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Performance Breach And Remedies Outline

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This is an extract of our Performance Breach And Remedies document, which we sell as part of our Contracts Outlines collection written by the top tier of U.C. Berkeley School Of Law (Boalt Hall) students.

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1. Promise based on past services a. Law of Restitution & Unjust Enrichment (or quasi-contract) i. Obligation in the law of unjust enrichment is benefits based (as opposed to obligation in contract, which is promise based/ or trots, which is harm based)

1. Mills v. Wyman (pg 152) - adult son becomes deathly ill and incapacitated, dies. Father writes caretaker letter promising to reimburse. a. The rule . . . . cannot be departed from to suit particular cases in which a refusal to perform such a promise may be disgraceful.

2. Webb v. McGowin (pg 156) - Webb injures self to save McGowin who had negligently wandered into a workspace. Oral promise to pay Webb $15 every two weeks for his life. Executor reneges after McGowin's death. a. Court crafts a rule that justifies the result they want to reach i. Bricken: promise is enforceable if promisor received benefits of a material or pecuniary nature ii. Foster: adds requirement that promise sustained injuries to his person/property in providing the service iii. The rules are question-begging, especially given Mills

3. In each of the above: a. Promise not made as part of bargain, so no contract claim b. Judges believe promises ought to be kept and want to provide legal remedy, but there's no claim under law of restitution and unjust enrichment, no tort. ii. R2 SS 86 basically says a "promise made in recognition of a benefit previously received" is enforceable if the promisor would otherwise be "unjustly enriched."

1. Like SS90, this expands bases for enforcing a promise beyond bargain & uses open-ended criteria that refers to underlying normative consideration (which is to avoid unjust enrichment)


1. Goals a. Put claimant in promised position (expectation principle) b. Minimize cost to defaulter (mitigation principle) c. Remedial simplicity (simple, predictable rules preferred) i. Courts willing to live with results that over/under compensate apparent loss in order to have reliable rules for a general category of cases

2. Problem of Valuation a. Where the problem is valuing the difference between the promised position and the actual position. We know the breach worsened the plaintiff's position, and we must set a value or price on the worsening of his position. i. Choices:

1. Remedial cost 1

2. Loss in market value

3. Estimated actual loss ii. Policy considerations:

1. Remedial simplicity

2. Incentive effects on performance

3. Problem of Causation a. Where the problem is determining what difference performance would have made to the plaintiff's position i. Same policy considerations

4. Restitution a. Benefits based obligation b. Most common claim: plaintiff seeks restitution for a benefit conferred on another as a byproduct of the plaintiff pursuing her own interests c. Estate of Cirsan - City hospital provides 329 days of care for Crisan - who is admitted while unconscious and remains so until her death. i. Implied promise in law and is fictitious (byproduct of using conceptual apparatus of contract to solve a problem of unjust enrichment) d. Mills v Wyman - only allows Mill recovery if Levi's father was under legal duty to care for son e. R3RUE SS 20: i. (1) A person who performs, supplies, or obtains professional services required for the protection of another's life or health is entitled to restitution from the other as necessary to prevent unjust enrichment, if the circumstances justify the decision to intervene without request. ii. (2) Unjust enrichment under this section is measured by a reasonable charge for the services in question. f. Webb v. McGowin - no viable restitution claim because he did not provide a professional service (objective standard, administrability, incentivizing the right people, simplicity of valuation) g. Restitution as an alternative remedy for breach of contract (think of as coupled with doctrine of "reliance as surrogate for uncertain expectation damages") i. Plaintiff's right to resind contract for a sufficiently grave breach and use in restitution for value of performance rendered ii. This suit is not technically on the contract. iii. Algernon Blair (pg 351): contract price and expectation interest are not a limit on the right to recover in restitution.

1. A Contractor who grossly underbid work was allowed to recover damages in restitution for the value of the work though this amount was significantly in excess of contract price. a. Unlike reliance claim iv. No expectancy cap

1. The measure of restitution is the "reasonable value of the performance" rendered, usually the market value of the performance rendered. This is not defined by the contract price. Nor is it defined by the defendant's subjective value. Algernon Blair.

2. Randolph Castle holds D is liable in restitution for labor made available though it did not use the labor. This type of restitution 2


vi. vii.

viii. ix.

claim is not really benefits-based. R3RUE describes it as a claim for restoration. Performance v. preparing to perform

1. Illustration 2 (pg 350): P cannot get restitution of the $40,000 because this was a cost of preparing to perform, the machine was never delivered to D. Similarly, if someone who lives in California takes a job in N, they couldn't recover for time and money spent relocating to NY in a restitution claim. a. Claim in restitution is for the reasonable value of the performance rendered. b. Costs of preparing to perform are recovered c. The $40,000 would be recovered as reliance damages d. Not clear how this line is being drawn generally and in the illustration e. Standard rationale - the $40,000 did not benefit D - does not work because restitution is not benefits based

2. Illustration 5: line between preparing to perform and rendering performance is sometimes obscure Subtract benefits received

