[1] On the date of delivery
Contracts
Class Notes
Last Friday, we were talking about the handout problems and we went through the
first five.
The
amendments to Article 2 of the UCC mentioned in the green book were recently
adopted by the ALI. The sponsoring
organization will put out a final version of the new language for states to
consider by the end of the calendar year.
It will be 8 or 10 years before the new UCC is enacted in all 50
states. We may occasionally make
reference to changes that are upcoming.
When
you look at statutory changes, new things are underlined and old things we’re
getting rid of are struck out. The new
Article 2 of the UCC is not revolutionary.
Article
1 of the UCC
The
new Article 1 has only been passed in
When
we talk common law, we’ll make reference frequently to the Restatement (Second)
of Contracts. This is in the green book
too. You’ll find the “black letter law”
in bold type. You’ll see some of
the comments in the green book, but not all of them. There are more comments in the complete three
volume version that you can find in the library. These comments sometimes include hypotheticals
you can use to help you understand the statutes.
This
problem is very much like what we studied in Acme Mills. In 1909, the case was governed by common law,
but today, the same situation would be governed by the UCC. However, by and large, the UCC matches up with
common law because it has its roots in common law.
In
the first case, the Dealer can’t recover.
§1-106
says to read the UCC liberally with an eye toward making the plaintiff as well
off as he would be if the contract had been performed.
§2-711
gives the buyer some options for when the seller repudiates the deal.
Under
§2-713, the buyer can get as damages the different between the market price
when the buyer learned of the breach and the contract price.
Damages = Market Price
– Contract Price[1]
Under
this calculation, you actually get a negative number for the damages in this
factual pattern. You only get nominal
damages.
We’re
dealing here with a fungible good.
Wheat is wheat is wheat. If we
were dealing in some sort of unique good that isn’t readily replaceable
on the market, the case would come out differently.
Now,
let’s change the facts. What if the
market price on the delivery/repudiation date had been higher than the contract
price? Then the buyer could recover the
difference. By the equation above, you
would now have a positive amount of damages.
Instead of getting my wheat for $30,000, I have to go out and buy it for
$35,000. I deserve $5,000 in damages in
order to get into the financial position that performance would have done.
Now
let’s change the facts again. Say we had
the original market price on the delivery date, but the buyer had put $5,000
down some time before. We need to
disgorge unjust enrichment. The seller
has $5,000 and hasn’t done squiddley-squat[2]
to earn it. Phooey on him! No soup for you!
What
does Article 2 have to say about this?
In §2-711, they pass along the common law requirement of restitution damages
without really explaining it.
So
this is how Article 2 works. It usually
leads to the same results as common law does, but it’s simpler and more uniform
across the states than common law. So
yay UCC!
Louise Caroline Nursing
Home, Inc. v. Dix Constr. Corp.
The
builders quit building the nursing home in the middle of construction for no
good reason. The builders are in breach.
How
will we measure the damages the owner suffers?
One
measure of damages is reasonable cost of completion minus the unpaid contract
price. This is what the auditor came up
with, and it was upheld by the Supreme Judicial Court of Massachusetts.
The
owner (the nursing home) was trying to get the market value of the building as
promised minus what it was worth at the time it was abandoned (half-baked) and
also minus the unpaid portion of the contract price.
Let’s
consider this with some numbers. Say the
contract price was $500,000 of which $200,000 has already been paid. Say also the value of the half-baked building
is $250,000 and the market value of the building as promised was $600,000. Let’s also say it would cost $275,000 to
complete the building.
So
the nursing home owner would want $600K minus $250K minus $300K. The court instead rules that the nursing home
has $250K of value in the pocket and they’ve only paid $200K for it, so there’s
no loss. Or in other words, there was
$300K unpaid and it would have cost $275K to finish the building properly, no
there’s no damages.
Our goal is to put the
aggrieved party in the same position performance would have done and no more
than this.
Or
in other words, be careful to do no more than compensate.
There
is no proof given by the owner that there was a cost for delay. Therefore, you won’t recover on the
delay. It either got done or could have
been accomplished within the original time promised.
The
principle of substitution says that replacement cost puts a ceiling on
loss.
Louise
says that they should have their $100K benefit of the bargain, but the court
says they can’t have it because they can finish their $600K nursing home for
less than the original $500K.
Illinois
Central R.R. v. Crail
Here
we have a carrier versus a shipper. The railroad
promised to deliver a certain amount of coal, but the railroad messed up and
lost some of the coal. They promised to
deliver 88,000 pounds, but they were 5,500 short. The thing is that coal is fungible, and you
can replace it at market price.
However, there are two
markets for coal. This case says that
when you use market price to determine replacement cost, you use the price that’s
relevant for the loss. For example, who
was the aggrieved party in Illinois Central? It was the dealer. Where does Crail buy coal? He buys from the wholesale market. Therefore, you use the wholesale market price.
Say
you’re a homeowner. Then you probably
use the retail market because that’s what’s available to you. We measure your loss by that price.
Why
would anyone litigate all the way to the Supreme Court over such small amounts
of money? Why is this rule important?
Is
this something that happens repeatedly?
Sure. This happens to the railroad
all the time. The railroad will benefit
from this ruling every day.
Crail
was actually the representative for a trade association of shippers.
A
lot of people think this case was wrongly decided: they say it makes it harder
to settle these matters than if the Court had reached the opposite result. The rule the shippers wanted was that the damages
would be the exact cost to replace the goods in the market at precisely the
time and place the goods were supposed to be delivered.
We
have a deep opposition in our legal system to giving more than the actual
loss. We will go to considerable effort
to make sure we’re giving compensation and no more.
Tomorrow,
we’ll look at Watt, Rockingham County, and Parker.
