Sec. 4. Performing in good faith p.522
Rest. § 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.
UCC § 1-304. Obligation of Good Faith.
- Every contract or duty within [the Uniform Commercial Code] imposes an obligation of good faith in its performance and enforcement.
Dalton v. Educ. Testing Serv., NY, 1995, p.522
- P, student, Dalton ; D- ETS ; preliminary cancelation of SAT score ; ETS looked at only the disparate handwriting and not other information provided by Dalton ;
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- Good faith and fair dealing in the course of contract performance is implicit in all contracts
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Eastern Air Lines, Inc. v. Gulf Oil Corp., 1975 (oil shock), FL, p..77, p.526
- Eastern and Gulf have enjoyed a mutually advantageous biz relationship involving the sale and purchase of aviation fuel. Gulf demanded price increase. Eastern filed a complaint, alleging that Gulf had breached its contact and requesting injunctions requiring Gulf to perform the contract.
- Gulf argued that (i) the contract is not a binding requirement contract in that it lacks definiteness and mutuality, (ii) Eastern violated the contract by manipulating its requirements through “fuel freighting”, (iv) the contact is commercially impracticable,
Whether requirements contract
- A requirements contract is a contract in which one party agrees to supply as much of a good or service as is required by the other party, and in exchange the other party expressly or implicitly promises that it will obtain its goods or services exclusively from the first party (wiki)
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- (DO- in Mattei, If one of the promises leaves a party free to perform or to withdraw from the agreement at his own unrestricted pleasure, the promise is deemed illusory and thus no consideration)
- Under the UCC, requirements contracts are enforceable
- Where airline and its fuel supplier had consistently over the years relied upon each other to act in good faith in the purchase and sale of required quantities of aviation fuel, …, contract which called for oil company to supply the airline with its requirements for aviation fuel was enforceable.
Whether violated the requirements contract
- “Between merchants, "good faith" means "honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade"”
- the airline was not violating contract for sale of aviation fuel by manipulating its requirements through “fuel freighting.”
Whether commercially impracticable
- In UCC, there must be (i) a failure of a pre-supposed condition, which was (ii) an underlying assumption of the contract, which failure was (iii) unforeseeable, and (iv) the risk of which was not specifically allocated to the complaining party.
- insufficient … , because of increase in market price of foreign crude oil …, requirements contract covering sale of aviation fuel had become commercially impracticable.
- Since … the so-called energy crisis were reasonably foreseeable at the time that requirements contract for sale of aviation fuel was executed, seller could not avoid obligations under the contract on grounds of commercial impracticability
Remedy
- Airline which had entered into contract with oil company to purchase the airline's requirements of aviation fuel at certain cities for a five-year period … was entitled to specific performance of the contract
Market Street Assocs. Ltd. Partnership v. Frey, 941 F.2d 588, 7th Cir. p.529
- The concept of the duty of good faith like the concept of fiduciary duty is a stab at approximating the terms the parties would have negotiated had they foreseen the circumstances that have given rise to their dispute. The parties want to minimize the costs of performance.
Bloor v. Falstaff Brewing Corp.,1979,
- Contract between breweries under which the P sold its own biz to D ; P would get a percentage of the sale of its brand (royalty) ; D would use its best efforts to promote P’s former product ; liquidated damage clause in case of breach of duty by D ; D went through financial difficulties and scaled down ads of P’s product .
Held
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Lockewill, Inc. v. US Shoe Corp.,., 1976, <good faith in termination> p.540
- exclusive distribution oral agreement in 1965 ; the agreement silent as to its duration ; about 1970 boss of manufacturer was changed ; large department store induced the manufacturer into permission of the sale and was refused ; by 1973, finally an arrangement had been made ; issue - whether breach of exclusivity provision of the agreement ?
