Contracts Outline 4 - Negotiations, Indefiniteness, Duty to Bargain in Good Faith, Remedies, Study notes of Law

Download Contracts Outline 4 - Negotiations, Indefiniteness, Duty to Bargain in Good Faith, Remedies and more Study notes Law in PDF only on Docsity! Fall 2003 Contracts – Professor Dawson us.docsity.com Negotiations, Indefiniteness, Duty to Bargain in Good Faith (p.541 – 586) Classical contract law: expressions were viewed as either offer-and-acceptance or preliminary negotiations. A binary characterization, either had immediate legal effect or no legal effect at all. Modern contract law: Restatements and UCC allow for much more uncertainty before voiding a contract Restatement: have to tell when breach occurs and have appropriate remedy [§33] UCC: does not fail for indefiniteness if parties intended to be in contract Necessary Terms: 1. Parties to the contract 2. Subject matter of the contract 3. Time for performance 4. Price Courts will supply a missing term when: • Parties intend to leave term to reasonable implication – both manifest an intent that a reasonable term will apply (UCC, don’t have to supply a price) • Agreement to Agree – agree that term will be determined by a future mutual agreement • Indefiniteness cured by performance – action/performance can fill the missing term (course of performance) Implication of Reasonable Terms: • UCC: will supply price, place for delivery, time for shipment or delivery, time for payment, etc. • Implied obligation of good faith o Behave in way that is consistent with other party’s reasonable expectations o Interference with or refusal to cooperate in other party’s performance o Obligation to act affirmatively (best efforts, exercise its discretion) o Output and requirement contracts • Usually will NOT supply a duration for employment contracts • Parties must have manifested an intent to enter into a contract. If important term(s) are missing, courts may conclude that there was never a manifestation of mutual assent. • Terms must be certain enough to determine breach and remedies ACADEMY CHICAGO PUBLISHERS v CHEEVER (1991) [validity of contract] Widow of author John Cheever entered into contract with publishing company to publish his short stories. Project turned out to be bigger than the widow wanted and she wanted out of the contract, said terms were too indefinite. Publishers sued her for lost profits (how prove?). Fall 2003 Contracts – Professor Dawson us.docsity.com - Trial court wrote the contract terms for the parties (not what they are supposed to do); courts can supply a missing minor term, but cannot write the contract for the parties - Must have meeting of the minds or mutual assent as to the terms of the contract - “language of the agreement lacks the definite and certain essential terms required for the formation of a contract” - publishing contracts are probably structured this way for a reason – a creative product, difficult/ineffective to put strict limits, page numbers, or deadlines; this is likely a type of “form” contract in the field - This contract lacked lots of terms – 204 provides for the court providing a term, not lots of terms - Even though parties acted as if they were in a contract, court is now saying there was never a contract b/c terms were too indefinite to determine what breach or remedies would be [§33(2)] - §204 – court could supply term, but there are too many uncertain terms - a fine line b/w drafting contracts that are too fixed (have to have some flexibility) and being too uncertain; a line we cannot draw until after the fact R § 204: Supplying an Omitted Essential Term When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court. R § 33: Certainty (1) Offer cannot be accepted to form a contract unless the terms of the contract (offer) are reasonably certain. [offer has to be certain to open power of acceptance] (2) The terms are reasonably certain if they provide a basis for determining when there is a breach and what the remedy would be. [*most applicable to this case] (3) If one or more terms of a proposed bargain are left open or uncertain, it may show that a manifestation of intent is not intended to be offer and acceptance. R § 34: Certainty and Choice of Terms; Effect of Performance or Reliance (1) The terms of a contract may be reasonably certain even though it empowers one or both parties to make a selection of terms in the course of performance. (2) Part performance under an agreement may remove uncertainty and establish that a contract enforceable as a bargain has been formed. (3) Action in reliance on an agreement may make a contractual remedy appropriate even though uncertainty is not removed. - UCC is much more liberal, contracts do NOT fail for uncertainty or indefiniteness as long as parties intended to make a contract. - If parties act like there is a contract, under UCC courts do best to keep it going UCC 2-204 Formation in General (1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract. Fall 2003 Contracts – Professor Dawson us.docsity.com § Benefits = the costs/expenditures the Π saves by not having to complete contract o Allocation of overhead is usually not included in “benefits” b/c a fixed amount and is not really saved by not having to perform contract o Cost of completion vs decrease in value: § has to be proportionate (Peevyhouse) § no economic waste (when have to destroy what has already been done to repair minor breach, Jacobs & Young) • deprives owner of right to get what he bargained for § If breach is willful (in bad faith), courts are more likely to award cost-of- completion over diminution-in-value § Cost-of-completion awards makes most sense in construction contracts • Π has to prove expectation damages with reasonable certainty o Profits from new business o When profits would be based on public whim (entertainment and sporting events) o Cost of completion unknown o Non-competition agreements, difficult to prove lost profits o UCC is more liberal on certainty requirement – doesn’t require mathematical precision Reliance Damages: • Used when: Cannot show expectation damages (lost profits) with reasonable certainty, or No legally enforceable contract (promissory estoppel) • A built-in part of expectation damages (cost of work already performed) • Compensation for expenses made