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George Mason School of Law
Contracts II
Foreseeability, Third Parties
F.H. Buckley
[email protected]
1
Foreseeability
2
Hadley v. Baxendale 113
The Hadley Mill, Gloucester UK
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Hadley v. Baxendale
Gloucester to Greenwich
2.5 hrs, according to Mapquest
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Hadley v. Baxendale
Tel: 011-44-203-188-2100
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Hadley v. Baxendale
 Just why do you think Pickfords is out
of the business?
 Milgard Tempering at 117
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Hadley v. Baxendale
 Where the damages are astronomical,
are you sure who the least cost risk
avoider is?
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Hadley v. Baxendale
 Where the damages are astronomical ,
are you sure who the least cost risk
avoider is?
 Qu. Western Industries at 966
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Hadley v. Baxendale
 Just what was the Δs told?
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Hadley v. Baxendale
 Just what was the Δs told?
 What if the headnote had been
correct?
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Hadley v. Baxendale
 Just what was the Δs told?
 What if the headnote had been
correct?
 Why might this be a rule of
efficiency?
11
Just what is “on the cards”?
Sprang Industries 957
Battenkill
Brudge
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Just what is
“on the cards”?
 Fort Pitt Bridge
 Why did the problem arise?
13
Just what is
“on the cards”?
 Fort Pitt Bridge
 Fort Pitt breached by delivering late, with
the result that Torrington incurred extra
damages in pouring cement in cold
weather
 Could Torrington recover for these
expenses?
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Just what is
“on the cards”?
 Fort Pitt Bridge
 Could Torrington recover for these
expenses?
 Yes, since the alternative of waiting
another 8 months would have increased
the damages even more
 A reasonable effort at mitigation
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Increased labor costs in
Cricket Alley 962
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Increased labor costs in
Cricket Alley
 What was the promise?
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Increased labor costs in
Cricket Alley
 What was the promise?
 And what expenses did Cricket Alley
incur as a consequence of the
breach?
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Increased labor costs in
Cricket Alley
 If increased labor costs are
foreseeable, why not lost profits?
Same diff…
 Recall Drews (new restaurant)
 Cook v. Woornick 965
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Emotional Distress
 Valentine at 967
 Is it foreseeable that one might suffer
emotional distress on being fired?
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Emotional Distress
 Valentine at 967
 Is it foreseeable that one might suffer
emotional distress on being fired?
 So why no recovery?
 Restatement § 353.
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Emotional Distress
 Is Allen v. Jones consistent with
Valentine?
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Jules et Jim
Mitigation
Luten Bridge: Building bridges to nowhere
Mebane Bridge Road, Eden NC
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Mitigation
Shirley MacLaine
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Mitigation:
Shirley MacLaine
 Which film was the biggest turkey?
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Mitigation:
Shirley MacLaine
 Which film was the biggest turkey?
 Was she entitled to do nothing?
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Mitigation:
Shirley MacLaine
 Which film was the biggest turkey?
 Was she entitled to do nothing?
 What if she had immediately walked
in to a better contract?
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Mitigation
 What if the injured party is a business
that gets new clients after the
breach?
 Kersage Computer at 978
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Liquidated damages
 Restatement § 356
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Lake River v. Carborundum
Restatement § 356
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Lake River v. Carborundum
 Lake River to bag and ship
Carborundum’s Ferro Carbo
 Why did LR insist on a liquidated
damages clause?
31
Lake River v. Carborundum
 Lake River to bag Carborundum’s
Ferro Carbo
 Why did LR insist on a liquidated
damages clause?
 And why was this a penalty?
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Lake River v. Carborundum
 And why was this a penalty?
 So what’s wrong with penalties?
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Lake River v. Carborundum
 And why was this a penalty?
 So what’s wrong with penalties?
 Lemons and signalling
 A suitable case for paternalism?
 The efficient breach argument?
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C and H Sugar
MV Moku Pahu
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C and H Sugar
 Sun to pay damages of $17K/day after
delivery date of June 30, 1981
 Sun completed the barge on March 16,
1982
 Halter supplies the catamaran tug boat
on July 15, 1982
 Sun assembles tug to barge in July ‘82
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C and H Sugar
 Sun to pay damages of $17K/day after
delivery date of June 30, 1981, or
$4.4M
 Was this in excess of the damages
actually suffered?
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C and H Sugar
 Sun to pay damages of $17K/day after
delivery date of June 30, 1981
 Was this in excess of the damages
actually suffered?
 How does UCC § 2-718 assist?
 “anticipated or actual”
 A problem of concurrent causation
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C and H Sugar
 Sun to pay damages of $17K/day after
delivery date of June 30, 1981
 Was this in excess of the damages
actually suffered?
 Qu. Unit Vending v. Tobin at 990
39
Third Party Rights
 A wants to enter into a contract with
B in which B agrees to benefit C. How
should this be drafted?
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Third Party Rights
 A wants to enter into a contract with
B in which B agrees to benefit C. How
should this be drafted?
 Are we sure that A wants C to have the
right to sue B for non-performance?
 And why might he not?
41
Third Party Rights
 A wants to enter into a contract with
B in which B agrees to benefit C. How
should this be drafted?
 Suppose we are sure A wants C to have
the right to sue B for non-performance
 How to do it?
