Contracts Class Notes 9/11/03


Under the “American” rule, plaintiffs in contract cases don’t recover their attorney’s fees, and thus aren’t truly made whole in some sense.  But you can contract out of this situation.  Are such contracts enforceable?


We start from the proposition that “it’s a free country” and you can contract to do anything you want.  That’s not exactly true: you can’t contract to do illegal stuff.  Well, you can, but the contract won’t be enforced.


This dates back to 1735 when two robbers contracted to split their loot.  The disadvantaged robber sued, and the British court hanged both of them, disbarred their lawyers, and said that “we don’t enforce illegal agreements”.


We used to have laws that made agreements entered into on a Sunday unenforceable.


There are also many other agreements we don’t enforce.  Generally, parties can make any bargain they want, but there are exceptions.


So, to what extent should be police agreements which force a losing party in litigation to pay the winning party’s attorney’s fees?  It varies by jurisdiction.  New York is very into enforcing such provisions, while in Ohio we generally have not enforced such agreements.


As of 2000, under ORC § 1301.21, we authorized attorney’s fees in certain situations.  Though we specifically exclude personal, family and household debts (consumer transactions), there is no protection for business debts.  We also limit enforcement to big transactions (over $100,000).  The regular consumer has “both a belt and suspenders” to keep these agreements from being enforced, since most of their debts are personal and less than or equal to $100,000, except for home mortgages.


So if you finance a big loan, and it’s for business purposes, you may be held to a “loser pays attorney’s fees” stipulation.


When something like this is passed, lawyers who represent creditors in big business transactions get excited and put in lots of these clauses.


If “loser pays” clauses aren’t authorized under this statute, it very likely isn’t permitted.


Freund v. Washington Square Press, Inc.


Freund contracted with Washington Square to publish his book.  Washington Square breached, and Freund sued and got six measly cents in nominal damages.  “Upon where he said, ‘Damn!’”


What were Freund’s claims?


1.     His academic promotion was delayed because the book wasn’t published.  He gets no damages for this because there were no facts to support the claim.  This would go along with the “second rule” of Hadley v. Baxendale, since the damages in regard to the promotion were reasonably foreseeable.

2.     He asks for the amount of money it would take to publish the book.  The trial court gives it to him, but the appeals court says that the cost of the book being published was not what he lost due to breach.  If, on the other hand, he was buying the books from the publisher and the publisher defaults, then the measure of damages the trial court suggested (analogous to a construction contract, the reasonable cost of completion) would be correct.  But that’s not the kind of contract Freund made.  He was going for royalties.  We don’t care about the contract breaker’s expense or gain or anything else.  We only care about the plaintiff’s loss.


What were the plaintiff’s expectation interests?


1.     The $2,000 advance – he already received it.

2.     The royalties from the book – these aren’t established with “reasonable certainty”, and so the plaintiff doesn’t get them.


But wait…in a civil matter, doesn’t the party with the burden of proof just have to prove a preponderance of the evidence?  What’s the deal here?


Chicago Coliseum Club v. Dempsey


The plaintiff wants expectation damages.  It claims that if the fight would have taken place, it would have received $1,600,000 in profits.  The jury is never allowed to hear this.


The certainty principle is a way for judges to control juries.  It is usually accomplished by exclusion of evidence or by jury instructions as to how to deal with the evidence.


It’s another situation in which aggrieved parties end up in a financial situation significantly below the position performance would have done.


Why won’t the court in this case take testimony from Mullins?  The court says that you couldn’t predict what the profits would be.  But couldn’t there be evidence introduced about the effect of weather, the popularity of the fighters, the accessibility of the venue, and the possibility of advance ticket sales?  Clovis says all this stuff is nonsense.


This is a case where the court hasn’t been candid.  The real deal is the racial aspect.  Wills was black and Dempsey was white.  The “powers that be” didn’t want them to fight.  No one knew what the fight would draw because it was between a black man and a white man.  It turns out, though, that Wills was a poor draw.


The gate receipts of Dempsey-Tunney were not relevant because Wills-Dempsey was kind of a mystery.


The idea of certainty is that you must lay an evidentiary foundation for your damages.  The trier of facts must not speculate about the plaintiff’s losses, because that would be unfair to the defendant.  The guess could be way off, and in particular way high.  We put the burden on the plaintiff to prove their damages to a reasonable degree of certainty.  If you can’t or don’t, you don’t recover, even though that will put you in a worse position than performance would have done.


Freund probably could have done better with a better lawyer.  If a good lawyer had presented appropriate evidence, some royalties could have been proven to a reasonable certainty.  Libraries always buy academic books, so you can always prove royalties from the copies libraries would buy.


It’s unlikely that a good lawyer could prove the academic book would sell like a dime-store novel, but you could prove that the book would sell a couple hundred copies and get more than six cents in judgment.


Security Stove


How about Security Stove?  The plaintiff wanted to show his stove at a convention, speculating that they could find a distributor.  The expectation interest is very uncertain.  However, the court still finds that the plaintiff is due damages.


We don’t mean to say that you don’t get any expectation damages.  You just won’t get a windfall.


“The uncertainty principle boils the bullshit out of claims.”


We want to prevent the finder of fact from just “guessing” at losses.  Sometimes, even with the best lawyering in the world, you won’t be expectation damages because they’re just too speculative.


Fera v. Village Plaza, Inc.


In Fera, the plaintiff does prove a large expectation loss without running afoul of the uncertainty principle.  The landlord repudiates a contract to have a tenant occupy a space in his building, and so the tenant never gets to start their business.


General damages, which are easily provable, are difference money damages.


Is Hadley a problem here?  No, there is foreseeability here.  The landlords know something about the kind of business that would have been established in their building.  The damages are foreseeable.


Why weren’t these losses avoided?  Aren’t there other places to establish a “book and bottle shop” in Detroit?  There’s a big mitigation argument against this result.  Also, it’s difficult to say that the damages were proven with certainty.


In practice, what you do is bring in expert testimony, days and days of it, and hope the judge lets you take such testimony to the jury.  Then you hope the jury gives you a windfall.  Once it happens, will the appellate court uphold such a result?  It’s not totally certain.


Fera goes to the verge, or maybe even beyond the verge of what is reasonable.  The result is kind of an aberration.  It goes to show that an aggressive plaintiff is sometimes going to come out with a favorable result.


When you think about “certainty”, think about the necessity of establishing an evidentiary foundation for damages.


The lesser damages that the Club received were based on reliance damages, which are described in the Restatement § 349.


Why would someone choose reliance?  One reason to do so is if you can’t prove your profit with reasonable certainty.  It’s easier to prove your reliance interest with certainty than your expectation interest.


The injured party needs to be put in the position performance would have done.


If the injured party comes into court with a $300,000 hole in its pocket and performance would have put it ahead $1,600,000, you need to award them $1,900,000.


This is like Rockingham County v. Luten Bridge.  You need your lost profit plus the expenses you had spent by the time of repudiation.


Back to Class Notes