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- Statute of Frauds
Sec. 5, public policy p.543
Bovard v. Am. Horse Enters., 1988,
- The seller of a business sued the buyer to recover on promissory notes executed in connection with the sale ; the sold biz manufactured drug paraphernalia
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X.L.O. Concrete Corp. v. Rivergate Corp., 1994, p.549
- P, sub-contractor, XLO ; D general contractor ; D negotiated the contract with full knowledge of the anti-trust conspiracy. P completed the work. D refused to pay for it, alleging an affirmative defense of antitrust illegality
- "successful interposition of antitrust defenses is too likely to enrich parties who reap the benefits of a contract and then seek to avoid the corresponding burdens"
- Nevertheless, antitrust defenses will be upheld … where a court's judgment would result in enforcement of the "precise conduct made unlawful by the Act"
- the contract was legal on its face and did not contemplate conduct in violation of the antitrust laws in its performance;
- the critical question was whether the contract was so integrally related to the agreement in restraint of competition that its enforcement would have resulted in compelling performance of the precise conduct made unlawful by the antitrust laws;
Hopper v. All Pet Animal Clinic, 1993, <covenant not to compete> p.557
- Upon a condition of accepting full-time employment with appellees clinic and corporate entity, the appellant veterinarian agreed to comply with a written covenant not to compete. The covenant included terms prohibiting the veterinarian from practicing small animal medicine for three years from termination within five miles of the city
- The vet violated ; the clinic sought injunctive relief and damage for breach of covenant not to compete contained in the employment agreement
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- Analysis (i) enforceability of covenant not to compete, (ii) remedy for violation of covenant not to compete
Enforceability of covenant not to compete
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- Initial burden is on employer to prove that covenant not to compete is reasonable and has fair relation to, and is necessary for, business interests
- “a restraint is reasonable only if it (1) is no greater than is required for the protection of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public."
- Generally, employer is not entitled to protection against ordinary competition
- Valid and enforceable covenant not to compete requires showing that covenant is: (i) in writing; (ii) part of contract of employment; (iii) based on reasonable consideration; (iv) reasonable in durational and geographical limitation; and (v) not against public policy.
- While she was a licensed and trained veterinarian when she accepted employment, the additional exposure to clients and knowledge of clinic operations her employers shared with her had a monetary value for which the employers are entitled to reasonable protection from irreparable harm.
- Termination by employer of at-will employee must be in good faith if covenant not to compete is to be enforced.
Sheets v. Teddy's Frosted Foods, Inc.,. 471
- Employee began to notice deviations from the specifications contained in the employer's standards and labels, which violated the provisions of the Connecticut … Food, Drug … Act …. Employee communicated in writing to the employer regarding the deviations. … terminated
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- Whether to recognize an exception to the traditional rules governing employment at will so as to permit a cause of action for wrongful discharge where the discharge contravenes a clear mandate of public policy.
Balla v. Gambro, Inc., 1991, p.568
- An attorney, in-house counsel, represented to his employer that he would do whatever was necessary to stop the sale of certain misbranded and/or adulterated dialyzers. The employer fired the attorney, and the attorney filed an action for retaliatory discharge.
- “House counsel” attorney had no cause of action against employer for retaliatory discharge where employer, a manufacturer of kidney dialyzers, discharged attorney after attorney told employer that he would do whatever was necessary to stop employer's sale of defective dialyzers; although discharge was in contravention of important public policy favoring effect of protection of lives and property of citizens, under these facts that public policy is adequately safeguarded by rules of professional conduct which require attorney to reveal information about client to extent necessary to prevent client from committing act which would result in death or serious bodily injury. Rules of Prof.Conduct, Rule 1.6(b)
Simeone v. Simeone, 1990, p.571
- upheld the validity of a prenuptial agreement
- (1) terms of prenuptial agreement were binding on wife, without regard to whether terms were fully understood by wife prior to execution; (2) wife, who executed agreement reciting that each of parties considered agreement fair, just and reasonable, was foreclosed from asserting that it was not in fact reasonable; (3) wife failed to prove by clear and convincing evidence that husband's disclosure of assets in agreement was understated; and (4) wife failed to prove that agreement was executed under conditions of duress
In re Baby M, 1988, NJ, p.575
- Natural father and his wife brought suit seeking to enforce surrogate parenting agreement, to compel surrender of infant born to surrogate mother, to restrain any interference with their custody of infant, and to terminate surrogate mother's parental rights to allow adoption of child by wife of natural father.
