive relief preventing Wolf from working
for CBS, but can seek damages for breach of good faith provision.
- Specific enforcement of a personal service contract, for the duration of
the contract, may be appropriate when an employee refuses to perform
during the period of employment, was furnishing unique services, has
expressly or by clear implication agreed not to compete for the duration of
the contract, and the employer is exposed to irreparable injury.
- Once the personal service contract has terminated, however, equitable
relief is potentially available only to prevent injury to the employer from
unfair competition or similar tortious behavior, or to enforce an express
and valid anticompetitive covenant. In the absence of these limited
circumstances, public policy favors unfettered competition and an
employee should be free to seek employment elsewhere once his
personal service employment contract has expired
- Wolf did breach “good faith” requirement based off of contract with CBS.
No existing agreement between ABC and Wolf, so specific performance
impossible
Dissent:
- The order of the court of appeals should be modified to grant a 90-day
injunction for ABC preventing Wolf from working for CBS. The majority
wrongfully chooses to interpret Wolf’s employment contract with ABC as
containing no restrictive covenant, either express or implied. In reality, the
three-month first refusal provision following termination of Wolf’s
employment contract with ABC required Wolf to effectively refrain from
broadcasting. Or, if Wolf chose to continue broadcasting, the provision
gave ABC the right to ensure Wolf did not engage in broadcasting for any
other company. This provision was a significant part of the consideration
furnished by Wolf to ABC in exchange for offering Wolf employment.
Wolf’s misconduct denied ABC the opportunity to exercise its contractual
rights under the first-refusal position. Finally, the majority favors the letter
rather than the spirit of the law by holding that Wolf’s acceptance of
CBS’s offer of employment during his employment with ABC did not
violate the first refusal provision in his employment contract with ABC
Class:
-
CTNC not present in contract, which would have kept wolf from working
with competitor, but the term was not in the agreement ‘
37: Assignment & Delegation
Assignment & Delegation: RS §§ 317, 318, 322, 328
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-
RS § 317: Assignment of a Right
(1) An assignment of a right is a manifestation of the assignor’s intention to transfer it by
virtue of which the assignor’s right to performance by the obligor is extinguished in whole
or in part and the assignee acquires a right to such performance.
(2) A contractual right can be assigned unless
- (a) the substitution of a right of the assignee for the right of the assignor would
materially change the duty of the obligor, or materially increase the burden or risk
imposed on him by his contract, or materially impair his chance of obtaining
return performance, or materially reduce its value to him, or
- (b) the assignment is forbidden by statute or is otherwise inoperative on grounds
of public policy, or
- (c) assignment is validly precluded by contract.
-
RS § 318. Delegation of Performance of Duty
- (1) An obligor can properly delegate the performance of his duty to another
unless the delegation is contrary to public policy or the terms of his promise.
- (2) Unless otherwise agreed, a promise requires performance by a particular
person only to the extent that the obligee has a substantial interest in having that
person perform or control the acts promised.
- (3) Unless the obligee agrees otherwise, neither delegation of performance nor a
contract to assume the duty made with the obligor by the person delegated
discharges any duty or liability of the delegating obligor."
-
RS § 322 Contractual Prohibition of Assignment
- (1) Unless the circumstances indicate the contrary, a contract term prohibiting
assignment of “the contract” bars only the delegation to an assignee of the
performance by the assignor of a duty or condition.
- (2) A contract term prohibiting assignment of rights under the contract, unless a
different intention is manifested,
- (a) does not forbid assignment of a right to damages for breach of the
whole contract or a right arising out of the assignor’s due performance of
his entire obligation;
- (b) gives the obligor a right to damages for breach of the terms forbidding
assignment but does not render the assignment ineffective;
-
-
(c) is for the benefit of the obligor, and does not prevent the assignee
from acquiring rights against the assignor or the obligor from discharging
his duty as if there were no such prohibition.
RS § 328 Interpretation of Words of Assignment; Effect of Acceptance of Assignment
- 1) Unless the language or the circumstances indicate the contrary, as in an
assignment for security, an assignment of “the contract” or of “all my rights under
the contract” or an assignment in similar general terms is an assignment of the
assignor’s rights and a delegation of his unperformed duties under the contract.
- (2) Unless the language or the circumstances indicate the contrary, the
acceptance by an assignee of such an assignment operates as a promise to the
assignor to perform the assignor’s unperformed duties, and the obligor of the
assigned rights is an intended beneficiary of the promise.
