Contracts
Class Notes
Let
us consider lost-volume sellers. Some
sellers only have one widget to sell. Think
of them as analogous to full-time employees in the labor market. Any job taken when they’re wrongfully
dismissed from a job will mitigate, because it’s something they couldn’t have
done otherwise.
On
the other hand,
What
is the argument against the way the case was decided? Well, did the breach make the second sale
possible? If so, the second sale is
relevant, that is to say, it mitigates.
If it mitigates, the only loss Retail Marine suffers would be the
incidental damages.
However,
if they could have made both sales, they need to recover their lost profit.
Suppose
that Neri asserts that the only reason the second
buyer bought was because the boat was in stock, which in turn was due to Neri’s breach. If it
can be shown that these are the facts, then only Neri
made the second sale possible, and the second sale must mitigate the lost
profits.
How
do we obey the Golden Rule of Contracts, but do it with the minimum expenditure
of time and money? Sometimes it will
depend on the quality of the lawyers on each side.
Notice
in Neri that there’s a problem with messy
language in the statute. UCC § 2-708 (2)
seems aimed at a lost profits recovery, yet it allows for resale. Harris argues that the language in the statute
refers to something called a component seller.
What
is a component seller as opposed to a standard lost-volume seller?
Say
we’re selling a fancy, ostentatious desk to Pompous. He’s going to pay $20,000 for the desk. He puts $2,000 down. The cabinet maker spends $4,000 buying lumber
and starts cutting it such that it won’t be useful for other purposes. Pompous then repudiates. The cabinet maker claims it would have cost
$6,000 more to finish the desk, i.e. it would have cost him $10,000 to make the
desk, and thus he would have made a $10,000 had the contract been fully performed.
The
language in § 2-708 (2) fits in this case.
What is the plaintiff’s recovery?
The
recovery is the plaintiff’s profit ($10,000) plus the allowance for costs
irrevocably incurred ($4,000) minus the payments already made ($2,000) and the
amount the injured party can get reselling the lumber ($1,000). That is, the plaintiff should collect $11,000
in damages.
In
the new version of the section, this confusing clause is eliminated.
A
couple more hypotheticals
Say
we have a car dealer. Does the car
dealer really have an inexhaustible supply of goods?
Say we’re talking about a used car.
A used car is unique in some sense.
“This is the
straight banana!”
If
a buyer repudiates on a used car, it’s more likely that a second sale mitigates
damages, because maybe the next guy would have only wanted to buy that car.
Say
Carl buys a refrigerator that costs $800 delivered. The store sells a lot of refrigerators that
are just like the one they’re selling to Carl.
The store has a virtually inexhaustible supply. Say that $25 is the cost of delivery, $75 is
the overhead cost, and $650 is the wholesale price. Therefore, this is strong evidence that $800
is the market price. If Carl repudiates
on the day before the delivery, neither § 2-706 nor § 2-708 (1) establishes damages
for the seller.
The
store can collect under § 2-709. They
can get their lost profit minus the delivery cost that they didn’t have to
spend. They would collect $125.
Change
the factual pattern: say the repudiation
occurs when the store pulls up at the buyer’s house and the buyer says “Nyah, nyah. I don’t want it.” In other words, the delivery cost is
gone. Now the seller needs to get their
entire profit in damages. Delivery is no
longer a savable cost. So in this case,
they will collect the full $150 in profit.
The
language at the end of § 2-708 (2) doesn’t make any sense for the lost-volume
seller, though it does for the component seller.
Don’t
forget the Golden Rule of Contracts.
When
contract price minus resale price or contract price minus market price is
insufficient to satisfy the Golden Rule, the seller is entitled to their
profit.
Say
we’re in the world of the refrigerator delivery and the lost-volume seller. When might there be no delivery? What about statute of frauds? If there was no contract to buy the
refrigerator, and no money down, the contract may be unenforceable against the
buyer.
It’s
true that at some retailers, they have returns.
That’s not the law, rather, that’s a service that you pay for.
Also,
if you’re buying a big-ticket item, you will not have the opportunity to change
your mind without breach.
This
is a case you need to know by name. This
is probably the most famous contracts case there is.
Hadley
needed to send a shaft to
Hadley
says that because of the delay, the mill had to be shut down longer.
The
contract price for this contract was 2 pounds, 4 shillings. However, the damages awarded were 50
pounds. These damages seem disproportionate. We have a relatively small ticket item (here,
really a service) and the damages are a zillion times the fee.
The
trial judge let the jury decide what damages to give out.
Whenever a trial judge is
referred to as “learned”, he’s about to get reversed.
Why
did this trial judge do what he did? Why
is this trial judge upset? Well, in a
prior case involving the same carrier, it was established that “reasonableness”
should be left to a jury. The judge is
pissed! He was just following precedent!
Keep
the date of 1854 in mind. The law of damages
was created in this period. Between 1840-1870 a lot was written that created our modern
law of contract damages.
What’s
the most important thing in this case?
Baron Alderson says they must state an explicit rule for the jury. This is a total flip-flop from Black v. Baxendale
just seven years before. We’re creating
a much more organized law of damages, and this is one of several cases where we
start doing it. We’re not going to trust
the jury as much as we’re trusted them in the past.
The
recounting of the facts is inconsistent within the case. Yow!
How do we explain the inconsistency?
Those
two statements on p. 69 and p. 71 were written by two different people. The statement on p. 71 was written by the
judge. The statement on p. 69 was
written by a court reporter, and probably not a lawyer. So we might figure we can trust the judge
more than the court reporter.
In Victoria Laundry,
Lord Justice Asquith points out this inconsistency and inaccuracy in the
statement of facts.
Rule
nisi – a ruling
that will stand unless the opposing party can show cause otherwise.
The
rule of Hadley
“Where
two parties have made a contract which [has been breached] the damages…should
be (1) such as may be…considered either arising naturally…from such breach of
contract itself, or (2) such as may reasonably be supposed to have been in the contemplation
of both parties, at the time they made the contract, as the probable result of
the breach of it.”
What
do we mean by damages arising naturally from the usual course of things?
What
about damages that both parties could have contemplated? In modern times, we consider what
consequences the contract breaker could have contemplated at the time of contract
formation.
We
don’t have much use for the second rule in this case. The facts show that the clerk was not told
that the mill was stopped. The defendants
didn’t know the special circumstances.
So what damages arise in the usual course of things when you are late in
delivering a broken millshaft?
The
court asserts that usually when broken shafts are sent off, loss profits
probably won’t occur, therefore, the plaintiff can’t recover the lost profits
here. The court says this happens in the
“great multitude of cases”…but they have no evidence. They merely say it’s “obvious” and assert it.
We
have judges taking over from juries and exercising their own judgment as to
which damages ought to be recovered or should not be recovered. To the extent that you brought the loss on
yourself, you don’t recover. Otherwise,
follow the Golden Rule.
The
court in Hadley says: “We believe you have suffered a loss because of
the defendant’s breach and failure to deliver in a timely way, but we’re not
going to let you recover that loss. We
are going to put you in a lesser position than performance would have
done.”