- held that: (1) surrogate contract conflicted with laws prohibiting use of money in connection with adoptions, laws requiring proof of parental unfitness or abandonment before termination of parental rights is ordered or adoption is granted, and laws making surrender of custody and consent to adoption revocable in private placement adoptions; (2) surrogate contract conflicted with state public policy; (3) right of procreation did not entitle natural father and his wife to custody of child; (4) best interests of child justified awarding custody to father and his wife; and (5) mother was entitled to visitation with child.
Chap. 7 remedies for breach (p.583)
1., specific relief (p.584)
Campbell Soup Co. v. Wentz, 172 F.2d 80, 1948, 3rd Cir., p.584
(1), Whether specific performance (i) inadequacy of legal remedy, (ii) court supervision
(2) Whether unconscionable
- Fact : contract carrot, contract price $23, market price at that time $90
- Campbell filed a suit to enjoin further sale of the contract carrot to others and to compel specific performance of the contract
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- Here, legal remedy is inadequate, given that (DO- uniqueness of the subject matter of the contract Chantenay carrot = no other remedy effective than the specific performance)
- (i) the goods of the special type contracted for are unavailable on the open market, (ii) the P uses the carrot in large quantity, furnishing seed to the growers, (iii) its color and texture differ from other varieties, (iv) substitute ingredient probably not as good as the original
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- (i) manner of delivery or other specifications, Campbell’s determination of conformance with the manner shall be conclusive, (ii) liquidated damage for breach of contract only by the carrot grower, not by Campbell,
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Klein v. PepsiCo, Inc., p.588
- contract for a sale of a used corporate jet,
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- (i) money damages would make Klein whole, (ii) Klein argued that he wanted the plane to resell it for a profit. … an increase in the cost of a replacement does not merit the remedy of specific performance, (iii) the aircraft was NOT so unique as to merit an order of specific performance
Personal service
- A court will not order specific performance of a contract to provide a personal service
- (i) difficulty of passing judgment on the quality of performance
- (ii) undesirability of compelling the continuance of personal relationship after dispute has arisen and confidence and loyalty is shaken
Laclede Gas Co. v. Amoco Oil Co., p.596
Mutuality
- A bilateral contract is not rendered invalid and unenforceable merely because (only) one party has the right to cancellation while the other does not; there is no necessity that for each stipulation in a contract binding the one party there be a corresponding stipulation binding the other.
- … right of immediate cancellation (of purchase contract) at any time and for any reason … would have rendered all its other promises in the agreement illusory so that … a complete failure of consideration. (Under Missouri law, a cancellation clause will invalidate a contract only if its exercise is unrestricted (arbitrary).), Here, … propane gas purchaser's right of cancellation … neither arbitrary nor unrestricted (DO- illusory – feel free to cancel a contract or promise at his own unrestricted pleasure)
Requirements contract
- So-called “requirements contracts” are routinely enforced where the needs of the purchaser are reasonably foreseeable and time of performance is reasonably limited.
Specific performance
- Distributing utility was entitled to specific performance of propane gas supply contract as to residential developments for which a supplemental agreement form had been signed where as to such developments the designated supplier was to supply all propane which was reasonably foreseeably required, utility was to purchase the required propane and pay contract price therefor, last covered subdivision was to be converted to natural gas in ten to 15 years and although propane was readily available on open market there was no assurance that utility could obtain long-term supply contracts such as one at issue and even if it could it would face considerable expense and trouble which could not be estimated in advance
N. DE Industrial Development v. E. W. Bliss Co.,
- Dispute involving construction project in which plaintiff sought an order compelling defendant to requisition 300 additional workmen for a night shift.
- held that court of equity would not require defendant to hire 300 additional workmen for a night shift in view of (i) imprecision of contract provision – nowhere in the contract does defendant undertake to supply any specific number of laborers - and in view of the (ii) impracticability if not the impossibility of effective enforcement by the court of mandatory order designed to keep a specific number of men on the job at site of steel mill which was undergoing extensive modernization and expansion.