- Caveat: The Institute expresses no opinion as to whether the rule stated in
Subsection (2) applies to an assignment by a purchaser of his rights under a
contract for the sale of land
39: Review
Contract:
- Principle of liability:
- Unjustifiable failure to perform a promise
- Measure of Damages:
- To put the person in the position of full performance
- Preferred as a basis for recovery over tort or UE
Promise v Contract
- Promise: a manifestation of intention to do something
- Contract: a promise or set of promises for the breach of which the law gives a remedy
- UCC: Agreement v contract:
- A: the bargain of the parties
- Contract: legal obligation that results from the parties’ determination
Creating a Contract obligation:
- Law recognizes:
- Consideration
- Bargained for benefit to the promisor OR detriment to the promisee
- Uncle William to willie - consideration because of willie’s detriment
- Bargained for benefit or detriment: Promise must induce performance,
detriment must induce the benefit
Consideration:
- Yes consideration:
- Promise can be consideration for a promise
- An un-performed promise can be consideration
- Judge it at the time the contract is formed
- A promisee’s detriment need not benefit the promisor
- There need not be separate consideration for each of several promises by a
single promisor
- Consideration for one promise can be a consideration for multiple
promises
- Ex: credit agreement for a loan, creditor only promises to pay the money,
person getting the loan needs to make many more promises
- Performance can be consideration for a promise
- Ex: bring in billy the kid alive or dead
- Lack of equivalence of value does not matter
- No consideration:
- Reliance is not consideration
- Past benefit is not consideration
- False recital of consideration is not consideration
- A pretense of consideration is not consideration
- Ex: giving 10 cent book for 1k in compensation
Illusory and Implied Promises
- Promise to do something when “pigs fly” is not a promise
- “If we choose to” “when I want to” not real promises, so no contract
- Cardozo:
- Promises can be implied/inferred from the nature of a relationship
- Promise can be found even if not explicitly outlined
- Pre-existing duties
- A Pre-existing duty is not a consideration
- If already owed, cannot be bargained for
- A pre-existing duty will not be consideration for a modification (CL)
- UCC article 2 gets rid of this requirement
Consideration Subs:
- Promissory Estoppel - Expand liability
- Reasonable reliance on a promise can be the basis for performance
- Requires:
- 1) A promise
- Must be CLEAR AND DEFINITE - Conrad v Fields
- Need not have all transaction details - Hoffman v Red Owl Stores
- The Vaguer the statement, the less likely it was a promise: Garwood
- 2) Promisee must detrimentally rely
- Promisor must have intended to induce reliance - Conrad
-
-
-
-
- Promisor should have reasonably expected reliance - Hoffman
3) Relief available only if necessary to avoid injustice
- Less rigid than a contract claim - Cohen v Cowles media
- Doctrine protects the less sophisticated
Remedy:
- Expectancy Damages - Conrad v Fields
- RS - can limit damages
Promissory Restitution: Expand liability
- Benefit that serves as enforcement for a later promise
- Benefit to the promisor
- Injustice required
Unjust Enrichment: Expand liability
- Tortious liability
- Benefit focus
- Injustice required
Public Policy/Illegality: limit liability
- Contract to do something illegal is not enforcement
- Agreement of surrogacy (mass) not enforceable
Incapacity: limit liability
- Minors and intoxicated people lack the ability to contract
- Mentally ill people lack the ability to contract
Statute of Frauds: limit liability
- Law requires the agreement be evidenced by a signed writing
- Classes of agreements:
- Good for 500$+
- Guaranteed promises
- Contracts that cannot be performed within one year
- Contracts to sell real property
- Is there a writing?
- Must be signed by the party against whom enforcement is sought
- Electronic writings tend to work
- If no writing, is there an exception?
