Contracts Class Notes 9/26/03


In what situations will equitable relief be granted?  In general, you’ll get equitable relief when money damages are inadequate.  For example:


·        Land contracts

·        Family heirlooms

·        Stuff that is in short supply


There was a contract clause in Manchester Dairy that expressly provided for equitable relief that was found to be ineffective.  You can’t write the words “this contract can be specifically enforced” in the contract and give those words any weight.  Only the courts can give you equitable relief.


In the new version of UCC § 2-716(1), we’re going to allow specific performance clauses in contracts other than consumer contracts.  This is really new, and it’s contrary to a whole lot of standard thinking.  If this gets enacted, we’re not sure how courts of equity will react.  This would constitute a big expansion of freedom of contract.


In the commentary to the current § 2-716, we learn that specific performance is enforced most typically in output and requirements contracts.


Laclede Gas Co. v. Amoco Oil Co. involves a requirements contract, while Eastern Rolling Mill v. Michlovitz involves an output contract.


These are commercial contracts that provide good cases for specific performance.  We will give specific performance when it is a significantly better remedy than money damages.


One reason we’ll do this is that we don’t know the quantity that has been agreed to be bought and sold in the contract for a long time.  We won’t know by how many units the defaulting seller has defaulted until the end of the whole extended contract.  If we make this aggrieved party wait until the end of the contract, we will burden them.


In contracts like this, prices may vary over time.  A long term contract is not often made at a fixed price because this can be risky.


There are a lot of things we won’t know about these long-term contracts until the end of the contract period.  Therefore, if we want to construct fair damages before the contract would have been up, the damages may be quite uncertain.


We don’t want to make the buyer sell their stuff at a “conjectural” price.


Note that in both of the above cases the breaching buyer is a big company that is well able to absorb the cost of specific performance.


How do you tell what is a cover purchase and what is not?  It’s tricky to tell.  Because this causes problems in money damages remedies, this can be an additional argument for specific performance.


Contracts for the sale of land


An aggrieved buyer of land will pretty much always be awarded specific performance, that is, they’ll get the actual land they contracted for.  This is a pretty hard and fast rule, except for Idaho.[1]


How come?  Each piece of land is unique.  That being said, there are good substitutes for a given piece of land in other pieces of land.  Even so, one lot is different from another.  Different lots are near different people, different streets and different businesses.  Different lots have different scenic views.


So we allow specific performance and we don’t have to expend a lot of resources finding out if the legal remedy is adequate: equity is an off-the-shelf, accepted remedy for land contracts.


That’s not to say that there aren’t other kinds of remedies you can use, for example:


1.     Money damages: if the seller breaks their promise to sell you land, you can attempt to collect the market price less the contract price.  It might be difficult, however, to prove the market price.  Another problem, given that land deals are major, big ticket transactions, it may be unlikely that the defaulting seller will be able to pay.

2.     Specific performance against the seller: make the bastard give you the land!!!  You can’t make someone do something impossible, even by force.  If the land is already out of the seller’s hands, they can’t give you the land anymore.

3.     Specific performance against the third-party purchaser: make the bastard that the bastard sold the land to give you the land!!!  The third party purchaser didn’t particularly break a promise he made to you.  When a land contract is formed, because specific performance in favor of the purchaser is automatic, we say that the purchaser has equitable title to the land though the vendor has legal title to the land.  This “split” ownership continues until the contract is performed.

4.     Sue the vendor for a substituted asset: it’s easier in this case to prove what the third party paid than it would be to prove the market price.


Third party purchaser


1.     Paid value

2.     Good faith

3.     Was on notice


I don’t know what that means, but I thought I should write it down.


There’s a statute of frauds issue here.


You are not enforcing a promise on the third party, but rather enforcing your title.


When you have three parties in a situation, it’s much more complicated then when you just have two parties.  The bad guy should end up with the loss and the good guys should come out okay.


This is quite different from Acme Mills.


Isn’t this stuff more in the realm of Property?[2]


It’s been a long time since Prof. Clovis has said “squiddley-squat”.


Fitzpatrick v. Michael


Mr. Michael hired Ms. Fitzpatrick to be a nurse, chauffeur, companion, and so on.  He promised to pay her $8 a week and then give her a bunch of his stuff upon his death.  His relatives “poison his mind” and he tries to kick her out of the house.


The plaintiff has difficulties in getting her stuff.  There is a statute of frauds issue because Michael has promised her a “life interest” in his land, and you can’t orally promise to sell someone land.  There is other stuff that is promised that does not fall under the statute of frauds.


It’s not a written promise; it’s an oral promise.


She may have a statute of frauds problem with the cars.  It is a promise on Michael’s part to sell goods, but it’s hard to tell what the price was.  If the price of the cars was over $500, there is a statute of frauds problem with respect to those big-ticket (for 1939) goods.


So the remedy at law is just about as inadequate as can be.  The contract is mostly within the statute of frauds, and the statute of frauds is not satisfied.  However, the statute of frauds does not cover equitable remedies.  At law, it looks like she can only get restitution.


She gave him value, and he is in breach because he fired her without cause.  But she has received $8 a day and room and board for the time she had worked for him so far.  Probably, therefore, she isn’t going to get restitution.  So that’s not the interest she wants; she wants the expectation interest.  That interest is, of course, much bigger.


The attorney claims that she has partly performed the contract and has received money from Michael, and therefore the agreement is out of the statute of frauds.  However, that’s not exactly what we mean by “part performance” in the case of land deals.  It’s more of a term of art.


When you have an oral contract for land and you pay 10% or 20% of the price, that doesn’t get you out of the statute of frauds.  You cannot enforce the promise if it is a strictly oral contract.


So what Fitzpatrick wants is equitable relief.  She’s not going to get it, even though it is plain that relief at law is inadequate.  So why doesn’t she get relief at equity?


The court says that it won’t force continued association between these people who obviously find each other obnoxious.  We shouldn’t use the power of the government to force two people to associate with each other.  Michael doesn’t want anything more to do with her.  He would have to pay money damages if there weren’t statute of frauds problems, but there is no equitable relief.


One more time: we won’t compel obnoxious personal contact.


Watch out!  This is an employment (or personal services) contract.  There is one kind of specific performance that you are not going to get.  There will never be an injunction forcing an employee to work.  The 13th Amendment forbids ordering someone to work; this would be considered involuntary servitude.


That’s not exactly what’s happening in this case: in Fitzpatrick, the employee wants to force the employer to allow her to work.  In the real world, every day, we force employers to take employees back who they have wrongfully discharged.


Consider, for example, a case where an employer fires someone on the basis of race.  Courts may enforce specific performance where the employer has to take back the wrongfully fired employee and give them back pay.


This is a standard remedy for wrongful discharge under collective bargaining and arbitration agreements.


We will not order an employee to work for an employer.  We sometimes will order an employer to take back an employee.


Back to Class Notes

[1] “There’s always some son-of-a-bitch that doesn’t get the message.”

[2] That is to say, “BOOOOORRRRRINGGGG!”