Contracts
Class Notes
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.
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
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?
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
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.