- Promissory Estoppel
- Promissory Restitution
- UE
- SOF is an affirmative defense and must be raised
- Satisfying the SoF does not have prove a contract exists
Mutual Assent:
- Objective v Subjective Approach
- We don’t look at if there was a meeting of the minds
-
- We look to see if there was a manifestation of MUTUAL ASSENT
Misunderstanding: if it negates the contract
- Discuss before performance
- Is there a contract
- Is it breached
- What are the damages
Preliminary and Indefinite Agreements:
- does it provide an adequate basis for a remedy
- Must be a basis to award a remedy, if not, deny enforcement
Assuming no problem with prelim agreements: Offer and Acceptance
- There needs to be mutual assent
- Offer and acceptance is just the most common method to show mutual assent
Offer:
- Accepted by communication or by conduct depending on what the offeror wants
- Can explicitly communicate how to accept the offer, depends on how the offeror wants
- Ex: Shipment of goods:
- Accept by shipping or actually accepting verbally
-
Counter-offer: functions as a rejection
- Back to beginning, look for acceptance of counter-offer
Ex: Caterer for a wedding
- Someone going out and cooking does not function as assent
- If explicitly asks for performance:
- Functions as acceptance
- Creates an option contract if only asks for performance
- Other ex: sitting on a flagpole for hour
- Difference between preparing to perform and performance
- Need something that ties performance to the contract
- Ex: Offer to paint house
- Buying paint can be simply preparation
- Unless: special paint, indicates the commencement of performance
Formation under the UCC:
-
2-205: 3 month limitation
2-206: acceptance by reasonable method, RS changed to this as well
2-207: Rescinds mirror-image rule, can add stipulations
2-207(2): Additional terms = proposals, if merchants: can be immaterial
Rolling Contracts:
- an agreement is formed over time
Misrepresentation: Interferes with Mutual assent
-
- Concealment = assertion
Actionable misrepresentation:
-
Justifiable reliance is a lower burden than reasonable reliance
Detriment likely needs it, but not said in RS
Mistake: Hopefully won’t be tested on this (I do not trust him)
- must be about a basic assumption on which the contract was made
- Party seeking relief cannot bear the burden of the mistake (risk due to circumstances,
notions of fairness, etc.)
Unconscionability: last hope
- Procedural
- Substantive
-
-
“Shock the conscious of the court”
- Could be a single term or the contract as a whole
- No reasonable person would agree to this, and no fair person would want to
enforce it
ex: Couple that had bought rental furniture but would lose all of their furniture if they
missed one payment
Large differential of bargaining power
Contract Meaning and Interpretation: Express terms
Implied terms:
- Course of performance
- How these parties have dealt with each other in this transaction
- Course of dealing
- Prior transaction, its how the industry communicates
- Usage of trade
- Good faith
- Legally imposed
- Applies to enforcement (not negotiation)
Gap fillers:
- Reasonable time for perform
Good faith:
Parole Evidence Rule:
- Keeps express rule out of agreemnt
- Only applies:
- When there is writing
- Prevents modification
-
Explanatory: will come in
Supplemental: will likely come in
Contradictory: will not be relevant
Implied and Express Conditions:
- Jacob and Youngs v Kent
- Redding pipe breach, but breach did not excuse Kent from paying remaining
price
Substantial Performance and Material Breach:
- if sub performance - not material breach and vice versa
- Applies only to implied conditions, express conditions must be performed
Excuse:
- Impracticability
- Frustration of Purpose
-
-
Used rarely
Normal Measure: Expectancy
- Other measures can be used when no expectancy
Final advice:
- take your time
- Read the Q multiple times (really important, reread the fact pattern, highlight points +
implications)
- 2 questions: read each at least 3 times
- Before writing anything:
- Consider whether each subject covered applies
- Performance issue, breach issue, damage questions, etc.
- Essentially determine the call of the question
- Outline Answer before you write anything
- Best method to answer the final exam
- Better off writing less + more clearly to get a better grade
- Review Call of Q before writing (MOST IMPORTANT)
Questions/Answers:
- Option contracts:
- Partial performance locks in part of the contract, does person need to be aware?
- In due course yes, but not immediately
- Reliance Damages cannot exceed expectancy damages, why?
- Contract is a losing contract for the party not in breach, and so the reliance
damages in breach exceed the expectancy damages
- Policy Q
- Ex: House that cost more than it was worth in value
Essay Practice:
- Alpha contracts to sell electricity to Norne for a fixed priced
- Norne made a contract to sell electricity to the manufacturer at an extra 10% cost
- Issues:
- 1) What law applies (UCC article 2 or common law)
- Movable good, electricity is a good for the sake of article 2 of the UCC
- So examine the good type
- Answer the same under Article 2 or Common Law
- 2) Is Norne excused by impracticability of performance
- Basic assumption that you would have enough electricity
- Idea that you would have enough power plants go down would not have
been in the mind of Norne at the time
- If Norne excused, no liability to manufacture
- (Reasonably in doubt. Address it under both scenarios)
- 3) What is Norne’s liability for damages?
