April Contracts Class Notes PDF

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Lecture notes for the entire month of April...

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April 5th, 2021 Finish Measuring Damages Damages o How should we measure Hawkin’s loss?  Expectation Measure:  Purpose of contract remedies is to be where they would have been if contract had been fulfilled o So difference between hand as it was promised and hand as it was received  Reliance Measure:  Difference between burned hand before and the burned and hairy hand after  Tprt type remedy  Putting you where you would’ve been if you never entered into the agreement  Restitution Measure: o These are alternatives for the same concept o If damages don’t put you in the right place then it was probably a losing contract (bad forecasting) o Put party in position ex-post whole (if damages didn’t occur) o Expectation Damages o Goal: To put non-breaching party in as good a position as if breaching party had fully performed o See slides Measuring Direct Damages o White v. Benkowski (neighbors’ water dispute) o Hard to measure losses like having to take kid to neighbor’s house to bathe them o Van Wagner Advertising (loss of billboard at busy tunnel) o Should get money you would have gotten during lease o Not speculative- in the lease o Hooker v. Roberts Cabinet (unwanted partially built cabinets) o Egerer v. CSR o Jacob & Youngs v, Kent (Non-Reading pipe) o Rather than measuring cost of performance (default measure – how much would it cost for another party to do what they were going to do) o Don’t want person breaching to benefit CASE Groves v. John Wunder Co. Supreme Court of Minnesota 1939 o If you return ground to level here, the value of the property changes very little o So reason for damages here o Willful breach o Not made in good faith

o Some sense that at the time of contracting defendant/John Wunder knew how much it would cost to return property to grade and chose not to do so o What was motivating dude to ask for the property to be returned to grade? o They’re going to sell the house and leveling off the ground doesn’t add anything to the sale so what is the point? CASE Peevyhouse v. Garland Coal & Mining Co. Supreme Court of Oklahoma 1962 o Very similar to Groves but different outcome o Why a different outcome? o Would require $29,000 to return farm to grade o Defendant says the loss of market value from not returning it to grade is $300 o Jury awards $5,000 o Oklahoma precedent: Archer case about oil well  Court says drilling oil well is different  court assuming the value of grading is dependent on whether or not it has market value o Court is saying if they perform it is a waste of resources o In evaluating whether a breach is sufficient you have to get right the measure of the value  Part of Posner’s arg in the Walgreen’s case  incredibly difficult to calculate the value of Walmart being the only store in the shopping center  why specific performance is what was ordered o Lean heavily on Jacob & Young v. Kent to show the diminution of value is the correct measure of damages o talking about economic waste o Authorities Cited o ALI/First Restatement  “unreasonable economic waste’  Destruction of a nearly completed structure o McCormick on Contracts  “relative economic benefit” o Peevyhouse approach o Damages measure is normally reasonable cost of work, but where remedial work is  Incidental to main purpose, and  grossly disproportionate in cost to increase in value o Then damages are equal to diminution in value o Plaintiff should’ve argued the loss isn’t based on cost when it sells but also when you die and lifetime of farm (not just market value but also enjoyment of simply living on the farm) o Dissent basically saying enforcing contract that wasn’t actually made o No evidence in record for the $5,000- not upheld George says these two cases come out opposite of how they should have

-Diminution of value should’ve been used in Groves April 6th, 2021 Pg. 539-543; 547-559 Mitigation Principle (Skip Bomberger) Limiting Damages 1. Doctrine of Foreseeability a. Must memorize case name of Hadley v. Baxendale 2. Doctrine of Mitigation 3. Doctrine of Certainty (of proof) Mitigation Duty to Mitigate Treats parties as though they took whatever steps necessary, within reason, to minimize the extent of damages suffered as a result of breach, so if non-breaching party unreasonably or dishonestly worsens loss following breach, damages will NOT include compensation for aggravated loss o Non-breaching party cannot recover increased losses resulting from his or her own irrational or unfair behavior; damages are limited to loss that non-breaching party could have avoided without undue risk, burden, or humiliation  Rest § 350 o No real “duty”: non-breaching parties may choose to suffer full consequences rather than take action to avoid, but the court will calculate damages using assuming that reasonable steps taken to reduce harm  no right to MAGNIFY loss (avoidable loss is simply not recoverable – recover any foreseeable loss that could not be avoided (consequential damages)) o Luten Bridge – can only recover for reasonable, unavoidable losses up to point where they definitely knew bridge wouldn’t be happening (reasonable person standard: when reasonable person would have stopped) o UCC 2-715(2)(a): consequential damages include only those that result from requirement sand needs that seller had reason to know and which could not reasonably be prevented by cover or otherwise o Policy justifications for mitigation:  Minimization of loss  Encourage economic rationality  Deter unreasonableness  Provide equitable outcomes  Promote sensible resolutions o Lost volume mitigation rule  Rest § 247 (comment f): would a subsequent K have been adequate substitute?  question of fact regarding whether there was “lost volume”  if so the party recovers based off of net profit lost as result of broken K  if the party would have taken the subsequent K in addition to the K they had then it is no substitute, and the net profit lost as result of broken K is awarded