preparing to perform or actually rendering part performance • Limited by: o The contract price (prevent windfall for when reliance damages are greater than expectation damages would have been) o Recovery limited to profits – courts usually do not allow reliance damages (expenditures) to exceed expectation (lost profits) damages. Burden of proof is on Δ to show what Πs loss would have been. If Δ can prove that Π would have suffered a net loss on the contract, the Πs recovery is limited to what his expectation damages would have been o Incidental Reliance Damages: not related directly to performing the contract, but made in anticipation that contract would be performed. Courts usually deny recovery of these. o Expenditures prior to signing of contract – not recovered if before contract (not technically in reliance of the contract) • UCC: Doesn’t name reliance damages directly, but allows for: o Incidental damages – includes expenses reasonably incurred in inspection, receipt, transportation, care & custody of goods, reasonable charges/expenses o Consequential damages – if seller has reason to know of the particular loss Fall 2003 Contracts – Professor Dawson us.docsity.com Restitution Damages: • It is the value rendered to the Δ by the Πs performance, regardless of how much it cost the Π. • If performance has no value to the Δ, there are no restitution damages • Goal is prevention of unjust enrichment • A remedy for breach when one party commits a material breach, the aggrieved party has right to rescind the contract and recovery restitution damages • Usually NOT limited to contract price (if benefit to Δ is greater than contract price, Π can recover full value amount) • Restitution is NOT available if Π has fully performed, and Δ owes only money and not some other kind of performance – Π is limited to expectation measure HAWKINS v McGEE (1929) [expectation damages] Furry hand case. Bizarre case, a “warranty” on surgery. MedMal wasn’t an option at this time – couldn't get expert testimony - Consideration in warranty – purchase X for good and promise for certain things o A warranty is a contractual relationship (cross-over with torts) - Jury awarded $3K, judge cut back to $500. Jury instructions were ok for a tort case, but not for a contracts case (contracts doesn’t allow for pain and suffering damages) - Calculate difference b/w value of promised hand and what he got, to put him in as good a position he would have been in if promise was performed (have to apply fictional numbers, can’t get “true” value like in commercial cases) R § 353 Loss Due to Emotional Disturbance Recovery for emotional disturbance will be excluded unless breach also caused bodily harm (then probably a tort case) or the ED was a particularly likely result (e.g., contract for carriage or disposition of dead bodies). R § 355 Punitive Damages Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable. NURSING HOME v DIX (1972, Mass.) [expectation damages] The Π breached the contract by not completing construction within time agreed. But Δ couldn’t prove that there were any damages. - The presumptive remedy is expectation interest – being put in as good as position as would have been in had contract been performed [R§344] - 2 ways of calculating expectation damages: o Π wants Benefit of bargain, difference in final product and what had: value of the building as promised (the completed building); but if Π would get value of completed building, would likely exceed the contractual cost of construction and would then wind up in a better position than if no breach at all. Formula: contract for X (completed bldg), get Y (unfinished bldg), loss is the difference [X - Y = loss] Value of finished bldg – value of unfinished bldg = loss Fall 2003 Contracts – Professor Dawson us.docsity.com o Δ wants difference in Contract price and cost to complete. Since Π completed bldg for same or less amount, then there are no damages. o Loss in value caused by the breach is the general rule, no double recovery allowed PEEVYHOUSE v GARLAND COAL & MINING CO (1962) [proportionate] Unusual circumstances for strip-mining contract. Land owners contracted with Co for them to do lots of work to restore the land ($29K worth of work), but would have increased value of the land only $300. - Jury awarded $5000 (no one knows where that # came from, more like a tort award, K awards are usually closely tied to actual damages – either the $29,000 or the loss in value of $300 – not some # in between) à general damages – an English term, not permissible in US - Issue of bad faith – doesn’t make a difference in terms of law if Δ breached in bad faith b/c parties are allowed to breach. But makes court more willing to award damages to Π if breach was made in bad faith (and juries too); Very subjective. - Court emphasizes that this part of the contract (restoring the land) was merely incidental to purpose of contract. Real purpose was to mine the land. Issue of damages has to be the focus of the contract, not incidental. - Damages also have to be proportionate to loss in value [R § 348(2)(b)] – here, the $29K it would take to repair the damage was clearly disproportionate to the value of the land ($3K) à economic waste – would have to be the focus of the contract if courts were going to enforce R § 348 Alternatives to Loss in Value of Performance (2) If breach results in defective or unfinished construction and loss of value to injured party is not proved with sufficient certainty, he may recover damages based on: (a) diminution in market price, OR (b) reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him JACOBS v YOUNG (case we’re covering later) Judge Cardozo - Involves economic waste of tearing down new house to replace the brand of pipe used. - Cardozo refused to force damages when it was an unreasonable waste and disproportionate to loss in value AIELLO v NATIONWIDE TRACTOR TRAILER Owner breaches by not paying contractor for services completed. - Have to figure out who breached first, b/c then other party didn’t. If Π stopped work because Δ stopped paying, they would not be in breach. - BUT, also have to figure out if not paying was a material breach. If so, then deal is off, Π can stop performance and can sue and recover damages. If not, then Π is in breach for stopping work and Δ can sue.