- (Cf, Campbell soup Co. – specific relief granted if it can be given without supervision of the court)
Walgreen v. Sara Creek Property,
- The anchor tenant in a landlord's shopping center was going out of business and the landlord sought to lease the space to a competitor of plaintiff's, in violation of the exclusivity clause in plaintiff's lease. Tenant which operated pharmacy in shopping center brought suit for breach of contract against landlord and competitor.
- The trial court granted permanent injunction enforcing exclusivity clause in lease wherein landlord promised not to lease space in mall to competing pharmacy. (phrase !!)
- The court engaged in costs/benefits analysis that must be weighed in deciding whether to grant an injunction, and affirmed.
- When issue is whether to grant a permanent injunction, rather than a temporary one, burden is to show that damages are inadequate, not that denial of the injunction will work irreparable harm; “irreparable” … has nothing to do with whether to grant a permanent injunction, which is the final judgment.
- … concluding that the costs (including forgone benefits) of the damages remedy would exceed the costs (including forgone benefits) of an injunction. (cost of (i) continuing supervision ; (ii) third-party effects ; (iii) “bilateral monopoly,” in which two parties can deal only with each other, (iv) The only substantial cost of the injunction … it may set off a round of negotiations between the parties) ;; cost of damage remedy (i) The determination of Walgreen's damages would have been costly in forensic resources and inescapably inaccurate,
Sec. measuring expectation p.606
expectation measure
- the usual remedy for breach of contract is an award of damages, based on expectation interest, ; a sum of money that will put the promisee in the position he (the promisee) would have been in, had the promise been performed, ; it is said , ‘received the benefit of the bargain’ or ‘the promisee was made whole’
REST 2d CONTR § 347 Measure of Damages In General
** <damages = (i) loss in value + (ii) other loss – (iii) cost and loss avoided> **
- Subject to the limitations stated in §§ 350-53, 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 the breach, less
- (c) any cost or other loss that he has avoided by not having to perform.
Other loss = incidental loss
- e.g., a party pays brokerage fees in arranging a substitute transaction
- cost in halting delivery, in transporting goods after breach by recipient
§ 348. Alternatives to Loss in Value of Performance
- (3) If a breach is of a promise conditioned on a fortuitous event and it is uncertain whether the event would have occurred had there been no breach, the injured party may recover damages based on the value of the conditional right at the time of breach.
e.g. A offers a $100,000 prize to the owner whose horse wins a race at A's track. B accepts by entering his horse. When the race is run, A wrongfully prevents B's horse from taking part. Although B cannot prove that his horse would have won the race, he can prove that it was considered to have one chance in four of winning because one fourth of the money bet on the race was bet on his horse. B has a right to damages of $25,000 based on the value of the conditional right to the prize.
d. Fortuitous event as condition. In the case of a promise conditioned on a fortuitous event (see Comment a to § 379), a breach (on the part of promisor) that occurs before the happening of the fortuitous event may make it impossible to determine whether the event would have occurred had there been no breach. It would be unfair to the party in breach to award damages on the assumption that the event would have occurred, but equally unfair to the injured party to deny recovery of damages on the ground of uncertainty. The injured party has, in any case, the remedy of restitution (see § 373). … the alternative remedy of damages based on the value of his conditional contract right at the time of breach, or … the value of his “chance of winning.”
Vitex Mfg. Corp. v. Caribtex Corp., 1967, <cost and loss avoided includes overhead expense?> p.609
- Vitex (processor), Caribtex (supplier of material) ; processor and supplier of the material enter into a contract. The processor re-opened the plant and made all the necessary preparation (DO- reliance interest). But no material was forthcoming from supplier. Processor brought a suit to recover the profit lost through supplier’s breach.
- Issue - in determining the amount of profit lost, whether to consider overhead expense as cost and loss avoided and, accordingly, damage should be reduced
- Supplier of material argued that profits lost = gross profits – cost including overhead expense
overhead expense
- The continuous expenses of the biz, irrespective of the outlay on a particular contract, e.g. executive and clerical salaries, property taxes, general administration expenses.