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UCC 2-715(2)(a): any loss resulting that seller had reasons to know and could not reasonable be prevented o Buyer’s Remedies Under UCC  Direct damages + Incidentals + consequential – Expenses Saved (2-711)  Direct Damages – buyer may choose cover (2-712) or mkt. price (2-713) minus K price  Incidental – UCC 2-715(1) (reasonable expenses incident delay or other breach)  Consequential (foreseeable or personal injury due to warranty breach) o Sellers’s UCC Remedies:  Direct + Incidentals – Expense Saved due to breach (2-703)  Direct damage = K price – (resale (2-706) or mkt price (2-707))  Incidentals are cost for finding substitute seller  No consequentials  Seller may, in exercise of reasonable commercial judgment, either complete or case manufacture (2-704)  Lost Volume Seller Exception (2-708(2)) Employment Mitigation Rule Recovery for wrongful discharge of employment = salary agreed upon under K, LESS amount affirmatively proven employee has earned or with reasonable effort might have earned form other employment.  Must look to NATURE of substitute option: employment must be comparable or substantially similar and rejecting employment inferior cannot be considered failure to mitigate  Parker v. 20th century fox – the job they offered wasn’t actually comparable or substantially similar and she was within rights to refuse and not be penalized for that, they were looking for loophole o Distinguish employment from commercial Ks  employment is more to people than $$  Parker wanted to use her specific skills (and economy benefits when ppl use skills and don’t settle for inferior path)  Luten bridge just wanted $$; buyers and sellers different, just sell your widget! o Usually, determining substantially similar employment requires expert testimony  dissent in Parker points out that this is lacking in this case Rockingham County v. Luten Bridge Co – mitigate damages Jan 1924 board of commissioners awarded plaintiff K for bride construction. New board emerged after some discord. Feb 21, resolution adopted that K for bridge not valid and refusing to recognize - sent to plaintiff. Also rescinded K for road leading to point bridge would be. March 3 resolution to notify plaintiff that work at own risk and hazard, K not valid, did not want bridge, would contest payment - sent to plaintiff. April 7 resolution passed repudiating member insisting bridge be built and noticed this was not recognized. Sept - resolution said would pay not bills by plaintiff. Very little work done at this point ($1900). Court found that bridge co could recover only the funds incurred up to point when a reasonable person would stopped

(probably at Sept resolution) b/c the other losses were avoidable; never confirmed with other party that contract was still on. Performance does not confer benefit on city b/c the road was cancelled and it is bridge to nowhere (no restitution). Unfair, beyond rights, irrational (we want to encourage self-protection from breach) to allow them to drum up damages. -Why not seek quantum meruit (restitution) damages? QM/quasi-contract restitution (unjust enrichment); no benefit was conferred on county; also argument that Plf was trespassing (if you improve one’s property w/o permission, courts conflict on whether recovery permissible) (Plf would’ve run risk that court says to take it down) Shirley Maclaine Parker v. 20th Century Fox – mitigation and employment Parker was hired for lead role in Bloomer Girl, a musical shot in LA for $750,000 guaranteed. 5 days after performance was to commence under K 20th century rescinded and offered Parker lead in Big Country, a western shot in Australia, instead. The K offered was slightly different in that it did not allow Parker ability to approve directors or approve the screenplay, but offered same amount of money. She did not accept. Court held that this employment was not substantially similar and she could not be penalized for failure to accept; the job they offered wasn’t actually comparable or substantially similar and she was within rights to refuse and not be penalized for that, they were looking for loophole. People should be encouraged to use specific skills (and economy benefits when ppl use skills and don’t settle for inferior path – she was progressive female actress/dancer not a dramatic side female part) Usually, determining substantially similar employment requires expert testimony  dissent in Parker points out that this is lacking in this case (saying majority only points out differences in the movies, not the responsibilities) - Also, the parties should have contracted around this inititally In re Worldcom, Inc. – Lost volume seller analysis Def breached endorsement K with Michael Jordan with 2 years left, Jordan claimed he was lost volume seller (mitigating by finding another endorsement wasn’t substitute b/c he could’ve entered into another endorsement regardless of the breach). Court says no, 3 elements of lost volume (seller has burden of proving 1) capability to perform both K’s simultaneously; 2) second K would have been profitable; 3) seller of service would have entered into second K even if first wasn’t terminated); Jordan satisfied first two, not third (burden on him to prove elements, testimony showed he was looking to decrease endorsement presence) April 7th, 2021 Pg. 559-561; 571-574; 582-587; 591-597 Foreseeability (Skip C. Czarnikow and Jackson) & Reasonable Certainty (Skip Florafax) Limiting Damages