- 2-713:
- Market price - contract price + Incidental Damages +
Consequential damages - Expenses saved
-
-
-
-
-
Direct loss:
- What was expected between what was received
- Electricity Norne did not provide
- 200K Kwh hours x price x 15 days
- Difference between wholesale and retail value
- 2.160 Million if wholesale or 2.376 Million if retail, I would
say retail
4) How do we calculate the cost avoided?
- Cost avoided:
- 2.376 million or 396K
5) How should Contract Price/Cost Avoided be calculated
- Risk of market fluctuation on the manufacturer
- Cost avoided is on 2.376, which would mean no damages
6) Consequential damages: are lost profits recoverable
- Lost profits of 300K
- Subject to foreseeability and Certainty
- Foreseeability:
- Could probably foresee that if you don’t provide electricity that it
will shut down
- Does get past foreseeability test
- Certainty: Last years profit x 15/365
- No reason to assume last years profit is a good measure of this
years profit
- Could not be representative of a typical year
- Not readily shown that profit is evenly distributed over an entire
year
- Big certainty problem
- History of profit is useful, but question of reasonable certainty
- Assumption no market damages, but that consequential damages are
foreseeable and reasonably certain
Norne’s liability to manufacturer is 300k
Liability of Alpha to Norne:
- Extra loss: 300K
- Is Alpha excused?
-
Clearly not, was unaffected by the storm, chose to breach because others were
affected by the storm
- Direct loss:
- 72 cents x 200K/day x 15 days
- Cost avoided:
- 360K
- No loss avoided
- 2,160,000 + 300K - 360K - 0
- 2.1 million
Norne expected to make:
- 36K in total from Alpha
- Would get 2.1 million - 300K = 1.8K
Does this total overcompensate?
- Yes, purpose of contract is to put the other in the position of full performance
- Don’t want to punish breach, want to encourage performance, if not liable no incentive to
perform
Question 1(b)
- Direct loss: 2.16 Million + Extra loss: 0 - Cost avoided: 360K - Loss avoided: 0 = 1.8
Million
Expectation:
-
-
-
Norne is 180K better off even if it gets nothing from Alpha, adding 1.8 million is a big
overcompensation problem
- Contracted for the benefit of the electricity, no reason to treat these contracts as
linked
- Norne owned to right of performance from Alpha, gives incentive to
perform despite resulting in overcompensation
Truly injured party is manufacturer:
- Alpha Liable to Norne, and if Norne collects money from Alpa, Manufacturer has
unjust enrichment claim from Norne
Question 2:
- 1) Has offer been accepted by part perfromance?
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-
-
-
-
-
Accept by performance, by beginning performance that creates an option
contract
- Prep to perform? Or performance?
- Studied, has done more than begin preparations, she has begun to perform
- Option contract has been created and the offer cannot be revoked
2) SoF problem?
- Contract was oral
- More than a year to perform
- Only within SoF if it is IMPOSSIBLE to perform within a year, that is not the case
here, so no SoF problem
3) Is there a consideration problem?
- Yes, undeniably, consideration in Hammer v Sidway
- Company wanted performance, bargained for exchange, promise is inducing
performance and vice versa
4) Has Helicopterys excused by frustration of purpose?
- Political event that frustrated
- Principal purpose needs to be completely frustrated
- Circumstances that render a party’s performance virtually non-beneficial
- Her performance can be valuable later
- Company is in a better position to better handle circumstances that would
be difficult, Helicopterys bears the risk
- No Excuse based on frustration of purpose
5) has not completed performance, duty to mitigate damages
- No completion to performance if mitigation occurs
- How does mitigation apply to an option contract?
- Cost avoided = cost of prep for exam and the exam
- Reliance damages is not the right type of damages here
Damages question:
- Beginning is the calculation of damages
Option contract:
- beginning of performance creates an option contract
- Has not accepted because performance has not been completed
- If no repudiation: no money till completion
- Repudiation: Hockster - claim for breach
Mitigation - Unreasonable rewards (public policy): how to approach this
- Issue spotting = points
- Points for each side of a discussion
Repudiation:
- 1000 hours are reliance damages, not expectancy damages
- He does not think these are relevant
- Benefit to the promisee does not deny remedy
Expectancy damages alternatives; Problem 1 2021 final
- if 0 or inappropriate
- Ex: Sullivan v O’Connor - gave the difference between what she started with and what
the nose was worth after the operation
- Sometimes reliance is allowed when there is no expectancy damages
0