Contracts
Class Notes
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
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
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.
The
defendant promises to lend his land to the plaintiffs for a year. The plaintiffs travel from
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.