Rule
- In a claim for lost profits, overhead expense should not be treated as cost and loss avoided,
- (lost profits = gross profits – cost, not including overhead expenses)
- the seller's measure of damage for non-acceptance or repudiation is (1) the difference between the contract price and the market price,, but if this relief is inadequate to put the seller in as good position as if the contract had been fully performed, then,, the measure of damages is (2) the profit (including reasonable overhead) which the seller would have made from full performance by the buyer. (= “a lost volume seller”)
reasoning
- the difficulty in exactly ascertaining the processor’s (the aggrieved party’s) cost is due to supplier’s wrongful conduct in repudiating the contract before performance by processor. the supplier will not be permitted to benefit by the uncertainty it has caused. (DO- uncertainty should be resolved in favor of the aggrieved party)
- Since the overhead expenses remained constant, do not bear a direct relationship to any individual transaction,, in no way attributable to the contract with the supplier.
- overhead expense is “loss incurred” – e.g. overhead expense is 100, five transaction, 20, four transaction, 25, ; thus, this loss is within “losses caused and gains prevented”
- UCC provides for recovery of overhead expenses.
Laredo Hides Co. v. H & H Meat Products., 1974, p.613
<”time is of the essence” payment condition, breach of contract, anticipatory breach >
- Laredo (buyer) agreed to purchase all of seller’s cattle hide production, for a period of time, at a fixed price. The seller brought an action for breach of contract on the ground that the buyer Laredo failed to meet a “time is of the essence” payment condition
- Issue – whether the failure of the Laredo buyer to pay at a time provided in a contact would be a ground for terminating (cancelling) the contract
Rule
- A party has the right to cancel (terminate) the contract only if the other party breached the whole (total) contract (DO- cancel or terminate a contract, only if total or whole breach ; only total or whole breach constitutes actionable breach of contract)
- A party may cancel (terminate) a contract, for failure of the other party to pay at the time provided in a contract, only if the parties intended time to be of the essence (DO- late performance constitute actionable breach of contract only if time is intended to be of the essence)
- e.g., acceptance of late performance may indicate that the parties did NOT intend time to be of the essence
- even though time is intended to be of the essence,, if waiver of the right to demand payment at a time provided in a contract,, may not cancel (terminate) the contract, not constitute actionable breach of contract
here
- the seller delivered the cattle hide with full knowledge that payment would not be made at a time provided in a contract ; seller waived its right to demand payment at the time of delivery ; seller may not terminate (cancel) the contact on the ground of the failure to pay at a time provided in a contract
rule
- Ordinarily, time is not of the essence of a contract, and failure to perform on the exact date agreed upon is not such a breach that justifies a cancellation.
- An anticipatory breach of the entire contract exists if one party thereto, either before the time for performance, or after partial but before full performance, in positive and unconditional terms, refuses to perform further thereunder.
- Where one of the parties repudiates the contract and absolutely refuses to perform the duties and obligations required of him, the other party need not go through the useless act of tendering performance ;
R.E. Davis Chemical Corp. v. Diasonics, Inc., 1987, p.619
- A contract for a sale of medical equipment ; buyer paid deposit ; buyer contracted with another to establish a medical facility where the equipment will be used ; the another breached the contract ; the buyer refused to take the delivery of the equipment or to pay the balance due ; the seller resold the equipment to a third party for the same price
- The buyer sued the seller for restitution of the deposit ; the seller counter for lost profits alleging a “lost volume seller”
- Issue – whether the seller’s damage is measured by (i) the difference between contract price and market price, (here, would be zero), or (ii) lost profits (gross profits – cost), as a lost volume seller, the profit the seller would have made from the transaction
rule
- To award lost profits to a lost volume seller who resold the goods, the seller must prove (i) the seller could have produced the breached units in addition to its actual volume, (ii) it would have been profitable for the seller to produce both units. (DO- assuming without the transaction, it would have produced the unit anyway, and made profit from them)
- 2-708(2) which requires the proceeds from resale be credited againast the amount of damage awarded is not applicable
Reasoning
- the reason to require the seller to prove (ii) is to prevent overcompensation.
- the seller carries the burden because it has easiest access to the relevant data.
