Contracts Class Notes 9/25/03

 

So far, we’ve been talking about money damages, which we call a legal remedy, or a remedy at law.  Now we will think about specific performance.  This is done at equity, and we call it an equitable remedy.

 

In Anglo-American law, we used to have two separate court systems.  We had common law courts where we had actions at law for money.  We also had chancery courts that were run by the Chancellor.  These were courts of equity.  Down through the ages, the courts of law did most of the work, but once in a while the courts of equity would step in.

 

The Chancellors and their underlings used to be clerics: bishops, archbishops, cardinals and so on.  The kind of law they did was “churchy”, “preachy” and “religiousitocious”.

 

There were procedural differences between suits in equity and actions at law.  There were no juries in courts of equity.  In courts of law, you have the right to a trial by jury.

 

The remedies are different.  When the plaintiff wins in the cases we’ve considered so far, that plaintiff gets the big dough.  But let’s say you’ve entered a money judgment and the defendant gives up, or appeals and loses.  Then you have a money judgment that is totally final.  How do you turn that judgment into actual, factual money?

 

The judgment is not a court order.  The judge has not ordered the defendant to pay a certain amount of money to the plaintiff.  The judge just enters something into the record that says there’s such and such an order.  The trial judge moves on to the next case.

 

So how do you turn the judgment into money?  Generally, the defendant will just ante up and pay, especially if they have enough cash to just pay.  But what if the defendant doesn’t have enough money to pay the judgment, or try to hide the money they do have?

 

So you get the court clerk to issue a writ of execution so that the sheriff can go out and take the debtor’s stuff for auction so that your judgment might be satisfied.  (Sorta like Pennoyer.)  Actually, first some money from the sale of the defendant’s stuff goes to pay the costs of the sale and court costs.  Then the rest will go towards satisfying your judgment.

 

If you’re a human being that doesn’t have enough stuff to pay a judgment, you’re colloquially called a “turnip” because you can get neither blood nor money from such a vegetable (or legume?).

 

Sanctions in equity are totally different from those at law.  If a judge orders the defendant to do something and the defendant disobeys, the defendant will be found in contempt.  The judge’s prestige is on the line.  So the judge can fine the defendant or put him in jail until he does what you tell him to do.

 

If you have no money and no prospect of ever getting any, you can shrug off a money judgment.  However, if you’re given an order in equity, you may risk getting thrown in jail if you don’t do what you’re told.

 

The standard remedy in cases at law is a money judgment.

 

A purchaser of land has an absolute right to specific performance.  You may also have a money judgment.  However, in other cases, specific performance may be tough.

 

If a money judgment is adequate to do the plaintiff’s work, you’re not going to get specific performance.

 

Why are we so stingy in the Anglo-American system with equitable relief?  In other systems of justice, specific performance is much more common.  Part of the answer is merely historical.

 

For a long time, people have argued that you should be able to choose either specific performance or money damages.  We haven’t listened, though.  What’s wrong with giving the plaintiff a choice?

 

One reason is that court orders are more expensive to enforce than money judgments.  The country that does the most with specific performance in the world is Germany.[1]

 

Another argument that is made is economic efficiency.  We think that sometimes it is efficient to let people break their promises.  Take, for example, Groves v. Wunder.  Groves did not seek specific performance, and if he sought it, it would have been denied.  One reason is that it would have cost Wunder $60,000 to level Groves’s land and only produce a $12,000 increase in value.  There would be a net loss to society of $48,000 if specific performance were enforced.

 

Some economists are big on money damages, although a few think there are at least some cases where specific performance is economically efficient.

 

The courts of equity and courts of law are now unified, but we still have two separate bodies of doctrine.

 

Generally speaking, we are reluctant to move from money damages to specific performance when the former will fulfill the Golden Rule[2].

 

Van Wagner Advertising Corp. v. S & M Enterprises

 

There’s a building in midtown Manhattan where, if you drive out of the Midtown Tunnel, you will see the side of this building.  If you put a billboard there, it will be worth a ton of money.  That advertising space is unique; it exists only one place on the face of the earth.

