October 23, 2008
1. UCC and oral contracts
a. UCC 2-201(2) merchant’s exception
i. Both parties must be merchants with respect to the particular type of
goods; i.e., “in the business”
ii. If shortly after making a verbal contract one merchant sends a definite
written confirmation to the other merchant, it will bind both parties unless
there is an objection within 10 days, even if not signed by defendant.
iii. Look closely at page 344
Chapter 18 – remedies for breach
1. Remedies for breaching contract
a. Someone breaches a contract when he fails to perform a duty without a valid
excuse
b. A remedy is the method a court uses to compensate an injured party
c. Legal remedies
i. Historically those involving money damages, such as Expectation interest
(value of the bargain) and Reliance interest (value of what’s been
expended in reliance on contract).
d. Equitable remedies
i. Historically those involving something beyond mere money…specific
performance
2. Identifying the “interest”
a. Expectation interest – most common – value of contract
i. Designed to put injured party in the position she would have been in had
both sides fully performed their obligations
b. Reliance interest
i. Designed to put the injured party in the position he would have been in
had the parties never entered into a contract or negations
1. Has plaintiff taken any action in reliance upon contract, e.g., hired
workers, bought other goods?
2. Promissory estoppels/detrimental reliance when there is no
contract in place
c. Restitution interest
i. Designed to return to the injured party a benefit that he has conferred on
the other party, which it would be unjust to leave with that person
1. Quantum Meruit in quasi-contract
d. Other equitable interest
i. When money is not sufficient to help the injured party, a court may order a
transfer of property or may issue an injunction to prevent a particular
action from continuing
1. Special performance
a. Land
b. Something unique, one of a kind
c. Specially manufactured
3. Expectation interest
a. Most common interest indentified in a breach of contract: What did the plaintiff
expect to get from the contract?
b. The court tries to give the injured party what he would have received if the
contract had not been breached
c. Think: what is the expected value of the contract to the parties
d. Expectation damages generally fall into these categories:
i. Compensatory (direct) damages, which represent harm that flowed
directly from the contract’s breach
ii. Consequential (special) damages, which represent harm caused by the
injured party’s unique situation; usually lost profits
iii. Incidental damages, which are minor costs such as storing or returning
defective goods, advertising for alternative goods, etc.
4. Hadley vs. Baxandale
a. 1854, still good law today
b. Plaintiff may recover consequential damages – lost profits – only if breaching
party knew of the special circumstances
5. Compensatory damages
a. Compensatory damages are the most common monetary awards
b. Court will determine the value of the bargain
c. The injured party must prove the breach cause damages than can be quantified
with reasonable certainty. Speculative damages generally worthless
d. Compensatories generally flow directly from the contract, such as an order to pay
what was promised or to pay for expenses cause by the breach
6. Consequential damages
a. Consequential damages are those resulting from the unique circumstances of this
injured party
b. Because damage calculation can be complex, there are companies that specialize
in doing work on behalf of litigations or other interested parties
c. Hadley vs. Baxendale Rule applies
7. Incidental damages
a. Incidental damages are the relatively minor costs incurred when the injured party
responds to the breach
b. Examples: re-advertising the goods, storing the goods
8. UCC Remedies for breach of contract
a. Implied rule: parties must act in good faith to mitigate their damages
b. Seller’s remedies if buyer breaches: award of the difference between the original
contract price and the price obtainable on the open market
i. K terms favoring Seller, e.g., $10,000 for goods; buyer breaches; seller
resells goods but makes only $8,500; therefore compensatory damages =
$1,500
ii. Not necessary to resell goods if market price can be objectively
established
iii. Incidents may be recovered, e.g., storage, adverts
iv. Rule: Seller not entitled to consequential damages
c. Implied rule: parties must act in good faith to mitigate their damages
d. Buyer’s remedies if seller breaches?
e. Buyer can “cover,” i.e., buy substitute goods, and then obtain difference between
contract price and substitute goods price
i. B has contract to buy 1000 Christmas trees at $25; market rises steeply
due to shortage in growing season; Seller breaches in attempt to make
more money. Ho Ho Ho. B forced to buy trees for $45 per, therefore can
recover $20 per from seller. This is the value of the bargain that was lost
f. Not necessary to buy substitute goods if market price established
i. But consequential damages not awarded if buyer doesn’t buy substitute
goods