1. Algernon Blair: judgment for reasonable value of work done minus payments already receieved. Think of this as netting. Or as claim for counter-restitution. Claim is unavailable if performance is completed

1. Oliver v. Campbell - precludes elective restitution claim if P has finished performance of its part of the contract.

2. R2 SS 373(2)

3. Remedial simplicity: Once the work is completed the contract remedy is straightforward---pay the contract price. If not - restitution and reliance remedies require measuring expenses incurred to date. Breach must be sufficiently egregious

1. Material, total, or substantial

2. Speaks to the purpose of the optional restitution remedy Practical significance of the reliance and restitution claims

1. D hires P to paint house for $1,000. D pays $400 up front. P has spent $700 on the job when D repudiates. P is out-of-pocket
$300. Balance due is $600.

2. If P has completed work at time of breach: a. Contract damages = $600 (balance due)

3. If P's cost to complete work at time of breach is $100 a. Contract damages = $500 (balance due - expense saved //// lost profit (200) + unreimbursed cost incurred (300)

4. If P's cost to complete is $300 a. Contract damages = $300 b. P would break even had he fully performed c. He is out-of-pocket $300, so he should recover $300 to break even d. Can be described either as reliance or expectation e. If no evidence is presented of P's cost to complete 3

i. Describe the $300 as reliance, using P's unreimbursed cost as measure of damages because failure to rpove expense saved means that P's position on breach is unproven ii. Reliance claim relieves P from burden of proving cost to complete/lost profit & gives P lost expenses as proxy f. If P sues for $300 on reliance theory, and D comes in with convincing evidence that P's cost to complete is $500, then P's contract damages will be $100. Balance due - expense saved i. Had D not breached, P would have lost #200 on the job (spending $1200 to make $1000). As it is, P is out of pocket $300. So $100 damage puts P in same position as performance.

5. Alternative restitution claim a. P can elect to rescind contract and sue in restitution in the last case b. Assume P's cost to date equals what D would have paid someone else to do the work, then the restitution claim is
$300. i. 700 (value of work done) - 400 (already paid) c. Restitution disables D (defaulter) from trying to pay less in damages than P's unreimbursed cost by proving that P would have incurred a loss on full performance d. Simplifies litigation

6. Fact change: assume P underbid the contract and he has spent
$1,400 up to the time of breach (which is what D would have paid someone else), with an expected cost to complete of $500. Had D not breached P would have incurred a $900 loss on the job. a. Algernon Blair: P can sue for $1,000 in restitution: value of work done - already paid b. P ends up breaking even c. Odd result? Having breached the contract, D should not be allowed to pay only the contract price. Contractor does work on assumption D would perform. When D breaches, the assumption fails, so contractor is entitled to recover the value of the work done calculated without limitation by the contract price. i. Troubling result from perspective of contract law ii. But arguably follows from framing issue as one of restitution d. Gergen's view: influenced by an observation that in most cases in which a party breaches an advantageous contract it is because there was a dispute about the performance due. This is what happened in Algernon Blair. But this is my own view. R3RUE limits a restitution (qua restoration) claim in cases like my problem and Algernon Blair to the unpaid contract price. So P could recover the balance due 4

of $600 if he proved expenses of $1,000 or more. But P could not recover more than the balance due. The unpaid balance is a simple to enforce cap to limit the windfall P can get from the other party's breach.

7. Optional restitution claim sometimes has punitive aspects, which is why it is only available for a substantial, total, or material breach. h. Defaulter's restitution claim i. Kutzin v. Pirnie (pg 355): defaulting home buyer sues to recover a deposit (similar to Neri). Prior New Jersey common law did not allow defaulting buyer of real property to recover a deposit in restitution. Courts ought not come to relief of defaulter. But..

1. UCC SSSS 2-718(2) and (3) allow the restitution claim. Justification: avoid forfeiture by defaulter and windfall to seller

2. The restitution claim denies the non-breaching party the windfall that would result if they did pay for the performance rendered. This explains...
a. Why a defaulter may not recover more than the contract price in a restitution claim. See US ex rel Palmer Constr. Co. v. Cal State Elec., p. 362. b. And why the seller has the right to subtract contract damages from the amount it pays in restitution. See SS 2718(2). c. The goal is to put the aggrieved party in the rightful position but no better.

3. Burden on breaching buyer to show that allowing seller to keep deposit gives seller a windfall. See also Vines v. Orchard Hill, pg

363. The implication is that if the seller suffered a speculative loss that might equal or exceed the deposit the restitution claim fails. a. Compare UCC SSSS 2-718(2) and (3), which allow the seller to offset only damages that it is able to establish.

4. Restitution not limited to non-willful breach under UCC or Kutzin a. But R.J. Berke & Co., p. 363, and Vines, pp. 363-4 do. b. Berke: withholding performance that is honestly disputed is not a "willful" breach (so Kutzin may turn out the same under this rule: buyers in Kutzin appear to have been advised there was not a binding contract) c. Vines: a justified intentional breach is not "willful." Buyer defaulted on contract for condo because he was relocated. ii. Under both Kutzin and UCC 2-718, buyer may not recover deposit if contract has liquidated damage clause UNLESS buyer can establish clause is invalid as a penalty clause.