CASE Hadley v. Baxendale Court of Exchequer 1854 o The lost profits were consequential damages (flow from the breach) and are under expectation damages o Consequential v. Direct Damages o Ask yourself: do you need to know more about the non-breaching party to know which one it is?? If you do most likely consequential because that means its personal o Neglect does not matter in this case o Neglect usually matters with foreseeability in regards to neglect surrounding a foreseeable risk o Test o Prong 1: Arise naturally according to the usual course of things, from such breach of contract itself  Reason to know/Should’ve known  Is this something that typically happens?  Characteristics of parties  Nature of transaction  What was known at the time of contracting o Prong 2: Reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it  Did know/in writing  “Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated”  Special Circumstances  Communicated or made known (i.e. if the shippers had gone to the mill and seen that it was shut down) o Hadley rule came out of the rise of common couriers o People could no longer rely on their local knowledge of business o shipping and buying everywhere o Majoritarian default rule  both parties would have chosen it before contracting without knowing which side of the breach they would be on o Default rule and can contract around it CASE Allen v. Jones California Court of Appeal 1980 o Carve out special rule for handling dead bodies

o Under prong two of Hadley CASE Deitsch v. The Music Co. Hamilton County Municipal Court, Ohio 1983 o Would have to prove but-for causation for plaintiffs to get what they wanted (but for the missing band they would have enjoyed the reception CASE Sullivan v. O’Connor Supreme Judicial Court of Massachusetts 1973 Not a higher burden still preponderance of the evidence o More that the evidence is expected to be very specific Entertainment industry = lots of uncertainty o Harder in uncertain industries or if it is a new business, etc.

April 12th Virtual Review Session Damages  Foundation o Breach: Broken promise o Classic Remedy: Fulfillment of the broken promise  Compensatory Damages: Broke promise in $$  We usually measure this with expectation damages  Compensatory o Expectation Damages  Direct Damages: $ for someone else to do it typically  Here, diminution in value might be argued  Consequential  Second order flows from the breach  Incidental: Cost associated with finding another party to perform  Very foreseeable  Pro-mitigation  Typically actually incurred so easy to prove with certainty o Limitations  Mitigation  Do not act irrationally when you receive evidence of breach  Usually about consequential damages but sometimes direct  At time of breach  Foreseeability  At time of contracting  Certainty  Alternative Damages

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o :nonbreaching party fails to recover expectation damages, then they can seek an alternative neither  Reliance Damages  Losses incurred in reliance on the K promise  Ex ante whole  Can be hard to determine  Restitution Damages  Gain conferred on the breaching party  Focus on the benefit conferred on the breaching party (ex. deposit paid) Special Issues  Nominal/Declaratory Judgment  We want to deter the breach  Individual lawsuits won’t do enough to ensure efficient breach  Punitive Damages  Specific Performance

April 13th Pg. 657-74; 676-78 Promissory Estoppel (Skip Grouse)

April 14th Pg. 694-97; 707-09 Quasi-Contract (aka Restitution or Quantum Meruit) (Skip Farese and Pyeatte BUT read two substitute cases: Webb and Harrington) 

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Painter Hypo o Contract?  No-no consideration o Promissory Estoppel?  No o Restitution? Cotnam v. Wisdom: Surgery on unconscious accident victim o Contract  Obviously none because he was unconscious  Implied in fact (or tacit) contract?  Would have to conclude that any person would want the aid and therefore you have implied mutual assent  Generally do not rely on implication for formation (more so for implied terms to conclude something like mutuality of obligation)  Formation of contract defined by its voluntariness  Implied in law contract?

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Most people would want a chance at survival Benefit was conferred – us TARP standard so doesn’t matter if person was a Jahoves witness o We want the physicians to help people and don’t want to chill the good behavior, so we use an objective test  How does the implied in law contract differ from the implied in fact contract? o “Whether man is prince or a popper”  Would it be different if it was a good Samaritan trying to help  Wouldn’t be the same benefit Hypo: Housepainter paints wrong house. Should I be forced to pay for improvements? o If the person whose house was supposed to be painted just walks by and waives then they may have contract-in-fact Webb v. McGowin Harrington v. Taylor o Contemporaneous offer to pay is a good insight into how he valued the action at the time

Quasi Contract  Quasi-k claim: (1) received benefit, (2) retained, and (3) unjust without compensation  Must plaintiff prove mutual assent? Consideration? *We assume bilateral contract offers...