A lost volume seller
- a party to a contract whose capacity to sell or to produce the item which is the subject of the contract is sufficiently large enough to meet the demands of all customers. … a lost volume seller has an inexhaustible supply of the goods …. Thus, the seller's only recovery under the UCC is the profit loss due to the volume of sale(s) foregone due to the breach (lost profits).
U.S. v. Algernon Blair, Inc., 1973, <losing contract> p.626
- contract between prime contractor and sub-contractor ; after completion of about 28% of the sub-contract, the prime contractor justifiably refused to pay, which was a material breach of the contract. Because of the refusal, sub-contractor terminated its performance. If the sub-contractor had completed performance, it would have lost more than the payment.
- issue – whether a sub-contractor may recover in quantum meruit the value of labor and equipment already furnished pursuant to the contact, irrespective of whether he would have been entitled to recover in a suit on the contract? (DO- in losing contract, recover in quantum meruit, not on a contract)
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- Recovery in quantum meruit may not be diminished by any loss which would have been incurred by complete performance.
Sec. 3 limitation on damage p.629
Rest § 350. avoidability as a limitation on damages
(1) Except as stated in Subsection (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 Subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss.
In virtue v. bird, <duty to mitigate the damages>
- It was the P’s folly to let the horses stand, for he might have taken his horses out of the cart
Rockingham County v. Luten Bridge Co.,
- D County awarded P a contract to construct a bridge. The D County subsequently adopted resolution declaring that contract was not valid, notified P of the resolution, and directed P to halt construction. Nevertheless, the P continued construction.
- P sought damage for work performed after notice of cancellation.
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- After an absolute repudiation or refusal to perform by one party to a contract, the other party cannot continue to perform and recover damages based on full performance.
Tongish v. Thomas,
- Seller contracted to sell sun-flower seeds to buyer. Buyer made a resale contract which the seller knew about. When market price of the seeds doubled, the seller sold the seeds to another buyer. (the seller was in bad faith, in taking advantage of the doubled price)
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- The buyer was entitled to difference in market and contract price and was not limited to recovering actual loss of profits resulting from seller's breach
- unjust enrichment are threefold: (1) a benefit conferred upon the defendant by the plaintiff ; (2) an appreciation or knowledge of the benefit by the defendant ; and (3) the acceptance or retention by the defendant of the benefit under such circumstances as to make it inequitable for the defendant to retain the benefit without payment of its value
reasoning
- In Allied, … if the seller knew the buyer had a resale contract for the goods, and the seller breached the contract not in bad faith, the buyer was limited to actual loss of damages under section 1-106. 162.
- The similarities between the present case and Allied are that the buyer made a resale contract which the seller knew about. However, in examining the breach itself, in Allied because its crop had been destroyed , in Tongish … took advantage of the doubling price of the seeds.
Parker v. Twentieth Century-Fox Film, 1970, p.638
- Parker, a well known actress contracted with D 21st century fox film, to play the female lead in a motion picture. D film decided not to produce the picture, notified Parker of the decision, and offered to employ P as a leading actress in another film with identical compensation. She did not accept the offer and the offer lapsed.
- Parker sued D film for money due under the contract, and for damages resulting from D’s breach of contract
- D film pleads as an affirmative defense alleging she failed to mitigate damage by refusing the offer.
Rule
- the measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon for the period of service, less the amount which the employer affirmatively proves the employee has earned or with reasonable effort might have earned from other employment.
- the employer must show that the other employment was comparable, or substantially similar, to that of which the employee has been deprived ; the employee's rejection of or failure to seek other available employment of a different or inferior kind may not be resorted to in order to mitigate damages.
Here
- … plaintiff's failure to accept defendant's tendered substitute employment could not be applied in mitigation of damages because the offer … was of employment both different and inferior, and that no factual dispute was presented on that issue
Jacob & Youngs, Inc. v. Kent, 1921, p.645
<cost of replacement = cost of remedying the defect = cost of completing the contract> = what it would cost to complete the contract as contemplated by the parties
(1), rule – cost of completing the contract, coz law gives promisee what he was promised,
(2), exception (i) substantial performance, (ii) defect both innocent and trivial, economic waste
- P was under contract with D to build a home using a specific pipe. P did not use the pipe specified. The omission was neither fraudulent nor willful. It was the result of the oversight and inattention of the P’s sub-contractor. The pipe used was essentially identical to specified pipe.