1. Difficult to do when (as in Kutzin), the deposit is a reasonable fraction of the contract price

2. It is impossible to invalidate a liquidated damage term if the party holding the deposit can point to a speculative loss that might justify them keeping the deposit iii. Split on authority on whether willfulness is relevant and what makes breach "willful" 5

1. Disgorgement and availability of remedial cost as damages when loss in market value is significantly less.

2. Expected: willfulness of breach matters if non-breaching party is predictably harmed in ways damages will not compensate

3. But also not surprising that court is excusing intentional breach in response to changed circumstances, especially if (as in Vines), other party has not been harmed by the breach or harm can be compensated by withholding party of the deposit i. Osteen v Johnson (pg 348): Ps paid D $2,500 to produce and promote a record of songs written and performed by their daughter. Claiming breach, Ps seek restitution. i. Listing another artist as co-writer is not material breach; failure to press and mail out second record is. ii. Defendant entitled to restitution for the work he did do on the record.

1. Presumably court believed giving plaintiffs money back would result in windfall

2. Restitution would not be justified if you thought the value of the contract to the plaintiffs depended on the production and distribution of both records.

3. Restitution and counter-restitution claims are being used to compensate the plaintiffs for an otherwise immeasurable loss, while not giving them a windfall or imposing forfeiture on the defendant, and in a way that resolves doubts against conscious or bad faith breach iii. Court could have reached the same result by giving the plaintiffs a disgorgement remedy for the defendant's saving from not producing the second record. iv. Position of the Restatement: the defaulter may recover only if his performance actually enriches the other party

5. Reliance-based theories of obligation or recovery a. Surrogate for speculative expectation damages b. Basis for enforcing a gratuitous promise c. Basis for overcoming the statute of frauds (generally not accepted in US, but generally essentially what are reliance damages are available under the nominal heading of restitution for the cost of performance rendered) d. Basis for making an offer irrevocable (Drennan) e. Basis for recovery if contract is too indefinite to be enforced as a contract i. Not problematic if D broke his indefinite promise (ex: seizing on an open or unresolved term to weasel out of bad deal): while the promise is unclear, D clearly broke his promise ii. Why should reliance damages be recovered if the indefiniteness of the promise makes it impossible to say D broke his promise

1. Hoffman v. Red Owl (CB 573): negotations between H and RO broke down when RO demands that $13k be contributed by his father-in-law take the form of a gift rather than a capital contribution or loan (after RO's credit manager demanded H put
$26k of his own capital in the store). Timeline: RO's rep L repeatedly assures H $18k would be sufficient capital, L recommends H run a small grocery store to get experience, L recommends H sell the grocery to have his capital ready, L 6

reassures H $18k is sufficient, L tells H everything is all set, advising H to pay $1k for option on Chilton site, RO tells H everything is ready to go. RO's argument is that the agreement is fatally indefinite. a. L misled H about his prospects for getting a store, specifically regarding the capital. Not in bad faith though. L did not think he had promised H a store because he knew he did not have that authority. But H probably thought he had been promised a store. b. Jury Instruction: whether RO made representations to H. c. RO would have had better chance with jury instruction CACI no. 306 Unformalized Agreement: D contends that parties did not enter into a contract because the agreement was never written and signed. To overcome this contention, P must prove both of the following: i. That the parties understood and agreed to the terms of the agreement, and ii. That the parties agreed to be bound without a written agreement (or before a written agreement was prepared) d. CACI instruction prods jury to rule for RO because there were no unresolved terms, and puts focus on whether RO agreed to be bound e. Held: (WI SC) - a claim based on promissory estoppel is available even if a contract is not sufficiently definite to be enforced as a contract. i. Neiss v. Ehlers (pg 582) makes same point. ii. Promissory estoppel can be used to overcome a defense of indefiniteness as well as a defense of want of consideration.

2. Grouse v. Group Health Plans (pg 104): Elliott offers and Grouse accepts an at-will position at Group Health. Grouse gives notice at current job and declines position elsewhere. Elliott told by superior to do background check on Grouse and she can't get required positive references. Elliott tells Grouse position has been filled with someone else. a. Minn S Ct: there is an implied promise (Grouse had the right to assume) he would be given a good faith opportunity to perform his duties to the satisfaction of respondent once he was on the job.

3. D&G Stout, Inc. v. Bacardi Imports (pg 40): General is a distributor for Bacardi & Hiram Walker. Both relationships are atwill. General's owners pass on an opportunity to sell the company to National after Bacardi assures them it is committed keeping them as distributor. The same afternoon that Bacardi gives General its finale assurances, and the owners of General pass on the National deal, Bacardi pulls the distributorship. The loss of Bacardi has a devastating effect on people's confidence in General. Hiram Walker quickly pulls its distributorship from 7

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