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Chapter 9 I. INTRODUCTION A. Distinction: Distinguish between a suit brought on the contract, and a suit brought off the contract, i.e., in quasi-contract. 1. Suit on the contract: Where the parties have formed a legally enforceable contract, and the defendant (but not the plaintiff) has breached the contract, the plaintiff will normally sue "on the contract." That is, he will bring a suit for breach of contract, and the court will look to the contract to determine whether there has indeed been a breach, and for help in calculating damages. 2. Quasi-contract: But in other circumstances, the plaintiff will bring a suit in "quasi-contract." Here, the plaintiff is not really asking for enforcement of the contract; instead, he is usually asking for damages based on the actual value of his performance, irrespective of any price set out in the contract. Situations where a quasi-contract recovery may be available include: a. Where the contract is unenforceably vague; b. Where the contract is illegal; c. Where the parties are discharged because of impossibility or frustration of purpose; d. Where plaintiff has himself materially breached the contract. A. Two types: Sometimes the court will award "equitable remedies" instead of the usual remedy of money damages. There are two types of equitable relief relevant to contract cases: (1) specific performance; and (2) injunctions. 1. Specific performance: A decree for specific performance orders the promisor to render the promised performance. (Example: A contracts to sell Blackacre to B on a stated date for a stated price. A then wrongfully refuses to make the conveyance. A court will probably award specific performance. That is, it will order A to make the conveyance.) 2. Injunction: An injunction directs a party to refrain from doing a particular act. It is especially common in cases where the defendant is sued by his former employer and charged with breaching an employment contract by working for a competitor. (Example: D signs a contract with P, his employer, providing that D will not work for any competitor in the same city for one year after termination. D then quits and immediately goes to work for a competitor. If P sues on the non-compete, a court will probably enjoin D from working for the competitor for the year.) B. Limitations on equitable remedies: There are three important limits on the willingness of the court to issue either a decree of specific performance or an injunction: 1. Inadequacy of damages: Equitable relief for breach of contract will not be granted unless damages are not adequate to protect the injured party. Two reasons why damages might not be adequate in a contracts case are: (1) because the injury cannot be estimated with sufficient certainty; or (2) because money cannot purchase a substitute for the contracted-for performance. (Example of (2): Each piece of land is deemed "unique", so an award of damages for breach by the vendor in a land sale contract will not be adequate, and specific performance will be decreed). 2. Definiteness: The court will not give equitable relief unless the contract's terms are definite enough to enable the court to frame an adequate order. 3. Difficulty of enforcement: Finally, the court will not grant equitable relief where there are likely to be significant difficulties in enforcing and supervising the order. (Example: Courts usually will not grant specific performance of a personal service contract, because the court thinks it will not be able to supervise defendant's performance to determine whether it satisfies the contract.) C. Land-sale contracts: The most common situation for specific performance is where defendant breaches a contract under which he is to convey a particular piece of land to the plaintiff. 1. Breach by buyer: Courts also often grant specific performance of a land-sale contract where the seller has not yet conveyed, and it is the buyer who breaches. (Example: A contracts to sell Blackacre to B. If A fails to convey, a court will order him to do so in return for the purchase price. If B fails to come up with the purchase price, the court will order him to pay that price and will then give him title.) D. Personal services contracts: 1. No specific performance: Courts almost never order specific performance of a contract for personal services. This is true on both sides: the court will not order the employer to resume the employment, nor will it order the employee to perform the services. 2. Injunction: But where the employee under an employment contract breaches, the court may be willing to grant an injunction preventing him from working for a competitor. The employer must show that: (1) the employee's services are unique or extraordinary; and (2) the likely result will not be to leave the employee without other reasonable means of making a living. E. Sale of goods: Specific performance will sometimes be granted in contracts involving the sale of goods. This is especially likely in the case of output and requirements contracts, where the item is not in ready supply. (Example: P, a utility, contracts with D, a pipeline company, for D to supply all of P's requirements for natural gas for 10 years at a stated price. In a time of tight energy supplies, a court is likely to find that damages are not adequate to redress D's breach, because no other vendor will enter a similar fixed-price, long-term contract; therefore, the court will probably grant a decree of specific performance ordering D to continue with the contract.) A. Three types: There are three distinct kinds of interests on the part of a disappointed contracting party which may be protected by courts: 1. Expectation: In most breach of contract cases, the plaintiff will seek, and receive, protection for his "expectation interest." Here, the court attempts to put the plaintiff in the position he would have been in had the contract been performed. In other words, the plaintiff is given the "benefit of his bargain," including any profits he would have made from the contract. 2. Reliance: Sometimes the plaintiff receives protection for his reliance interest. Here, the court puts the plaintiff in as good a position as he was in before the contract was made. To do this, the court usually awards the plaintiff his out-of-pocket costs incurred in the performance (including preparation to perform) he has already rendered. When reliance is protected, the plaintiff does not recover any part of the profits he would have made on the contract had it been completed. a. When used: The reliance interest is used mainly: (1) when it is impossible to measure the plaintiff's expectation interest accurately (e.g., when profits from a new business which the plaintiff would have been able to operate cannot be computed accurately); and (2) when the plaintiff recovers on a promissory estoppel theory. 3. Restitution: Finally, courts sometimes protect the plaintiff's "restitution interest." That is, the court forces the defendant to pay the plaintiff an amount equal to the benefit which the defendant has received from the plaintiff's performance. a. When used: The restitution measure is most commonly used where: (1) a non-breaching plaintiff has partly performed, and the restitution measure is greater than the contract price; and (2) a breaching plaintiff has not substantially performed, but is allowed to recover the benefit of what he has conferred on the defendant. Note: In contract actions, all three of these measures are used at least some of the time. In quasi-contract actions, expectation damages are almost never awarded, but reliance and restitution damages frequently are. (For instance, reliance damages are often used in promissory estoppel cases where the suit is really in quasi-contract, and restitution is used by materially-breaching plaintiffs who are in effect suing in quasi-contract.) |