 

Van Wagner leases space on buildings and set up lighted signs that they lease in turn to their customers.

 

There are some contract interpretation problems, but once the court interprets the contract, it finds that there indeed was a contract and that the landlord was in breach.

 

Van Wagner will definitely get damages, but the question is what kind of damages Van Wagner is entitled to.

 

The trial court denied specific performance, and we find in the higher court opinion that whether to grant or deny equitable relief is “a decision that rests in the sound discretion of the trial court”.  The appellate court will only reverse such a decision when there is an abuse of that discretion.

 

In this case, the appeals court decides that the trial judge did not abuse his discretion, and they will affirm the trial judge’s decision not to grant specific performance.  How come?  It is posited that Van Wagner can get an adequate remedy through money.  S & M was turning around and leasing the billboard space to someone else, so you can evaluate what it would have been worth to Van Wagner.

 

Van Wagner is in the business of leasing billboard space.  They want money.  This case would take on a whole different character if, for example, a church had leased the space in order to keep the space free of advertisements that they found offensive.  That church wouldn’t want money; they really want to control that space.  But Van Wagner is in it for the big bucks, and if we can figure out the right amount of money for Van Wagner, it will satisfy our Golden Rule.

 

If the contract in question involves, for example, a family heirloom, and what you’re after is the thing and not money, specific performance is more likely to be granted.

 

Do we have something in Van Wagner that we can value, or is it so difficult to value Van Wagner’s loss that they need specific performance?  The court says that it’s not hard to get it right, and therefore, money damages should be awarded.

 

One reason for this is that there is an established New York billboard industry that Van Wagner is a part of.  You can compare their profits to those of other billboard companies in the area and figure out just how much money they would have made on the S & M space.

 

Notice that the court allows S & M to break their promise.  The court argues that there would be harm to S & M that would be disproportionate compared to the benefit to Van Wagner.

 

If you are a purchaser in a land case, specific performance is available as a remedy “off the rack” (except in Idaho).

 

UCC § 2-716

 

“Specific performance may be decreed where the goods are unique or in other proper circumstances.”

 

The stated goal of this provision is to liberalize the court’s use of specific performance.

 

There are few reported cases of buyers seeking specific performance.  One reason for this is that the issue never comes up unless the plaintiff seeks it, and in many circumstances, you’re not going to seek it.

 

For example, if you contract to have someone build a house and they repudiate, you don’t want to have the court force them to build your house.  In other words, you’re going to be a bit nervous about having people do stuff for you under court order.

 

In all likelihood, you want nothing more to do with the evil contract breaker, and you really just want to get some money out of them.  On the other hand, you could sue for specific performance as sort of an arm twister in order to get more money.  You can get the order and then negotiate to settle.

 

Curtice Bros. v. Catts

 

Why is specific performance asked for here?  There is a contract for the sale of tomatoes.  Why are money damages not an adequate remedy?  How would you measure money damages?  You would take the difference between the market price and the contract price and Curtice Bros. could just buy the tomatoes elsewhere.

 

Here, there’s sort of a collective action problem.  If Catts is allowed to break his promise, it sort of means that all the tomato growers who supply Curtice Bros. could get out of performance.

 

But why couldn’t Curtice Bros. prove their lost profits if their production is curtailed?  Sure.  That would be a lot of money.  But Catts wouldn’t be good for that much money.

 

Note that the court need not affirmatively order Catts to sell his tomatoes to Curtice.  The court only needs to negatively order Catts not to sell his tomatoes to anyone else.

 

When we decide between equitable damages and money damages, we want to choose the one that does the best job of guaranteeing the aggrieved party’s expectation interest.

 

Only when the remedy of equity is clearly superior to the remedy of law will we impose equity.

 

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[1] “I’m partly German, so I suppose I’m entitled…they’re domineering sons-of-bitches!”

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