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Third Party Rights
 A wants to enter into a contract with
B in which B agrees to benefit C. How
should this be drafted?
 Suppose we are sure A wants C to have
the right to sue B for non-performance
 Join C as a party to the contract
43
Third Party Rights
 A wants to enter into a contract with
B in which B agrees to benefit C. How
should this be drafted?
 Suppose we are sure A wants C to have
the right to sue B for non-performance
 Suppose C has just departed in a hot air
balloon and has left his BlackBerry behind?
44
Third Party Rights
 A wants to enter into a contract with
B in which B agrees to benefit C. How
should this be drafted?
 Suppose we are sure A wants C to have
the right to sue B for non-performance
 Suppose C has just departed in a hot air
balloon and has left his BlackBerry behind?
 Did he leave an agent behind?
45
Third Party Rights
 A wants to enter into a contract with
B in which B agrees to benefit C. How
should this be drafted?
 Suppose we are sure A wants C to have
the right to sue B for non-performance
 Suppose C is not yet born or identified
 “the winner of the 2012 Booker Prize”
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Third Party Rights
 Trust relationships
“settlor”
A
“trustee”
B
C
“beneficiary”
“cestui que trust”
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Third Party Rights
 Trust relationships
“settlor”
A
“trust res”
“trustee”
B
C
Legal Interest
Beneficial Interest
“beneficiary”
“cestui que trust”
48
Restatement 302
 So when would you rely on it?
 “appropriate to effectuate the intention
of the parties”
 Either:
 Satisfies an obligation of the promisee to
pay money to the beneficiary; or
 Circumstances indicate that the promisee
intends to give the beneficiary the benefit
of the promise
49
Restatement 302
 So when would you rely on it?
 “appropriate to effectuate the intention
of the parties”
 Either:
 Satisfies an obligation of the promisee to
pay money to the beneficiary; or
 Circumstances indicate that the promisee
intends to give the beneficiary the benefit
of the promise
50
Lawrence v. Fox
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Lawrence v. Fox
Holly
$300
Fox Δ
Lawrence Π
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Lawrence v. Fox
 Was the promise revocable?
 Was Fox an agent of Lawrence?
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Lawrence v. Fox
 Was the promise revocable?
 Was Fox an agent of Lawrence?
 Why didn’t Lawrence sue Holly?
 Restatement 304
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Lawrence v. Fox
 Does every externality give rise to
third party rights?
 Eisenberg’s hypothetical bargain
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Donee Beneficiaries
 Restatement 302(1)(b)
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Donee Beneficiaries:
Seaver 1009
 Restatement 302(1)(b)
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Donee Beneficiaries:
Seaver 1009
Mrs Beman
Judge
Seaver (niece)
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Donee Beneficiaries:
Seaver 1009
 Why didn’t a trust relationship arise?
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Donee Beneficiaries:
Seaver 1009
 Why didn’t a trust relationship arise?
 Natural obligations to family
members
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Donee Beneficiaries:
Drake 1012
 Why shouldn’t the child be able to
sue?
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Donee Beneficiaries:
Drake 1012
 Why shouldn’t the child be able to
sue?
 What’s the distinction between a promise
to pay college tuition and a promsie for
periodic support?
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Donee Beneficiaries:
Drake 1012
 Why shouldn’t the child be able to
sue?
 What’s the distinction between a promise
to pay college tuition and a promise for
periodic support?
 “The duty ceases when the adult child
refuses to heed to parent’s reasonable
restrictions and leaves the custodial
home”
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Creditor Beneficiaries
 Restatement 302(1)(a)
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Creditor Beneficiaries:
Hamill 1017
Hamill
Operating capital
Gunnell
Maryland
(performance bond)
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Creditor Beneficiaries
 In what sense was Maryland a third
party beneficiary?
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Creditor Beneficiaries
 In what sense was Maryland a third
party beneficiary?
 Hamill promised to finance Gunnell and
must have known about the need for a
performance bond
 Gunnell owed Maryland
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Creditor Beneficiaries:
Pierce 1020
Pierce
subcontractor
HVAC
Gilbane
contractor
Nemours
owner
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Summing up
 An understanding of the common
law…
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Blackstone at the DC Circuit
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Blackstone
at the DC Circuit
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Blackstone
at the DC Circuit
The law of England abhors, and will not endure the
existence of, slavery within this nation: so that when
an attempt was made to introduce it, by statute … the
spirit of the nation could not brook this condition, even
in the most abandoned rogues; and therefore this
statute was repealed in two years afterwards.
And now it is laid down, that a slave or negro, the
instant he lands in England, becomes a freeman; that
is, the law will protect him in the enjoyment of his
person, his liberty, and his property.
Commentaries I.14 (1765)
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R. v. Somerset (1772)
Granville Sharp
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R. v. Somerset (1772)
Granville Sharp
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R. v. Somerset (1772)
Wm Murray, Earl Of Mansfield
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R. v. Somerset (1772)
The state of slavery is of such a nature, that
it is incapable of being introduced on any
reasons, moral or political, but only by
positive law, which preserves its force long
after the reasons, occasion, and time itself
from whence it was created, is erased from
memory. It is so odious, that nothing can be
suffered to support it, but positive law.
Whatever inconveniences, therefore, may
follow from the decision, I cannot say this
case is allowed or approved by the law of
England; and therefore the man, James
Somerset, must be discharged.
76
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