Contracts Class Notes 9/12/03


We’ll pick up where we left off yesterday and talk more about the hypotheticals.


The Club got reliance damages because they couldn’t prove expectation damages with certainty.  If they had been able to prove lost profit, they should get their profit plus the money they had already spent that is non-savable.


If the Club had spent all their variable expenses, they could have recovered the entire gross revenue from the event, because that’s what they need to get all their lost profit.


Now, let’s say the Club can’t prove what the fight would have grossed to a reasonable degree of certainty?  What if it proves that it has non-savable expenses that it incurred before the breach?


The Club can choose to have its restitution interest, reliance interest, or expectation interest protected.  Frequently, the plaintiff will go for expectation damages if for no other reason than they’re the biggest.  If you can’t prove these damages, you may try to settle for a smaller amount, such that the Golden Rule does not hold.


Note that reliance damages are what are discussed in “Proposition 4” in Chicago Coliseum Club v. Dempsey at 94 in Dawson.


Let’s say either the Club or Dempsey provide proof that, to a reasonable degree of certainty, that the fight would have only grossed $1,000,000 yet the Club’s expenses would have been $1,400,000.  Let’s say Dempsey still repudiates.  If the Club spends $300,000, they will only get nominal damages.  However, if they spend $900,000, we’ll give them $500,000 to get them back to the $400,000 hole they would have had in their pocket if the contract had been performed.


Why, when they have genuine reliance losses, wouldn’t we want to compensate them?


This hypothetical is similar to Judge Learned Hand’s case, L. Albert & Son v. Armstrong Rubber Co., where he says we shall not intentionally put a plaintiff in a better position than performance would have done.  When there is proof to a reasonable degree of certainty of the financial position in which performance would have put the plaintiff, we won’t exceed that.


As an alternative to expectation damages, the plaintiff has a right to reliance damages less any losses that the breaching party can prove.  In reality, it’s usually very difficult for either side to prove to a substantial certainty either a profit or a loss.


If the deal was a big loser, we might not award the plaintiff anything but nominal damages.  For example, in Security Stove, we might have unintentionally put the plaintiff in a better position than performance would have done in the case that their gizmo is a flop.


If Railway Express could prove that Security Stove’s gizmo was going to be a flop for sure, they could pin the damages on Security Stove and show all or most of the plaintiff’s reliance expenditures would not have been recovered if the contract had been performed.


The expectation interest puts a ceiling on the reliance interest.  We shall not put the plaintiff into a position better than performance would have done when we are protecting the reliance interest.


On the other hand, when we’re protecting a restitution interest, we may well put a plaintiff in a position better than performance would have done.


Keep in mind that in Dempsey’s case he wouldn’t have been keen to prove that his fight would have been a big loser since he wants to get generally known as a top draw.


Proposition 2 in Dempsey


“Don’t say ‘prior to’, say ‘before’.  ‘Before’ is what English speakers say; ‘prior to’ is what lawyers say.”


These are damages that the plaintiff wants for money they spent before Dempsey signed on.  The Wills deal was not in reliance on the Dempsey contract.  The Illinois court finds that there’s no recovery.  How come?


If the plaintiffs could have proven their expectation damages, they could have collected on the money they spent before they signed Dempsey.  In other words, these are non-reliance damages that are wasted by the breach.


Boone v. Coe


The defendant promises to lend his land to the plaintiffs for a year.  The plaintiffs travel from Kentucky to Texas in order to farm, and the defendant repudiates.


The plaintiffs don’t seek protection of their expectation interest.  Why?  They would have to show what crops they would have grown and the market price of those crops.  That seems okay.  They would couldn’t establish that they were going to have an extraordinary crop, but a good lawyer could prove they could probably get damages for an average crop.


But the big problem here is the statute of frauds.  They had a contract that was breached, but the contract is unenforceable.  But the question is, what does unenforceable mean?  You can’t recover your expectation interest, but sometimes you can recover other interests.


The plaintiffs’ lawyer tried to show reliance damages.  However, the plaintiffs recovered nothing.  How come?  The defendant didn’t get any benefit.  There’s no restitution interest.  The plaintiffs didn’t do anything that put any money in the contract breaker’s pocket.


The plaintiffs choose not to pursue their expectation interest because it’s blocked by the statute of frauds, and they choose not to seek restitution interest because there is none (the defendant got no benefit).


Remember the Golden Rule.  Due to the statute of frauds, the expectation interest is zero, and the expectation interest is a cap for reliance interest.  Therefore, no soup for you!


Restitution is not the same thing as enforcement.


The statute of frauds never prevents restitution.


A restitution claim is very strong claim.  There wasn’t any such claim in Boone, but if there had been, the plaintiffs would have collected.  A reliance claim is not as strong a claim because it didn’t put benefit into the contract breaker’s pocket.


Would the case be decided the same way today?  Probably not.  The Restatement basically says you can give reliance interest despite the statute of frauds if it’s necessary to achieve justice.  In short, we’d be more flexible now.  To put it another way, we’re going to be vaguer now.  We’ll take a few mitigating circumstances into account, such as the possibility of collecting restitution or other damages.


The restitution interest is strong enough to overcome the Golden Rule.


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