Rule
- Jacob is a typical of substantial performance - if a good-faith attempt to perform does not precisely meet the terms of an agreement …, the performance will still be considered complete if the essential purpose is accomplished, subject to a claim for damages for the shortfall. ; (i) good faith in performing, (ii) not precisely meet the terms of the agreement, (iii) essential purpose is accomplished,, then,, (i) the performance is considered complete, (ii) subject to a claim for damage for the shortfall
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Here
- The omission (defect) of specified pipe was neither fraudulent nor willful, and the pipe used was essentially identical to the pipe specified. (defect was innocent and trivial)
- Thus, the plaintiff was due payment for substantial performance with compensation for the trivial defect
Groves v. John Wunder Co., 1939, p.648
- D agreed to remove the sand the gravel, and to leave the property “at a uniform grade.” D breached the contract deliberately. D removed from the premise only the richest and best of the gravel. D surrendered the property not at a uniform grade. (DO- neither substantial performance nor in good faith)
- The cost of completing the contract was $60,000 ; the difference in value if the contract is completed, $12,000.
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Outcome
- The D was liable to the P for the reasonable cost of doing what the D promised to do and willfully declined to do, i.e cost of completing the contract
Rest 2d CONTR § 346 comment b
- "Sometimes defects in a completed structure cannot be physically remedied without tearing down and rebuilding, at a cost that would be imprudent and unreasonable. The law does not require damages to be measured by a method requiring such economic waste.
Peevyhouse v. Garland Coal & Mining Co., p.653
- Peevyhouse leased their farm, one of term was to perform specified restorative and remedial work at the end of the lease, it failed to do it, the term was incidental to the main object of the contract,
- Measure of damage for failure of lessee to perform remedial work as required by coal mining lease at end of lease is ordinarily reasonable cost of performance of work (to be done), but where lease provision breached was merely incidental to main purpose in view, and where economic benefit which would result to lessor by full performance of work is grossly disproportionate to cost of performance,,, (then) damages recoverable by lessor are limited to diminution in value resulting to premises because of nonperformance.
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(B), foreseeability p.656
Hadley v. Baxendale , 1854,
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Delchi Carrier Spa v. Rotorex Corp., 1995, p661
Kenford Co. v. County of Erie, 1989, NY, p.664
- the meaning of “contemplated by parties at the time of contract formation” in Hadley - rather than awareness of a certain circumstances, assumption of liability by a party, here, County knew the expectation but not assumed liability ; whether the contract is interpreted as if a party assumed liability at the time contract made
- P sought damages against D County for loss of anticipated appreciation in the value of land which plaintiff owned in the periphery of a proposed domed stadium site ;
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- In determining reasonable contemplation of the parties, consider what liability the D fairly may be supposed to have assumed consciously ; consider what the parties would have concluded had they considered the subject
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Mieske v. Bartell Drug Co.
- measure of damages for personal property, developed movie film, which was destroyed and which could not be replaced or reproduced, would be value to owner and not merely the cost of acquiring film without pictures imposed thereon
- When determining damages based upon value to owner, compensation for sentimental or fanciful values will not be allowed.
(C,) certainty
Fera v. Village Plaza, Inc., 1976,
- P entered into a commercial lease in defendants' shopping center. Defendants breached the lease and plaintiffs sued, requesting damages that included anticipated lost profits (future profit)
- … the measure of damages when a lessor fails to give possession of the leased premises is the difference between the actual rental value and the rent reserved.
- Future profits (anticipated lost profits) are allowed as element of damages for breach of contract, if future profits may be established with reasonable certainty
- Although future profits as an element of damage may be more possible to prove with reasonable accuracy with regard to an “interrupted business” as opposed to a “new business,” new business may recover anticipated lost profits for breach of contract or leas (if prove the anticipated lost profit with reasonable certainty)
